David Cameron is guilty of getting his excuses in early, Ed Miliband claimed on Monday, as he mocked the prime minister for asserting in aGuardian article that “red warning lights are once again flashing on the dashboard of the global economy”.
But Miliband was critical after Cameron prepared the ground for gloomy economic news in the chancellor’s autumn statement on 3 December by highlighting warning signs in the global outlook. Citing the prime minister’s Guardian article, written as he left the G20 summit in Brisbane, the Labour leader told MPs: “Today the prime minister tells us that there are red lights flashing in the global economy. I think that is what is known as getting your excuses in early.”
But Cameron added: “It is clear that growth is stalling in the eurozone, that world trade is not developing as fast as it should, that previous fast-growing economies are slowing down and only today Japan entered recession. These warning signs in the global economy show that it is more important than ever that we stick to our long-term economic plan. That is the only way we can secure a better future for our country.”
The prime minister’s warning came as figures released on Monday showed that Japan’s output shrank 0.4% from July to September, raising the prospect of a snap election as the prime minister, Shinzo Abe, attempts to secure a mandate to regenerate the world’s third biggest economy. The cabinet office said Japan’s economy was shrinking at an annual rate of 1.6% – far worse than economists’ forecasts for growth of about 2% a year.
In Europe, the central bank chief, Mario Draghi, said on Monday that figures for the eurozone, which were better than expected, were still dismal and showed more needed to be done to boost growth. He said the jobless levels – particularly for young people – were unacceptably high.
The European Central Bank is expected to ramp up its lending to €2tn (£1.6tn) to support Europe’s ailing banking system and cut the cost of credit. Officials hope cheaper credit will lead to higher spending and increases in wages and prices. Draghi said the central bank for the 18 member eurozone was in the process of lending to corporations and hinted that the policy could be extended to include loans to governments in the currency bloc.
China has also reported a fall in GDP that has affected growth in the region and among major exporters including Germany, Russia and Brazil. The gathering conflict in Ukraine has also spooked markets.
The chancellor said poor global growth showed Britain would be taken “back to square one” if it adopted Labour’s plans to borrow and spend more. But Labour is expecting Osborne will have to confirm in his autumn statement that government borrowing is higher than expected because tax revenues have been lower than forecast. Figures released last month showed that in the first six months of the year, from April to September,borrowing was up £5.4bn on the first half of last year, to £58bn.
Danny Alexander, the Liberal Democrat chief secretary to the Treasury, has served notice that further spending cuts may be required. This warning, coupled with the higher-than-expected borrowing, may raise questions about the chancellor’s offer of unfunded tax cuts in the next parliament.
Miliband sought to increase the pressure on the Tories by contrasting the prime minister’s emphasis on the threats posed by poor global growth and his insistence that Gordon Brown was entirely to blame for the recession in 2008-09.
The Labour leader said: “The prime minister … used to tell us that the problems in the British economy were all to do with the British government and nothing to do with international factors. Now he wants to tell us that on his watch they are all to do with international factors and nothing to do with the British government.”The chancellor faced further pressure on Monday when the Institute for Fiscal Studies reported that the government is due to cut welfare spending by just £2.5bn by the end of this tax year compared with the level in 2010-11. The IFS said that the chancellor’s original plans were due to cut spending by £19bn by 2014-15.
A large proportion (around £4bn) of the higher-than-expected spending is due to higher spending on pensioner benefits, including the state pension, pension credit and the controversial benefits such as winter fuel payments.
Housing benefit has been cut by £2bn. But spending on housing benefit in real terms is £1bn higher in 2014-15 than it was in 2010-11 because the private rental sector has grown faster than expected, with higher private rents, while wages have grown more slowly than expected.
Andrew Hood, of the IFS, wrote: “Mr Osborne wants further cuts to social security spending to help reduce the deficit. He may end up having to make cuts just to stay on track.”