Stark and Uncompromising

On one side is George Osborne. On the other side are Ed Balls and the IMF:

The International Monetary Fund is not usually known for racy language and dramatic press releases. When IMF chiefs come to national capitals, diplomacy is normally the order of the day.

So no one should be surprised that in London this week there was no public repeat of the IMF's previous comments that George Osborne's policies are "playing with fire". But even with more diplomatic language, the IMF's message was stark and uncompromising. And it echoed the warnings Labour has made over the past three years.

Having originally backed the chancellor's fiscal plans, the IMF has now declared that they are a "drag on growth" and risk permanent damage to our economy. It warned that Britain is "a long way from a strong and sustainable recovery", as confirmed by recent lacklustre growth figures that show we now have the slowest recovery for 100 years. And that is why the IMF followed through on what it has threatened to do for almost two years, by finally demanding "near-term support for the economy" with a £10bn boost to infrastructure investment.

In other words, against a backdrop of a flatlining economy and falling living standards, it called for a temporary rise in borrowing this year to kickstart the economy now and help to create jobs and growth for the future – just as Labour is urging right now as part of a more balanced plan that would get the deficit down in the medium term.

Of course there also need to be sensible spending cuts and tax rises to get the deficit down. But as this chancellor is finding to his cost, an unbalanced plan that chokes off the recovery and leads to rising long-term unemployment won't get the deficit down. This failure on growth and jobs is why the government is now set to borrow £245bn more than it planned – not to invest in creating jobs for the future, but simply to pay for the costs of its economic failure.

With thousands of construction workers out of work and interest rates at record lows, there is a growing consensus that investing now in improving our infrastructure – affordable housing, transport, school buildings – would give an immediate boost to the economy, encourage more private sector investment, and give us a long-term return as we strengthen our economy for the future.

This is what Labour would be doing right now – alongside other reforms, including a compulsory jobs guarantee for the long-term unemployed to get people off benefit and into paid work. We need a proper British investment bank to increase lending to businesses, radical reform of our banks, and a decarbonisation target set now for 2030 that would give energy companies the certainty they need to invest in Britain.

The IMF has set down a clear challenge. The question is how the chancellor will respond. But the signs are not encouraging. Osborne didn't stick around to listen to everything the IMF had to say at Wednesday's press conference in the Treasury. And his aides had already told the newspapers a fortnight ago that, whatever the IMF said, he would ignore it and plough on regardless.

After nearly three years of flatlining, the message from ministers is that any growth is better than no growth at all. Of course that's true. But slow growth is nowhere near good enough. It won't make up the ground we have lost over the past few years as other countries have raced ahead.

Nor will sluggish growth get long-term unemployment down, boost living standards, recoup lost business investment or generate the tax revenues we need to reduce the deficit. That is why the IMF said that if we do continue bumping along the bottom, we risk doing permanent damage to the economy.

Faced by a warning that a strong and sustained recovery is far from secure and that the risks are to the downside, a sensible and economically literate chancellor would heed the IMF's advice. Instead I fear that Osborne will once again put his own political pride before the national economic interest. If he does, it will fall to the next Labour government to pick up the pieces.