The trust deficit: Ed Miliband is right to point out the Coalition's failures on borrowing. But will the public buy his alternative plan?

Ed Miliband was asked about borrowing for investment after his speech on the deficit yesterday and began his answer: "I want to be sort of clear about this."

That was an excellent, if unintentional, summary of his message. While it was progress that he devoted a whole speech to the subject of the public finances, the result was that we were only “sort of” clearer about what a Labour government would do.

The inability of Mr Miliband and Ed Balls, the shadow Chancellor, to make a more persuasive argument on the central questions of tax and spending is puzzling. For two reasons: one is that George Osborne’s policy has been such a notable failure; the other is that there is a good economic case for closing the deficit more slowly than the Chancellor proposes.

First, Mr Osborne’s failure. Last week’s Autumn Statement was a remarkable admission of defeat. Having planned to close the deficit by the end of this parliament, the Coalition has so far managed barely to halve it – and a good thing too. Had the Chancellor sought to adjust his plans to meet his original objective, the effects on the economy and on public services would have been appalling.

What is most striking about the Coalition’s record is that it failed even to achieve the more modest targets set by Mr Osborne’s predecessor, Alistair Darling. Labour went into the last election promising to cut the deficit every year (it rose in 2012-13), to halve the deficit by last year (it fell from 10.2 to 5.6 per cent of national income), and to have the national debt falling by 2015-16 (it is expected to rise).

Mr Osborne’s failure makes the case, in part, for our second argument, for a gentler path of deficit reduction in the next parliament. It is impossible to be definite about this, because we cannot know what would have happened otherwise, but it is likely that the sharp cuts announced in the Coalition’s first, emergency Budget helped to choke off the recovery that was already under way. Mr Balls was pretty much a lone voice in 2010, arguing in his Bloomberg speech for the importance of maintaining public spending and avoiding the big rise in VAT, to sustain demand and therefore growth. But he was right then and he is right now. Trying to cut public spending too sharply would be likely to suppress growth and therefore tax revenues, making it harder still to close the deficit.

It is a paradox, then, that Labour has so little fiscal credibility with academic economists or with the wider electorate. Yesterday’s speech was a belated but constructive attempt to close that trust deficit. Mr Miliband made the essential point that the deficit cannot be ignored, although that part of his speech lacked conviction. He said that “higher debt interest payments squeeze out money for [public] services”.

The part of Mr Miliband’s speech setting out the promise to cut the deficit more slowly than Mr Osborne was so lacking in specifics that some of it was nonsense. Balancing the books “as soon as possible in the next parliament” could logically mean cutting more deeply than the Conservatives in year one of a Labour government. And Mr Miliband spoiled his argument by over-egging the Conservatives’ alleged desire to return to 1930s levels of public spending for “ideological” reasons.

That said, Mr Miliband and Mr Balls have a good case. The Labour leader has learnt the lesson of his party conference “walk and talk”, when he forgot to mention immigration and the deficit, by sticking to a prepared text. That text was unspecific but well argued, and succeeded in making Labour’s position “sort of clear”.