ED BALLS admitted Tony Blair’s “third way” failed as he pledged yesterday to forge an economy geared towards ordinary working people.
The shadow chancellor said the Labour government had not foreseen financial risks or the scale of immigration over the past two decades, and the lower-paid had been squeezed as a result.
He proposed action to help non-university educated workers, a crackdown on tax avoidance by big firms, and signalled that a planned corporation tax cut would be scrapped in favour of targeted measures to help smaller businesses.
The intervention came in a speech to the London Business School, as Labour launches a drive to regain the initiative on the key election battleground of the economy.
Mr Balls said he had “sympathy” with the argument that the third way championed by Mr Blair and former US president Bill Clinton did not succeed.
“We did not do enough on skills,” Mr Balls said. “And the failure of all parties, in the UK and all countries in the developed world, to see the coming crisis was a huge error.
“I do not believe that the progressives were wrong in their central belief that a path could be taken between free-market economics and protectionism and isolationism.
“My argument is that the third way did not deliver because the world was changing in a more profound way than any of us anticipated. And new times now demand a new approach.”
Mr Balls said Labour did not foresee the instability caused to financial and tax systems by globalisation.
“Here in Britain, the Labour government ended self-regulation by introducing the Financial Service and Markets Act,” Mr Balls said.
“But while voices in the City and across the right, including George Osborne, argued that we were being too tough on the financial sector, we should have been much tougher still.”
He continued: “Labour mobility has also been much greater than anyone expected.
“Just as hundreds of thousands of Eastern Europeans have come to live and work in the UK and other developed countries across Europe, so too have millions of Mexicans and Latin Americans moved to the United States, and Indians and Chinese to the relative riches of the Middle East – a new global and mobile middle class.
“Additional competition for low-skilled jobs, and increasingly intermediate-skilled jobs, has put great pressure on communities.”
Labour is looking at a number of measures to halt short-termism in the corporate world, including introducing a lower rate of capital gains tax for investors who stay the course and a system of tax reliefs to encourage companies to rely on equity rather than debt.
Saying his party would be “pro-business, but not pro business-as-usual”, Mr Balls confirmed that he intends to push ahead with proposals to overturn a planned cut in corporation tax if Labour takes power next year.
The money will instead be used to fund a reduction in business rates, intended to assist smaller companies.
Labour will look at introducing an allowance for corporate equity to counter the current corporation tax system that treats debt interest payments as a deductible expense.
Mr Balls said: “Such a scheme would offer a strong incentive for long-term investment, building more robust businesses that would be better able to plan for the future.
“We will consult with business and other stakeholders on the case for introducing this reform, and how it might be implemented.”
The coalition has repeatedly cut corporation tax since taking power in 2010, when the rate was set at 28 per cent. It is due to drop to 20 per cent in 2015-16, the financial year that begins in the month before the general election.