Ed Balls: Osborne must change tack and steer towards growth

With the world in turmoil, global oil prices surging and the British economy faltering there is still time for George Osborne to pause before the Budget and ask himself: "Am I getting this right?"

The big mistake would be to weigh that question in terms of headlines, backbench cheers, short-term reaction of the markets, or worse, his 2015 election strategy.

Instead, I would suggest three tests for this Budget: whether it stops the recent rot on growth and jobs; whether it reverses falling living standards; and what vision it sets out for our long-term future.

First on growth and jobs, Mr Osborne says he has no choice but to cut the deficit as hard and fast as possible. I have consistently disagreed: it was a political choice to abandon Labour's plan to halve the deficit steadily over four years. By going deeper and faster than any other major economy Mr Osborne has imperilled the fragile recovery and driven unemployment to a 17-year high. Britain has been left with little flexibility to cope with the economic effect of events around the world such as the Libya crisis, a world oil price shock or the aftermath of the Japan earthquake. With slower growth and more people out of work, it will be much harder to get the deficit down.

So will he have the courage and common sense to rethink his deficit reduction plan? Will he repeat Labour's bank bonus tax to create jobs? Or will he dig the country deeper into the hole of stagnation?

Second, Mr Osborne should recognise his VAT rise is adding 3p to a litre of petrol and adding to inflationary pressures in the economy, forcing the Bank of England to consider a rise in mortgage rates. And it is his decision to give the banks a tax cut this year, while cutting services, tax credits and child benefit for families. They will not be satisfied with a cancelled fuel duty rise and re-heated announcements on income tax. They want – and Labour will demand – clear action to support household incomes.

But there is a third vital test for this Budget. Can Mr Osborne set out a credible vision of where our future jobs will come from? The financial crisis exposed the vulnerability of banks and the over-reliance of the British economy on financial services. And it accelerated the rise of India and China as competitors, not just in low-cost manufacturing, but top-class design and education, and attracting international investment.

The Government has boasted of a "big bang" Budget plan for growth. But what we have seen so far – tinkering with planning laws, reheating failed policies like enterprise zones and rowing back on workers' rights – looks like a damp squib.

We need to rebuild the strength and competitiveness of our banking and financial sector, but on the basis of business models that reward investment and sustainable growth, not short-term risk-taking.

We need a modern industrial policy that supports incentives for technological, green and scientific innovation to flourish, starting with boosting R&D tax credits for small companies. And with too many employers ducking the need to invest in skills, we must ensure every company takes their responsibilities seriously and every employee gets the chance.

I don't claim Labour has all the answers right now – but it is worrying that Mr Osborne shows no sign of even understanding the questions.

Ed Balls is the Shadow Chancellor