Economics News And Interesting Articles

Although manufacturing output is rising, 90,000 jobs in the West Midlands will prove hard to fill by 2015, warns new study

British manufacturing is at risk of “collapse” due to a worsening skills shortage that will leave thousands of hi-tech jobs unfilled over the next five years, a senior academic warns today.

Prof John Bryson of the University of Birmingham’s school of geography will tell an international conference on wealth creation that although the sector is thriving in terms of output, its future is bleak because of the failure of the education system to produce school leavers and graduates with the right expertise.

According to Bryson’s research, manufacturing produces more now in equivalent value of products than it did in 1966, the peak year for manufacturing employment in the UK. But companies fear their businesses may not survive into the next decade because of their inability to recruit employees with the right expertise.

Bryson, who has been working on the project for five years, said: “Policymakers and government no longer understand British industry. Unfortunately, manufacturing conjures up images of pollution, heavy engineering and industrial decline, but this does not describe the new breed of British manufacturing companies that are constantly adapting to the needs of the customer.”

Despite surveys showing at least 70 graduates chasing every job, Bryson estimates that there will be 90,000 hard-to-fill manufacturing jobs in the West Midlands alone over the next five years.

He claims education is the key to unlocking this problem: “The UK does not place an emphasis on this particular type of expertise and it is not promoted as a long-term career option, as it is seen as low-skilled. The firms that need the skilled labour do not have the capacity to offer training.”

Among examples highlighted by Bryson is Hudson’s of Birmingham, whose Acme Thunderer whistle have been blown by generations of football referees. Constant innovation means it produces new whistle designs every year, competing successfully with Chinese producers. He also cites a jewellery firm employing a 75-year-old, because there was no one else with the skills to do the job required.

UK manufacturer Dyson, which produces vacuum cleaners and other electrical products, recently announced plans to recruit 350 new staff to double the number of its UK engineers to 700.”It’s the specialists – motor engineers, mechanical engineers, etc

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Australian treasurer Wayne Swan hailed the growth as ‘an outstanding set of figures’

Australia’s economy grew at its fastest pace in three years in the second quarter as demand from China and elsewhere in Asia boosted exports of iron ore and other commodities.

The figures released Wednesday show the economy expanded 1.2% in the April-June quarter from the previous quarter, accelerating from revised growth of 0.7% in the first quarter.

Australia weathered the global economic downturn better than most developed countries, helped by a A$42bn (£24bn) stimulus package and China’s ravenous demand for raw materials.

Bob Cunneen, senior economist with AMP Capital Investors, said the numbers were surprisingly robust.

“This sort of GDP result is exceptional and won’t be the rule, but it also underscores how well Australia is doing with the China growth story,” he said.

Australia’s S&P/ASX 200 stock index jumped 1.9% to 4488.20, outpacing gains in Asian markets.

Treasurer Wayne Swan hailed the growth as “an outstanding set of figures”.

“It’s a strong outcome when you consider the shaky conditions that exist in countries like the United States and in Europe,” Swan told reporters. “Finance ministers elsewhere and prime ministers elsewhere would kill for a set of outcomes such as these.”

The Australian Bureau of Statistics figures also showed that gross domestic product (GDP) – the value of all the goods and services produced by the economy – rose 3.3% for the year through June.

The statistics bureau said second quarter growth was driven by a 5.6 % increase in exports and a 1.6 % rise in household expenditures. Construction, mining and professional and technical services also increased production in the second quarter.

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The manufacturing figures provide further evidence that the British economy is losing steam after surprisingly strong growth in the second quarter

New orders booked by British manufacturers slowed sharply last month, pushing industrial activity to a nine-month low.

The Markit/Chartered Institute of Purchasing and Supply monthly manufacturing index dropped to 54.3 in August from a downwardly revised 56.9 in July. This was the lowest level since last November, although it remained above the 50-mark which separates growth from contraction.

A sub-index measuring new orders plunged to 52, the lowest since June 2009, from 58.5 in July. It was the biggest one-month fall in more than six years.

“The expected slowdown in the UK manufacturing recovery from its highs earlier in 2010 is underway,” said Rob Dobson, senior economist at Markit Economics. “Taken alongside the eurozone figures published today, it looks as if a broad industrial slowdown is occurring across much of the EU.”

The equivalent manufacturing survey for the eurozone hit a six-month low in August. In the US, the Institute for Supply Management releases its August manufacturing index at 3pm London time.

The figures provide further evidence that the British economy is losing steam after surprisingly strong growth in the second quarter. It grew by 1.2% between April and June, the fastest pace in nearly a decade, thanks to a pick-up in the construction industry, companies rebuilding their stock levels and strong household spending.

“There is further support here for the view that the rapid growth in the economy seen in the second quarter – to which industry made a strong contribution – will not be sustained in the coming quarters,” said Jonathan Loynes, chief European economist at Capital Economics.

Alan Clarke at BNP Paribas concurred. “The services side of the economy is likely to be equally disappointing. Overall, these surveys are reinforcing the case that the strength of second-quarter GDP was a blip. We will be lucky to see half that pace of growth during the third quarter (more likely 0.4% in our view) and the pace of growth looks likely to grind to a halt around the turn of the year.”

On the other side of the Atlantic, growth has already slowed sharply. US Federal Reserve officials were divided at their last meeting over whether they should resume purchases of Treasury bonds to stimulate the economy and what impact the move could have, according to minutes released last night. The Fed’s policymaking committee decided to reinvest money from maturing mortgage securities in government bonds by a nine-to-one vote, but this masked wider disagreement between committee members.

On Friday, the Fed’s chairman Ben Bernanke said he stood ready to prop up the fragile economic recovery if needed as he conceded growth had been weaker than the central bank had expected.

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Why is speed-dating similar to buying jam? Both involve a consideration of several options, but having a greater choice doesn’t always lead to a better decision. Or indeed any decision at all.

These are some of the findings of Sheena Iyengar who explains them in her latest book The Art of Choosing. She joins columnist Julian Glover and Andrew Lilico, chief economist at the Policy Exchange thinktank, for a discussion of choice and the role it plays in business, politics and our day-to-day lives.

We also hear from Renata Salecl whose recent book Choice argues that with greater choice comes greater stress, and that every decision comes with a sense of loss.

As the new government sets its policy wheels in motion, we ask: is choice in public services what people want? And does it lead to better services?

What do you think? Leave your thoughts below. Or don’t. It’s your choice.

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Conservatives say the former PM’s memoir offers a clear endorsement of the coalition government’s plans to cut the deficit

The Conservatives today claimed an unlikely ally in Tony Blair after the former prime minister warned in his memoirs that campaigning against “Tory cuts” would consign Labour to the political wilderness.

Two ministers said Blair’s comments amounted to an endorsement of the government’s determination to tackle the budget deficit.

In his memoirs, published on the day the first votes were cast in the Labour leadership election, Blair warns that Labour faces defeat at the next election if it abandons New Labour values.

He also describes his successor, Gordon Brown, as brilliant but “maddening”, and reveals that he came to the view that Gordon Brown would be a disaster as prime minister.

In comments which the Conservatives see as a clear endorsement of their plans, Blair writes in his book, A Journey: “The danger now is this: if governments don’t tackle deficits, the bill is footed by taxpayers, who fear that big deficits now mean big taxes in the future, the prospect of which reduces confidence, investment and purchasing power. This then increases the risk of prolonged slump … if we fail to offer a convincing path out of debt, that failure in the global economy of 2010, as opposed to that of the 1930s, will itself plunge us into stagnation.”

Blair counters the consensus view among Labour’s leadership candidates that the government is trying to cut the deficit too quickly and putting the economy at risk.

Blair, who led the government until 2007 before making way for Brown, says the party should accept that from 2005 onwards Labour did not sufficiently tackle the potential deficit. He goes on to warn: “If Labour simply defaults to a “Tory cutters, Lib Dem collaborators” mantra, it may well benefit in the short term; however, it will lose any possibility of being an alternative government. Instead, it has to stand up for its record in the many areas it can do so, but also explain where the criticism of the 13 years [of Labour rule] is valid. It should criticise the composition but not the thrust of the deficit reductions.”

Blair says Labour’s election defeat under Gordon Brown in May happened because “it stopped being New Labour”.

He writes: “What should we have done? As I suggested in my analysis of the economy earlier, in my view we should have taken a New Labour way out of the economic crisis: kept direct tax rates competitive, had a gradual rise in VAT and other indirect taxes to close the deficit, and used the crisis to push further and faster on reform.”

Sayeeda Warsi, the Tory party chairwoman, seized on the comments as an endorsement of government policy, which includes a 2.5% rise in VAT from January, as well as an accelerated deficit reduction plan.

“The coalition government is winning the argument on cutting the deficit to get the economy moving. Now even Tony Blair has backed it. As he says in his book, taxpayers foot the bill if governments don’t tackle deficits because a lack of confidence would stop the recovery in its tracks.”

She added: “While the Conservatives and Liberal Democrats have come together to deal with Labour’s legacy, all the Labour party can do is fight amongst themselves. Until Labour politicians can admit to the mess that they left the country in and come up with ideas about how to fix it, they will never be fit to run the country again.”

Another Tory minister, the financial secretary to the Treasury, Mark Hoban, also claimed the support of Blair. He told the BBC: “He actually repudiates the Labour economic policy, the policy followed by Gordon Brown and the policies set out by the five Labour leadership contenders.

“He has endorsed our view that we need to take action now to tackle the deficit and get the economy going.”

Blair’s book lays bare the rift between him and Brown, as well as his concerns about his chancellor’s fitness to follow him into 10 Downing Street.

Describing Brown as brilliant but “maddening”, Blair blames his successor for losing the last election by deviating from the New Labour message.

“Labour won when it was New Labour. It lost because it stopped being New Labour,” he wrote.

“This is not about Gordon Brown as an individual … Had he pursued New Labour policy, the personal issue would still have made victory tough, but it wouldn’t have been impossible. Departing from New Labour made it so.”

Blair says he knew before leaving office that Brown could well prove a “disaster” as prime minister. And he revealed that he advised David Miliband in 2007 that he might beat Brown if he stood against him as a New Labour candidate for the succession.

In a warning to the party as it prepares to select a new leader, Blair writes: “The danger for Labour now is that we drift off, or even move decisively off, to the left.

“If we do, we will lose even bigger next time. We have to buck the historical trend and face up to the reasons for defeat squarely and honestly.”

The former deputy prime minister, Lord Prescott, rejected the suggestion that Brown had dumped the New Labour agenda. He told BBC Radio 4′s World at One: “I hear Tony say we didn’t continue with New Labour policies … Gordon continued these policies. He didn’t disown them.”

He warned it would be “very, very damaging” for the party if the “wars” between Blairites and Brownites continued and leadership candidates refused to serve under one another.

Andy Burnham, one of the Labour leadership contenders, accused Blair of “re-running the battles of the past”, adding: “Labour needs to leave all this behind. Members are fed up with it. Most are not Blairites or Brownites, Old or New Labour. They are just Labour.”

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• Dow Jones up 200 points as recession fears recede
• But UK industrial orders lowest for nine months

Share prices rose strongly in the City and on Wall Street after a stronger than expected showing by America’s factories last month helped ease concerns of a double-dip recessionin the world’s largest economy.

Amid signs of relief in New York, the Dow Jones industrial average surged by more than 200 points following the release of the monthly snapshot of US manufacturing from the Institute for Supply Management.

Dealers shrugged off separate data indicating further declines for the US construction sector and a decline in private sector employment over the past month to concentrate on a pick-up in manufacturing activity in America and China.

Stock prices rallied in London, even though a similar health check of UK manufacturing provided less upbeat news and suggested that the manufacturing revival could be fading. The FTSE Index closed 141.19 points higher at 5366.41 points.

Wall Street had been braced for a sharp fall in the ISM index after a slew of gloomy economic news in the past month and was taken by surprise by the rise from 55.5 in July to 56.3 last month. Any reading above 50 suggests that activity is expanding.

On the currency markets, both the US dollar and the Japanese yen fell after the manufacturing data. Concerns that the downturn in the global economy may be entering a new phase has prompted a flight into so-called safe havens, but today’s news boosted the appetite of investors for riskier assets. Government debt prices extended losses, with the price of benchmark 10-year US Treasury bills and German Bund futures shedding more than a full point.

Oil prices also rose sharply in the wake of the ISM report showing a 13th consecutive month of rising US factory production, with the cost of crude in the US rising by more than $2 a barrel to just over $74.

Analysts warned however that the market was likely to remain volatile ahead of Friday’s release of unemployment figures for August. Any fresh signs of weakness in the US labour market are likely to increase speculation that the Federal Reserve will resume its quantitative easing programme later in the year.

However, a leading Fed official said that the central bank would risk undermining its credibility if it embarked on further monetary action without evidence of a dangerous downward price spiral.

Philadelphia Federal Reserve Bank president Charles Plosser, who said he did not see a deflation risk at present, warned in a Reuters interview that more monetary stimulus would not be effective in tackling a “difficult and unpleasant” unemployment problem. “Moving around the interest rate on long-term bonds by 10 or 20 or 30 basis points is not going to solve the unemployment problems and it is dangerous to think that it will,” Plosser said.

The Markit/CIPS survey of British industry dropped from 56.9 in July to 54.3 in August, its lowest reading in nine months. Chris Williamson, chief economist at Markit, said the drop in new orders – a key indicator of future growth – had suffered its steepest fall in six and a half years. “A particularly weak reading for consumer goods – total new orders almost stagnated, despite a modest rise in overseas orders – corroborates the weakness signalled for the consumer sector by the YouGov/Markit Household Finance Index, which has shown confidence to have fallen since the emergency budget.”

Capital Economics’ chief European economist, Jonathan Loynes, said the CIPS survey showed the recovery among manufacturers was “losing momentum”.

“There is further support here for the view that the rapid growth in the economy seen in the second quarter – to which industry made a strong contribution – will not be sustained in the coming quarters,” he added.

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Sales growth is forecast to be 7% and profit margins are reckoned to rise a further 7%, neither seems likely

It didn’t take much to inject some life into the stock market – just a mildly encouraging piece of data from the US manufacturing sector. We’ll see how long the enthusiasm lasts. Andrew Lapthorne, who crunches numbers for Société Générale, reckons consensus forecasts for corporate earnings are “out of kilter with economic reality”. He has a point: sales growth is forecast to be 7% globally and profit margins, already at historical highs, are reckoned to rise a further 7%. Neither seems very likely to happen. Maybe investors don’t believe the analysts and have taken account of their optimism already. But earnings downgrades, assuming they arrive eventually, don’t usually inspire confidence.

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David and Ed Miliband distance themselves from former PM’s statement of support for coalition’s deficit strategy

Candidates for the Labour leadership moved tonight to limit the impact of politically explosive remarks in Tony Blair’s memoirs in which he backed the economic strategy of the Conservative-led coalition government.

Blair shook the party with his backing of David Cameron and George Osborne’s economic strategy to cut the financial deficit. Blair also backed the government’s decision to raise VAT, which Gordon Brown vehemently warned against throughout the election campaign.

“If governments don’t tackle deficits, the bill is footed by taxpayers, who fear that big deficits mean big taxes, both of which reduce confidence, investment and purchasing power,” Blair wrote, in sharp criticism of Brown. “We should have taken a New Labour way out of the economic crisis: kept direct taxes competitive, had a gradual rise in VAT and other indirect taxes to close the deficit, and used the crisis to push further and faster on reform.”

The intervention forced the leadership candidates to nail their colours to the mast on the economy as ballots for the contest were sent out. It also elicited gleeful responses from senior coalition figures.

In his memoirs, Blair warned against a drift to the left and praised the leadership skills of David Miliband, the shadow foreign secretary – though he refused to back any one candidate.

Miliband was forced to distance himself from the comments of his one-time mentor. “I am clear we must tackle the deficit, but we need to do it in a Labour way, that’s why I would halve the deficit over four years,” he told the Guardian. “I oppose the rise in VAT because it’s a regressive tax which hits the poorest the hardest, and under my deficit reduction plan those with the broadest shoulders would carry the biggest share of the burden. We also need a growth plan for the economy, which builds industry and creates jobs, making it easier to get the deficit down.”

Ed Miliband used the remarks to put further distance between him and Blairites who have been critical of him in recent weeks. “New Labour’s comfort zone offers no new answers for Labour or Britain’s future. Tony was once a moderniser, but I am now the candidate offering the change needed to reach out to the millions who lost trust in Labour.”

Sayeeda Warsi, the Conservative chair, said: “The coalition government is winning the argument on cutting the deficit to get the economy moving. Now even Tony Blair has backed it.

“Today, Tony Blair has also revealed the full extent of the last Labour government’s failure – they failed to tackle the deficit, they failed to reform welfare, they failed to reform the NHS. Labour knew they were spending too much before the financial crisis, but failed to do anything about it.”

Along with his accusations that Brown lost the election when he abandoned the New Labour agenda, Blair claims Brown was wrong in his approach to solving the financial crisis by ploughing government money into the economy. He writes: “I profoundly disagree with important parts of the statist, so-called Keynesian response to the economic crisis.”

While Brown stayed silent, there were protests from his camp. Ed Balls, his close ally and leadership hopeful, said: “Tony Blair was Labour’s most successful prime minister and Gordon Brown its most successful chancellor. And for all the tensions, difficulties and arguments which undoubtedly happened, they achieved great things together. I wish these memoirs could be a time for celebrating those achievements, not recrimination.

“That was then and this is now. This is a new era with new challenges, and it’s for this new generation of Labour leaders – in a spirit of unity and common purpose – to build on our successes and learn from our past mistakes. Labour must win back the trust of the British people and stand up for them against the damaging and destructive policies of the coalition.”

Brown’s former aide Michael Dugher said Blair’s book neglected to acknowledge that the public “had fallen out of love” with Blair by 2007.

“People also forget, in 2005, particularly in the aftermath of the Iraq war, Tony Blair was quite unpopular in parts of the country and the party. And Gordon Brown played a very significant role in the 2005 election victory,” he told the BBC.

The former deputy prime minister Lord Prescott, lavishly praised by Blair in his book, warned that Labour faced years in the wilderness if it did not resolve its differences. Prescott told BBC Radio 4′s World at One: “The dangers are, as we saw with the Tories [after 1997], that if the divisions continue and there is a suggestion that one [candidate] won’t follow if the other is elected, that would be very, very damaging for us. It damaged Labour for 18 years, it damaged the Tories for 13.”

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In the impending economic debate Labour must ensure it defeats the ideology of George Osborne’s austerians

The housing market is slowing. The flow of credit to businesses continues to shrink. The pace of recovery in the manufacturing sector slowed sharply over the last month. The US is teetering on the brink of a double-dip recession, and the biggest package of spending cuts since the second world war is less than seven weeks away.

High summer was as good as it gets for the British economy. George Osborne had Alistair Darling to thank for the impressive 1.2% expansion in the second quarter of this year, but it was a one-off derived from government pump-priming, firms replenishing stocks and a global pick-up in demand. There will be no early repetition and, as the nights draw, in the political battle over the economy is going to become a lot more interesting.

Osborne has spent the last four months telling us there is no alternative to the ferocious austerity he has planned, and has poured scorn on “deficit deniers” who would delay action in repairing the public finances. Political cover has been provided by the governor of the Bank of England, some of the countries that make up the G20, and most of the British media. The fact that Labour has spent the summer choosing a new leader has meant the new chancellor has had it pretty easy.

That, however, is about to change. From here on, the coalition ceases to be an economic parasite, living off the back of Labour’s pre-election policies to lessen the impact of the recession. It will have to deal with the consequences of its own actions, in an environment likely to be far less benign than it appeared in May. What’s more, there are signs of Labour mounting an intellectual and political challenge to the age of austerity – and this will intensify with a new leader.

The most important speech by an opposition politician since the election came from Ed Balls last week, in which he challenged the chancellor to cite any example in which there has been a pick-up in private sector growth of the kind envisaged by the government at a time when companies are reducing debt and the outlook for exports is worsening. “Against all the evidence, both contemporary and historical, [Osborne] argues the private sector will somehow rush to fill the void left by government and consumer spending and become the driver of jobs and growth. This is growth-denial on a grand scale.”

The struggle between the growth deniers and the deficit deniers will dominate the rest of this parliament. Balls, who would be a formidable opponent either as leader of the opposition or as shadow chancellor, wants fresh action to support growth. The budget deficit last year turned out to be £12bn lower than Darling predicted in his last budget: Balls suggests banking half of it and using the other £6bn for a new stimulus.

This strategy contains risk, particularly if the economy survives its embrace with Osborne’s tough love, but looks a whole lot less risky than what the government is planning. The chancellor is one of a breed dubbed the austerians, who believe that cutting the deficit will be good for growth in two ways. It will impress the financial markets and drive down long-term interest rates, thus affecting borrowing costs for firms and individuals. And it will convince consumers and businesses that taxes will eventually be cut, encouraging them to spend more now.

These beliefs have been central to rightwing economics for three decades, but they bear little relation to what is happening in the real world. Let’s take the financial markets. While it is certainly true that in the spring, there was concern about the threat of sovereign debt default, life moved on. Having demanded action to tackle deficits, the concern now is that the action taken in countries like Greece, Ireland and Spain will kill growth. Interest rates on government bonds have been falling globally for one simple reason: the markets are afraid that a second leg to the recession will lead to deflation.

Events in the US have accentuated these concerns. Yesterday’s snapshot of American manufacturing was a rare piece of good news following recent evidence of a fresh deterioration in the housing market. Growth slowed markedly in the second quarter, and if it does so again in the third, Wall Street will be baying for steps to boost growth.

That would be a mistake, according to the austerians, who say additional stimulus would be counter-productive because a larger budget deficit would make businesses and consumers worry about higher taxes in future. Conversely, they claim, cutting the deficit will pave the way for lower taxes, thus encouraging spending now. I have yet to meet anybody who behaves in the cock-eyed way envisaged by rightwing thinktanks. I have, though, met plenty of people who are belt-tightening because they fear public spending cuts will cost them their job.

The real danger is what Keynes called the paradox of thrift: everybody tries to save at the same time, sucking demand out of the economy and making firms reluctant to invest. Unless a country can export its way out of trouble – which Britain, with its limited manufacturing capability, cannot – it makes no sense for the government to further weaken activity by cutting spending or raising taxes.

In the postwar era, recessions have followed periods of high inflation that have been dealt with by jacking up interest rates and tightening fiscal policy. This crisis, though, has been marked by financial solvency and attempts by consumers and businesses to reduce their debt levels. In such circumstances the real dangers are first, doing nothing; second, doing too little; and third, withdrawing stimulus before the job is done.

Politically, a growth-based strategy makes more sense for Labour than a deficit-cutting contest with the Conservatives – provided the economic arguments stack up, which they do. Voters were unimpressed by the argument that Darling was planning slightly less pain than Osborne spread over a longer period. They are likely to be equally unimpressed by Osborne when they find out what he’s got in store for them – and for the British economy.

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Labour leadership candidate distances himself from former PM’s near-endorsement of coalition’s strategy to cut deficit

David Miliband last night distanced himself from his old political patron, Tony Blair, after the former prime minister rocked the Labour party by coming close to endorsing the economic strategy of the Conservative-led coalition government.

As the Tories hailed Blair for supporting the government’s controversial plans to eliminate Britain’s fiscal deficit by 2015, the shadow foreign secretary insisted that only Labour had the right plans to cut the deficit.

“I am clear we must tackle the deficit, but we need to do it in a Labour way, that’s why I would halve the deficit over four years,” he said.

David Miliband spoke out after Blair concluded his memoirs with an attack on world leaders for following the financial crisis in 2008 with “deficit spending, heavy regulation … and jettisoning the reinvention of government in favour of the rehabilitation of government”.

In a passage which prompted one member of the shadow cabinet to lambast Blair as “so right wing”, Blair wrote: “If governments don’t tackle deficits, the bill is footed by taxpayers, who fear big deficits now mean big taxes in the future, the prospect of which reduces confidence, investment and purchasing power. This then increases the risk of a prolonged slump.”

The former prime minister offered some support for Alistair Darling, the former chancellor, who won a battle with Gordon Brown in government to pledge to halve the deficit in four years.

“Fiscal consolidation has to proceed with care,” Blair wrote. “I agree entirely that a precipitate withdrawal of stimulus packages would be wrong.”

But Blair wrote that Brown lost the election after abandoning New Labour by raising the top rate of tax to 50%, signalling a “return to tax and spend”, and increasing national insurance to tackle the deficit. “We should have taken a New Labour way out of the economic crisis: kept direct taxes competitive, had a gradual rise in VAT and other indirect taxes to close the deficit, and used the crisis to push further and faster on reform,” he wrote.

The Tories warmly welcomed Blair’s remarks, which came in the postscript to his memoirs. Lady Warsi, the Tory chair, said: “The coalition government is winning the argument on cutting the deficit to get the economy moving. Now even Tony Blair has backed it … Tony Blair has also revealed the full extent of the last Labour government’s failure – they failed to tackle the deficit, they failed to reform welfare and they failed to reform the NHS. Labour knew they were spending too much before the financial crisis but failed to do anything about it.”

David Miliband, who is being portrayed as the heir to Blair by his opponents in the Labour leadership contest, moved quickly to reject the former prime minister’s support for a VAT rise. “I oppose the rise in VAT because it’s a regressive tax which hits the poorest the hardest, and under my deficit reduction plan those with the broadest shoulders would carry the biggest share of the burden,” he said.

The shadow foreign secretary distanced himself from Blair in a Channel 4 News hustings debate last night which was aired as the former PM all but endorsed him for the leadership in a BBC interview.

“I am my own person,” Miliband said. “I look forward to the day when Tony says he is a Milibandite rather than people asking me whether I am a Blairite.”

His rivals used Blair’s remarks on the deficit to highlight their differences with the former prime minister. Ed Miliband, the candidate most likely to defeat his brother, said: “New Labour’s comfort zone offers no new answers for Labour or Britain’s future. Tony was once a moderniser but I am now the candidate offering the change needed to reach out to the millions who lost trust in Labour.”

Ed Balls, who says that Darling’s deficit reduction plans could jeopardise the economic recovery, said: “Tony Blair has come out today and said he’s basically supporting a Conservative-Liberal coalition policy, he’s supporting the rise in VAT and cuts in public spending.”

While Brown stayed silent, there were protests from his camp about Blair’s book. Michael Dugher, his former spokesman who is now Labour MP for Barnsley East, told Radio 4′s The World at One: “People forget, in 2005, particularly in the aftermath of the Iraq war, Tony Blair was quite unpopular in parts of the country and the party. Gordon Brown played a very significant role in the 2005 election victory.”

The former deputy PM Lord Prescott warned that Labour faced years in the wilderness if it did not resolve its differences. He told the same programme: “The dangers are – as we saw with the Tories [after 1997] – that if the divisions continue and there is a suggestion that one [candidate] won’t follow if the other is elected, that would be very, very damaging for us. It damaged Labour for 18 years, it damaged the Tories for 13 years.”

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