Not Balls, Not Brown, Not Now

To win credibility, Ed Balls needs a new speech that acknowledges that the Coalition is not all-wrong on the economy.

Perhaps the suddenness of Alan Johnson’s resignation caught most commentators by surprise, or perhaps so much has already been said about the new Chancellor of the Exchequer over the past three years, but by the time that Ed Balls was called upon to take Labour’s lead argument against the coalition, the occasion seemed rather flat.

There are two chief topics of discussion about Labour’s new configuration. The first is whether Mr Ball’s unorthodox economics will have an impact on Labour’s political strategy in opposition. The second is whether giving Mr Balls a portfolio in which he will feel all-powerful will affect the chemistry of the Shadow Cabinet. Both anxieties are considerably overplayed.

Firstly, the Shadow Cabinet, including Mr Balls, endorsed the Darling plan for halving the deficit over the course of five years less than two weeks ago. There are also important political reasons for sticking to the course set out by Labour’s last Chancellor, Alistair Darling; the Party is in no mood to admit that it was completely wrong in its handling of the financial crisis, its current leadership does not have the authority or inclination to outflank the Coalition government on the right (either in part or in full), and confidence in deficit-broadening spending plans is flaky among the media, businesses, and the public (although polls show weakening resolve in that area).

The second reason Ed Balls will be required to act cautiously is that his popularity within the Party is fragile. Although he performed markedly better in the Shadow Cabinet election, coming third with 179 votes, than in the leadership election last year, MPs do not rush to worship at his feet. He will be cheered when he performs well – and he enjoys a sort of folk-hero status for his shadowing of Michael Gove – but like Wayne Rooney, politicians can be all-conquering one week and frustrating the next. Then there is the legacy of thirteen years of briefings – notably the blaming of Douglas Alexander and Ed Miliband for the election-that-wasn’t in 2007.

These two factors will keep Ed Balls on his toes, at least for the short term.

The Fight to Come

The sad departure of Alan Johnson, who lacked detail but was forthright in his defence of New Labour shibboleths, merely encourages the impression that Labour needs to be more aggressive in attacking the government. But where there are political opportunities, Labour ought to beware of political dangers.

Ed Balls was not regarded as a great Education Secretary, and while his Parliamentary performances may have forestalled the rise of Michael Gove, he also lacked the confidence in people’s aspirations that has allowed the current Secretary to re-establish his reforms based on the curriculum.

Gordon Brown’s book on the financial crisis, densely written and frustratingly self-serving though it is, gives an indication of the traps that Mr Balls could fall into. Brown has several arguments, among them that Britain needs to spend to maintain its educational, technological and financial ability to compete with the rising powers and that companies are hoarding cash rather than spending it. On the face of it, this justifies the Keynesian instincts of Messrs Brown and Balls, and their injunctions to the Conservative Party ‘not to return to the mistakes of the 1930s.’

Mr Balls based his economic pitch to the Labour Party on this message – in his widely acclaimed speech to Bloomberg last year. That speech is still being discussed, and Mr Balls may be tempted to say that the lower cost of borrowing justifies a retreat from the austerity programme. That would be a gamble however. The current crisis in the Eurozone is a result of significantly greater risks in Ireland, Spain and Portugal. The attractiveness of British bonds is cause for celebration, but not one we should be complacent about – the danger of a ratings downgrade in May 2010 was real, and no one knows what the implications of a change in tact could be today.

Furthermore, Mr Balls should be wary himself of making the mistakes of the 1970s. The Bloomberg speech raised the spectre of deflation – in 2011, the rising cost of commodities is causing inflation. Borrowing more would risk exacerbating this tendency, and it is for this reason, rather than the risk of protest that David Cameron has considered cutting fuel duty. Another reason that public spending needs to be restrained is that Britain is ageing and growing – meaning that there is no prospect of holding health and education spending steady without changes.

So while globalisation does require a new form of industrial intervention – one that cannot be provided purely by tax cuts – there is no other way to win business confidence and combat inflation than by reform. Indeed, there is a link between business confidence and public opinion, no matter how anti-business the current mood gets.

Labour sought to defend the interests of the consumer in 2008-10; reducing VAT temporarily and introducing scrappage schemes, and still lost the election. It may be that the unseen dimensions to the financial crisis do not intrude onto the voters’ minds, but it is beholden on Mr Balls not to mislead people on the sustainability of current spending. Given that he will not want to be a Labour Shadow Chancellor suggesting that he will raise new taxes, he will be locked into supporting some cuts.

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