Ed Balls interview: "I've no reason to doubt Nick Clegg's integrity"

The shadow chancellor on why he could go into coalition with Clegg, why airport expansion in the UK is essential for growth and why history will judge Gordon Brown kindly.

Christmas has been and gone, yet the festive spirit endures in Ed Balls’s Westminster office. The shadow chancellor greets me by offering a mince pie, and quickly devours one himself after a long day of political combat marked by George Osborne’s speech on austerity.

The weeks before the recess were a difficult time for Balls, with a mis-sent email from Ed Miliband’s aide Torsten Bell describing him as a “nightmare”, Conservative attacks over his acceptance in 2012 of a £50,000 donation from the Co-operative Group, and calls by some Labour MPs for his removal following his much-criticised response to Osborne’s Autumn Statement. But if Balls is rattled it doesn’t show. Accompanied by his long-serving head of communications, Alex Belardinelli, he seems relaxed, engagingly discussing the future of the media after I mention the recent growth of the New Statesman and straining to remember the name of the song by Sophie Ellis-Bextor he was listening to on YouTube. He will run in the London Marathon again this year, for the third time (“I’m the slowest MP by far, but I’ve been the best fundraiser”), and has re-entered for his grade three piano exam after it clashed with the Autumn Statement (“I’m desperately worried it will be Budget day”).

We eventually turn to the subject that has defined Balls’s career: the economy. After warning of a “lost decade of slow growth, high unemployment and stagnation” in his speech to the 2012 Labour conference, has he been surprised by how growth has quickened in recent months? “We’ve got so used to the economy flatlining that, for many people, and not just in the media but business, too, the return to any growth is such a relief,” he says. “It happened later than we all expected but the truth is that this is a recovery that has so far historically been very disappointing.”

Balls perceptively remarks of Osborne: “I think as a politician he’s decided that growth is better than no growth; that he’s going to bank the recovery and move on to the politics. I think, actually, the economic task for a chancellor at the moment is to think, ‘What can I do to deliver stronger, more balanced growth?’”

The biggest problem for the Tories, he says, is the enduring public belief that they are not committed to fairness. “I thought it was very interesting, the George Osborne interview this morning [on the BBC’s Today programme], because the word he kept using throughout was ‘values’ . . . He knows when it comes to values – whose side you’re on, fairness – he knows he’s got a huge problem . . . They will have to be totally negative because they know, [and] they’re going to try and neutralise it, but they can’t win on that basis.”

The most notable feature of the recovery has been the sharp drop in unemployment, which now stands at 7.4 per cent, within touching distance of the 7 per cent threshold at which the Bank of England will consider an interest-rate rise. How does he think Mark Carney should respond when joblessness falls to this level?

“I think he’ll be very cautious about wanting to use unemployment and the labour market as an indicator of underlying strength,” Balls tells me. “I know that they’ll [the Bank will] be very worried and concerned and focused on what’s happening to London house prices and wider house prices, but I hope that the Monetary Policy Committee will look across the piece, rather than at one indicator, before they decide to move on interest rates.” His message is clear: in current conditions, there should be no rate rise this year.

Throughout our conversation, Balls refers to the need for Osborne to do more to increase “underlying growth” through greater public investment. Having pledged not to borrow to meet day-to-day spending in 2015-2016, would he consider borrowing to fund new infrastructure projects?

“That’s something that we’re going to continue to look at,” he says. “I’m not going to rule it out, but I’m also not going to say now that it’s definitely the right thing to do. But I’d make a broader point, which is that if you want to have a stronger, sustained recovery, and if you want to get the housing benefit bill down, and if you’re trying to help people on to the housing ladder by supporting housing on the demand side, this is absolutely the time when you ought to be doing more to support investment in housing supply – in particular, but not entirely, affordable housing.”

The biggest infrastructure decision that the next government will take will be on whether, and where, to expand the UK’s airport capacity. When I ask Balls if he fav­ours expansion, he hesitates (“I think . . .”) and then concedes: “Yes, I always have. Yes, I do. I thought the Howard Davies report was a very informed first stage, which I think made the case for airport expansion . . . I think a modern, open British global economy needs effective aviation capacity.” Though he refuses to reaffirm his past support for a third runway at Heathrow, his position contrasts with that of Labour, which has yet even to commit to expansion.

The party’s Treasury team has begun a “zero-based” spending review, one that will scrutinise every area of public expenditure for possible cuts. But when I ask Balls if Labour will pledge to ring-fence NHS spending, he offers the clearest signal yet that it will. In an echo of Nye Bevan’s declaration that “the language of priorities is the religion of socialism”, he says: “I always think in politics revealed preferences are a very powerful indicator of future actions and, at every stage, Labour has ring-fenced and supported ring fences for the National Health Service. I would be staggered if we are anywhere other than wanting to ring-fence the NHS going forward in 2015-2016 and in the future.”

Balls’s political godfather Gordon Brown has been more visible than usual of late, making a widely praised tribute to Nelson Mandela in the Commons and warning in the New York Times of the risk of another financial crisis. Does Balls still speak to the man he worked alongside for 16 years? “He actually emailed me today about a by-election coming up in the next couple of weeks,” Balls says, adding that “from time to time we exchange emails and from time to time we meet up”. When I ask whether it saddens him that Brown is now derided as the worst prime minister in recent British history, he argues that “when history is written for Gordon Brown, it will paint a different picture”.

He expands: “There is no doubt that, even now, around the world, the contribution he made to solving the global financial crisis and avoiding a depression is already, outside of Britain, very well understood. But I think the fact that the National Health Service is still so foundational a concept in British politics that David Cameron has to desperately try to persuade people that he supports it, even though we know he doesn’t really, is a positive tribute to Gordon Brown. The fact that we didn’t join the single currency is also extremely important . . . I think the credit for that will come, too.”

Shortly before Christmas, Nick Clegg said on his LBC radio show that he tries to avoid political arguments becoming personal but that he makes one exception: “for a man named Ed Balls”. When I put these remarks to the shadow chancellor, I expect him to respond by assailing Clegg as a “collaborator” in Conservative austerity, but he is unexpectedly warm. “I had a friendly chat with him a couple of hours ago in the House of Commons,” he reveals. “I’m not saying where, but the kind of place people pass in the House of Commons. We had a nice chat about how things were going. I think it was the first time I’d had a conversation with him for a really long time . . . I can say, with my hand on heart, the only conversation I’ve had with Nick Clegg in the last 18 months was very friendly and warm. I may disagree with some of the things he has supported but I have no reason to say anything nasty about him as a person.”

Even more strikingly, he adds: “I understand totally why Nick Clegg made the decision that he made to go into coalition with the Conservatives at the time. I may not have liked it at the time, but I understood it. I also understood totally his decision to support a credible deficit reduction plan, because it was necessary in 2010. I think the decision to accelerate deficit reduction, compared to the plans they inherited – which was clearly not what Vince Cable wanted – I think that was a mistake . . . I can disagree with Nick Clegg on some of the things he did but I’ve no reason to doubt his integrity.”

Would Balls be prepared to enter coalition with Clegg? “I think what you always have to do is deal with politics as you find it . . . I saw that subsequently he made a further statement to one of the newspapers that these things weren’t about personalities, and I think he’s right about that.”

This is markedly different in tone from what Balls said in September 2012, when he declared that Clegg’s departure would be a precondition of any coalition deal with the Liberal Democrats: “Clegg made his decisions and the way he’s gone about his politics, I think, makes things very difficult [to form a coalition with him].” With just 16 months to go to the next election, the shadow chancellor is shrewdly hedging his bets.

Yet, coalition or not, has Ed Miliband guaranteed that Balls will be shadow chancellor in 2015? “I’ve never had that conversation with him,” Balls tells me. “I’m just going to get on and do my job, because it’s really difficult and really important, and we’ve got to win, and anything I can do to help Ed to win, I’ll do.”

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Now listen to George discussing his interview with Ed Balls and the possibility of a Lib-Lab coalition on the NS podcast:

Ed Balls: "I’m just going to get on and do my job, because it’s really difficult and really important". Sketch by Dan Murrell.

George Eaton is political editor of the New Statesman.

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump