Ed Balls comes home

Can the new shadow chancellor finally escape his past?

The first emotion was shock. Resignations remind politicians of their own professional mortality, and this one had the added impact of absolute surprise. There was also sympathy; Alan Johnson was genuinely popular, and there was a romance to his political journey that won the empathy of all but the most hard-bitten parliamentary observers.

But politicians are primarily pragmatists. This morning the circus has moved on.

The reaction of Ed Balls's supporters to his elevation to shadow chancellor was understandably euphoric, undiplomatically so, in the eyes of one confidant: "Ed was looking very happy on TV. Perhaps a bit too happy, given the circumstances."

The reaction of the Blairites was equally predictable. "We're doomed," said one former aide. "I haven't felt this bad since David lost," said another.

Set aside the circumstances of Alan Johnson's departure. Despite the swirling conspiracies, they are ultimately a personal matter, with no broader political significance. But the appointment of Ed "Cojones" to de facto deputy leader of the party is of monumental importance.

In truth, the prevailing mood at Westminster last night was one of uncertainty. Not negativity, but an uncharacteristic lack of clarity about how events will play out.

On one level, there is relief in Ed Miliband's circle that a perceived political problem has been taken out of their hands. His shadow chancellor's "political primer" joke was starting to wear thin, while continuing challenges on a host of issues, from 50p tax through tuition fees to party reform, had proved debilitating. But despite this, Miliband remained convinced that Johnson's "challenges" were policy-based, and not motivated by any deeper ill-will towards him or his leadership.

"Ed genuinely believed Alan wanted him to be successful. He never felt Alan was plotting or agitating," says an insider.

There is less certainty about the relationship between the leader and his new shadow chancellor. Some of those close to Balls were asserting last night that there has been a rapprochement between the two former members of the Brownite inner circle. That may be the case, but if there has been, it's a conveniently recent occurrence.

Before Christmas, Balls was almost embarrassingly offhand in his criticism of his leader's performance at PMQs. And the change isn't something that's filtered through to the rest of the shadow cabinet. "The root of the problem is Ed Miliband usurping Ed Balls's position within the party. And that in turn has its origins in the nature of their relationship when they were both working for Gordon. You don't overcome issues like that in the space of a couple of weeks," said one shadow cabinet source.

What is true is that since the turn of the year all members of the shadow cabinet have taken a conscious decision to be more openly supportive of Miliband's efforts to establish his leadership, and Balls has been more than pulling his weight as part of that new collegiate effort. "Everyone's agreed that where there are differences we have to work them through internally, not through the pages of the Guardian," said an insider. "Ed recognises that."

But the chemistry between the men is one issue. Of greater significance is the approach that Balls will bring to his new economic brief. For the new shadow chancellor, there is said to be almost a sense of "coming home" to the portfolio he cherished above all others. And there is broad acknowledgment that he has no equal when it comes to technical mastery of the complexities of economic policy.

Yet there is also concern over his political positioning on issues such as the deficit and the threat of an economic downturn. "The last thing we need is a rerun of the Bloomberg agenda," said a senior party adviser, referring to Balls's recent speech questioning Alistair Darling's strategy for deficit reduction. It was also noticeable that at the weekend, Ed Miliband was making efforts to distance himself from predictions of a double-dip recession, a warning that Balls made a central plank of his leadership platform. Indeed, so vigorous were Balls's stances on both issues that David Miliband had concluded he would be unable to offer Balls the role of shadow chancellor were he to prevail in the leadership contest.

But the biggest challenge facing Labour's new leadership team is not one of positioning or personality, but legacy. Ed Miliband is attempting to break with the past. His entire narrative is built around "moving on" from New Labour.

Balls, by contrast, has distinguished himself through his fealty to Gordon Brown. Time and again, personal political interest cried out for him to sever his link with his mentor. And time and again he refused. Ed Miliband secured the leadership because he brilliantly, and imperceptibly, decoupled himself from Brown. Balls lost, in part, because he could never bring himself to do so.

He is about to be confronted with that choice once again. The Tories already spy an opportunity. "How can he lecture us on the deficit? His policies created the deficit." "How dare he lecture us on the bankers? He created the very banking regulations that failed us."

Whether Balls can finally escape from his past will go a long way to determining whether he truly has come home as shadow chancellor. And that in turn will go a long way towards determining the fate of the two men who this morning represent a brand new power axis at the top of the Labour Party.

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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.