Why Balls would be a difficult shadow chancellor for David

Their disagreements over the deficit would be effortlessly exploited by the Tories.

The intermittent rumours that Ed Balls would drop out of the Labour leadership race and endorse David Miliband may have come to nothing, but relations between the two camps have improved in recent weeks.

In an interview in today's Financial Times (where he once worked), Balls points out that the pair "go back a long way" and that he knew Miliband long before he knew Tony Blair.

Yet the idea that Balls is virtually guaranteed the shadow chancellorship, should Miliband win, is wide of the mark. The piece notes:

David Miliband's supporters say they cannot see Mr Balls being made shadow chancellor, should their man win. They fear he might use the Treasury role as a chance to build an alternative power base, replicating the old Blair-Brown feud.

A potentially greater obstacle is the disagreement between Miliband and Balls over the deficit. While Miliband has defended the Brown-Darling pledge to halve the £155bn deficit by 2014, Balls has criticised the target and admitted that he privately opposed it.

He told the BBC in July:

I always accepted collective responsibility but at the time, in 2009, I thought the pace of deficit reduction through spending cuts was not deliverable, I didn't think it could have been done.

Last week he said: "Going forward, I think even halving the deficit in four years was too ambitious . . . I think to do a slower and steadier pace going forward is actually more likely to support jobs and growth, more likely to boost financial-market confidence and likely to be fairer as well."

By contrast, in his recent speech at the King Solomon Academy, Miliband declared:

I will not cede ground to the government when it comes to tackling the deficit. They are the ones in denial, not us. It is right to cut the deficit in half over four years starting next April. That would mean very difficult choices.

Given this very public difference of opinion, I'd be surprised if Miliband handed the Tories a perfect opportunity to yet again exploit the disagreements between a Labour leader and his (shadow) chancellor. One can imagine Conservative backbenchers quoting Balls's criticisms as Miliband defended Labour's deficit reduction plan from the despatch box.

Should Miliband win, Balls is more likely to be appointed shadow home secretary, a post ideally suited to his forensic mind and combative style.

George Eaton is political editor of the New Statesman.

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What type of Brexit did we vote for? 150,000 Conservative members will decide

As Michael Gove launches his leadership bid, what Leave looks like will be decided by Conservative activists.

Why did 17 million people vote to the leave the European Union, and what did they want? That’s the question that will shape the direction of British politics and economics for the next half-century, perhaps longer.

Vote Leave triumphed in part because they fought a campaign that combined ruthless precision about what the European Union would do – the illusory £350m a week that could be clawed back with a Brexit vote, the imagined 75 million Turks who would rock up to Britain in the days after a Remain vote – with calculated ambiguity about what exit would look like.

Now that ambiguity will be clarified – by just 150,000 people.

 That’s part of why the initial Brexit losses on the stock market have been clawed back – there is still some expectation that we may end up with a more diluted version of a Leave vote than the version offered by Vote Leave. Within the Treasury, the expectation is that the initial “Brexit shock” has been pushed back until the last quarter of the year, when the election of a new Conservative leader will give markets an idea of what to expect.  

Michael Gove, who kicked off his surprise bid today, is running as the “full-fat” version offered by Vote Leave: exit from not just the European Union but from the single market, a cash bounty for Britain’s public services, more investment in science and education. Make Britain great again!

Although my reading of the Conservative parliamentary party is that Gove’s chances of getting to the top two are receding, with Andrea Leadsom the likely beneficiary. She, too, will offer something close to the unadulterated version of exit that Gove is running on. That is the version that is making officials in Whitehall and the Bank of England most nervous, as they expect it means exit on World Trade Organisation terms, followed by lengthy and severe recession.

Elsewhere, both Stephen Crabb and Theresa May, who supported a Remain vote, have kicked off their campaigns with a promise that “Brexit means Brexit” in the words of May, while Crabb has conceded that, in his view, the Leave vote means that Britain will have to take more control of its borders as part of any exit deal. May has made retaining Britain’s single market access a priority, Crabb has not.

On the Labour side, John McDonnell has set out his red lines in a Brexit negotiation, and again remaining in the single market is a red line, alongside access to the European Investment Bank, and the maintenance of “social Europe”. But he, too, has stated that Brexit means the “end of free movement”.

My reading – and indeed the reading within McDonnell’s circle – is that it is the loyalists who are likely to emerge victorious in Labour’s power struggle, although it could yet be under a different leader. (Serious figures in that camp are thinking about whether Clive Lewis might be the solution to the party’s woes.) Even if they don’t, the rebels’ alternate is likely either to be drawn from the party’s Brownite tendency or to have that faction acting as its guarantors, making an end to free movement a near-certainty on the Labour side.

Why does that matter? Well, the emerging consensus on Whitehall is that, provided you were willing to sacrifice the bulk of Britain’s financial services to Frankfurt and Paris, there is a deal to be struck in which Britain remains subject to only three of the four freedoms – free movement of goods, services, capital and people – but retains access to the single market. 

That means that what Brexit actually looks like remains a matter of conjecture, a subject of considerable consternation for British officials. For staff at the Bank of England,  who have to make a judgement call in their August inflation report as to what the impact of an out vote will be. The Office of Budget Responsibility expects that it will be heavily led by the Bank. Britain's short-term economic future will be driven not by elected politicians but by polls of the Conservative membership. A tense few months await. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.