If George Osborne can't eliminate the deficit in this parliament, we will do so in the next. That's the fiscally responsible message from Ed Balls in today's Times. The failure of Osborne's plan means that any future Labour government will inherit a budget deficit of £79bn (4.5 per cent of GDP) and a structural deficit of -1.6 per cent. The result is that Balls's party will be forced to cut (or tax) more than it ever previously imagined (a point made eloquently by In the black Labour)
With this in mind, the shadow chancellor repeats the message that he delivered in his conference speech earlier this year: Labour will set itself "tough fiscal rules" before the next election and will use any windfall from the sale of the bank shares to repay the national debt, rather than fund a giveaway. He writes: "Credibility is based on trust and trust is based on honesty, so we must be clear with the British people that under Labour there will have to be cuts."
The weakness remains that Labour is alarmingly vague about where it would cut. No one expects a shadow spending review but Balls and others must do far more to convince voters that their commitment to cuts is more than just rhetorical. Even Diane Abbott had Trident.
For now, Balls is clear that his plan would mean more borrowing, not less. The difference is that while Labour would borrow to fund growth, Osborne is borrowing to meet the cost of unemployment. He writes: "The argument is whether it is better to be borrowing billions more to keep people out of work on benefits or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a fairer way." But that's not an easy argument for Labour to make in the current circumstances. Balls is attacking Osborne for missing his deficit targets while simultaneously making the case for higher borrowing.
As he writes:
I have heard much advice over the past year from people who admit that combining stimulus now to get the economy moving with a tough but balanced medium-term deficit plan may be good economics, but they argue that it is bad politics because it is "out of tune" with the public mood.
That is a tacit acknowledgement that, despite a slew of terrible data, the Tories are still winning the economic debate. Osborne's lead over Balls as the best Chancellor (30 per cent to 24 per cent) actually rose in the wake of the autumn statement and more people still blame the last Labour government (32 per cent) for low growth than the current government (28 per cent).
But Balls finishes by mischievously quoting his "old friend" Ken Clarke, who argues that, in the end, "good economics is good politics too." The shadow chancellor's wager is that while Labour is losing the battle, it will win the war. His party's fortunes depend on him being right.