Osborne's Spending Review is a test for Labour too - how will it respond?

Balls and Miliband will come under ever greater pressure to say whether Labour will match the coalition's post-election spending plans.

So fractious have the negotiations over the 2015-16 Spending Review been that, at various points, some ministers have urged George Osborne not to hold one at all. But Osborne, who has scheduled the review for 26 June, was never likely to take their advice. For the Chancellor, the event is critical to the Conservatives' strategy for the 2015 general election. By setting spending limits for the first year after the election in advance, he will establish "the baseline" and challenge Labour to match it. Should it fail to do so, punishment will be swift. In a rerun of the Conservatives' 1992 campaign, Osborne will accuse Labour of planning to hit Middle England with a "tax bombshell" to fund higher spending. 

Whether or not pledge to match the coalition's spending plans, as Labour did with the Tories' in 1997, is the biggest political decision Ed Miliband and Ed Balls will take before the general election. If they accept Osborne’s baseline, the left and the trade unions will accuse them of embracing "Tory cuts" (something that, in the words of one Labour MP, “would make the row over the public-sector pay freeze look like a tea party"). If they reject it, the Chancellor will accuse them of planning billions in additional borrowing or tax rises. 

Having abandoned hope of meeting their original deficit-reduction targets, the Tories believe another election fought over austerity could yet favour them. In 2015, their pitch will be, “Yes, it’s taking longer than we thought. But who do you trust to finish the job – the government, or the ones who got us into this mess?”

A pledge by Balls to match Osborne’s spending plans would be an efficient means of closing down this line of attack. For this reason, it is an option that the shadow chancellor’s team notably refuses to rule out. As chief economic adviser to Gordon Brown, Balls helped mastermind the original 1997 pledge and has already declared that his "starting point" is that Labour will "have to keep all these cuts", a step towards accepting Osborne’s baseline. When Harriet Harman told the Spectator last September that Labour would not match the Tories’ spending plans and abandon its “fundamental economic critique” of the coalition, she was forced to issue a retraction

A promise to stick to the Tories’ baseline would not entail supporting all of the cuts proposed by Osborne; rather, Labour will need to replace any cuts that it rejects with tax rises or cuts of equivalent value. While acknowledging that it cannot avoid austerity, Labour would vow to distribute the pain more fairly, ensuring that the richest bear a greater burden. The party will likely pledge to reintroduce the 50p top rate of income tax and adopt some version of a "mansion tax" (a proposal but not yet a manifesto commitment). 

Against this, however, is the fact that signing up to the Conservatives' plans, a trick straight out of the New Labour playbook, would run entirely counter to the post-Blairite spirit of Miliband's leadership. Embracing Tory levels of austerity would also deny the economy the stimulus it so desperately needs. For these reasons, senior MPs, most notably Peter Hain, and groups such as the Fabian Society have already urged Labour to reject this course of action. 

Whichever path Balls and Miliband choose, don't expect an answer this year - or next. As today's Guardian reports, the party is likely to wait until just a few months before the general election before announcing its decision (as Blair and Brown did in 1997). This is smart policy as well as smart politics. With the economy and the public finances so volatile (borrowing has been revised up by £245bn since 2010 and growth has been around 6 per cent lower than forecast), Labour can reasonably argue that it is in no position to make a decision more than two years out from the election. Balls and Miliband have learned from the mistakes of the Tories, who pledged to match Labour's spending plans in 2007 only to abandon this pledge after the crash in 2008.

The Conservatives would like nothing more than for attention to be diverted away from their economic failure and onto Labour's plans. It is an opportunity that Balls and Miliband will rightly deny them. But as political pressure (from right and left) grows on Labour to declare its intentions, the next few months will provide the greatest test of party discipline yet. 

Ed Miliband and Ed Balls at the Labour conference in Manchester last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Arsène Wenger: how can an intelligent manager preside over such a hollowed-out team?

The Arsenal manager faces a frustrating legacy.

Sport is obviously not all about winning, but it is about justified hope. That ­distinction has provided, until recently, a serious defence of Arsène Wenger’s Act II – the losing part. Arsenal haven’t won anything big for 13 years. But they have been close enough (and this is a personal view) to sustain the experience of investing emotionally in the story. Hope turning to disappointment is fine. It’s when the hope goes, that’s the problem.

Defeat takes many forms. In both 2010 and 2011, Arsenal lost over two legs to Barcelona in the Champions League. Yet these were rich and rewarding sporting experiences. In the two London fixtures of those ties, Arsenal drew 2-2 and won 2-1 against the most dazzling team in the world. Those nights reinvigorated my pride in sport. The Emirates Stadium had the best show in town. Defeat, when it arrived in Barcelona, was softened by gratitude. We’d been entertained, more than entertained.

Arsenal’s 5-1 surrender to Bayern Munich on 15 February was very different. In this capitulation by instalments, the fascination was macabre rather than dramatic. Having long given up on discerning signs of life, we began the post-mortem mid-match. As we pored over the entrails, the curiosity lay in the extent of the malady that had brought down the body. The same question, over and over: how could such an intelligent, deep-thinking manager preside over a hollowed-out team? How could failings so obvious to outsiders, the absence of steel and resilience, evade the judgement of the boss?

There is a saying in rugby union that forwards (the hard men) determine who wins, and the backs (the glamour boys) decide by how much. Here is a footballing equivalent: midfielders define matches, attacking players adorn them and defenders get the blame. Yet Arsenal’s players as good as vacated the midfield. It is hard to judge how well Bayern’s playmakers performed because they were operating in a vacuum; it looked like a morale-boosting training-ground drill, free from the annoying presence of opponents.

I have always been suspicious of the ­default English critique which posits that mentally fragile teams can be turned around by licensed on-field violence – a good kicking, basically. Sporting “character” takes many forms; physical assertiveness is only one dimension.

Still, it remains baffling, Wenger’s blind spot. He indulges artistry, especially the mercurial Mesut Özil, beyond the point where it serves the player. Yet he won’t protect the magicians by surrounding them with effective but down-to-earth talents. It has become a diet of collapsing soufflés.

What held back Wenger from buying the linchpin midfielder he has lacked for many years? Money is only part of the explanation. All added up, Arsenal do spend: their collective wage bill is the fourth-highest in the League. But Wenger has always been reluctant to lavish cash on a single star player, let alone a steely one. Rather two nice players than one great one.

The power of habit has become debilitating. Like a wealthy but conservative shopper who keeps going back to the same clothes shop, Wenger habituates the same strata of the transfer market. When he can’t get what he needs, he’s happy to come back home with something he’s already got, ­usually an elegant midfielder, tidy passer, gets bounced in big games, prone to going missing. Another button-down blue shirt for a drawer that is well stuffed.

It is almost universally accepted that, as a business, Arsenal are England’s leading club. Where their rivals rely on bailouts from oligarchs or highly leveraged debt, Arsenal took tough choices early and now appear financially secure – helped by their manager’s ability to engineer qualification for the Champions League every season while avoiding excessive transfer costs. Does that count for anything?

After the financial crisis, I had a revealing conversation with the owner of a private bank that had sailed through the turmoil. Being cautious and Swiss, he explained, he had always kept more capital reserves than the norm. As a result, the bank had made less money in boom years. “If I’d been a normal chief executive, I’d have been fired by the board,” he said. Instead, when the economic winds turned, he was much better placed than more bullish rivals. As a competitive strategy, his winning hand was only laid bare by the arrival of harder times.

In football, however, the crash never came. We all wrote that football’s insane spending couldn’t go on but the pace has only quickened. Even the Premier League’s bosses confessed to being surprised by the last extravagant round of television deals – the cash that eventually flows into the hands of managers and then the pockets of players and their agents.

By refusing to splash out on the players he needed, whatever the cost, Wenger was hedged for a downturn that never arrived.

What an irony it would be if football’s bust comes after he has departed. Imagine the scenario. The oligarchs move on, finding fresh ways of achieving fame, respectability and the protection achieved by entering the English establishment. The clubs loaded with debt are forced to cut their spending. Arsenal, benefiting from their solid business model, sail into an outright lead, mopping up star talent and trophies all round.

It’s often said that Wenger – early to invest in data analytics and worldwide scouts; a pioneer of player fitness and lifestyle – was overtaken by imitators. There is a second dimension to the question of time and circumstance. He helped to create and build Arsenal’s off-field robustness, even though football’s crazy economics haven’t yet proved its underlying value.

If the wind turns, Arsène Wenger may face a frustrating legacy: yesterday’s man and yet twice ahead of his time. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit