Balls is waking the left up to a grim truth: Labour would cut too

Not only will Labour be unable to reverse the coalition's cuts, it will have to make its own.

As I reported last night, the major announcement in Ed Balls's speech on the economy today is that Labour would remove the winter fuel allowance from the wealthiest 5 per cent of pensioners. The policy is intended as an example of the "iron discipline" on spending that the shadow chancellor would pursue in office and is designed to exploit the division between the Tories and the Lib Dems on this issue. But as spending cuts go, it's small beer. The move will save just £100m a year (less than half a per cent of the £207bn welfare bill), making it almost entirely symbolic. "Labour have brought a pea-shooter to a bazooka fight", quipped Conservative Voice this morning. 

But that shouldn't detract from the political significance of the decision. As recently as January, Ed Miliband defended universal benefits (including the WFA) as part of the "bedrock of our society" but with his support for means-testing winter fuel payments, the Labour leader has dramatically changed tack. While shadow Treasury minister Chris Leslie insisted on the Today programme this morning that Labour had no plans to remove other benefits such as free TV licences and free bus passes from wealthy pensioners, the decision to break with universalism will make it easier to justify doing so in the future. It is also a signal that a Labour government would not prioritise the reintroduction of universal child benefit, removed by the coalition from those earning £50,000 or more earlier this year.  

Balls has long acknowledged that he won't be able to reverse all (or any) of the cuts imposed by the current government (to the fury of the left), but he's had much less to say about the further cuts that Labour would almost certainly have to make in office. Based on the most recent forecasts from the Office for Budget Responsibility, the party will inherit a deficit of £108bn, or 5.9 per cent, the largest of any western nation. While Labour is likely to opt for a more even split between tax rises and cuts than Osborne (who has adopted an 80:20 ratio in favour of cuts), the burden of austerity will still fall on government spending. For that reason, the most significant passage in Balls's speech today is this: 

[T]his is the hard reality. The last Labour government was able to plan its 1997 manifesto on the basis of rising departmental spending in the first years after the election. The next Labour government will have to plan on the basis of falling departmental spending. Ed Miliband and I know that, and my shadow cabinet colleagues know that too.

With the election less than two years away, Balls is gradually waking the left up to the grim truth that I mentioned earlier: not only will Labour be unable to reverse the coalition's cuts, it will have to make its own. Means-testing the winter fuel allowance might seem bad, but much worse is to come.

While emphasising the need for fiscal responsibility, Balls is rightly continuing to make the case for stimulus now. In his speech, he will call for Osborne to bring forward the capital spending increase promised after 2015 in order to boost growth and employment. Were the Chancellor to follow his advice, Labour's economic inheritance would become less grim. But, to put it mildly, recent history suggests that he is unlikely to do so. With this in mind, Balls has embarked on a gigantic softening-up exercise. And the battles to come will make today's skirmish look like a tea party. 

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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Forget gaining £350m a week, Brexit would cost the UK £300m a week

Figures from the government's own Office for Budget Responsibility reveal the negative economic impact Brexit would have. 

Even now, there are some who persist in claiming that Boris Johnson's use of the £350m a week figure was accurate. The UK's gross, as opposed to net EU contribution, is precisely this large, they say. Yet this ignores that Britain's annual rebate (which reduced its overall 2016 contribution to £252m a week) is not "returned" by Brussels but, rather, never leaves Britain to begin with. 

Then there is the £4.1bn that the government received from the EU in public funding, and the £1.5bn allocated directly to British organisations. Fine, the Leavers say, the latter could be better managed by the UK after Brexit (with more for the NHS and less for agriculture).

But this entire discussion ignores that EU withdrawal is set to leave the UK with less, rather than more, to spend. As Carl Emmerson, the deputy director of the Institute for Fiscal Studies, notes in a letter in today's Times: "The bigger picture is that the forecast health of the public finances was downgraded by £15bn per year - or almost £300m per week - as a direct result of the Brexit vote. Not only will we not regain control of £350m weekly as a result of Brexit, we are likely to make a net fiscal loss from it. Those are the numbers and forecasts which the government has adopted. It is perhaps surprising that members of the government are suggesting rather different figures."

The Office for Budget Responsibility forecasts, to which Emmerson refers, are shown below (the £15bn figure appearing in the 2020/21 column).

Some on the right contend that a blitz of tax cuts and deregulation following Brexit would unleash  higher growth. But aside from the deleterious economic and social consequences that could result, there is, as I noted yesterday, no majority in parliament or in the country for this course. 

George Eaton is political editor of the New Statesman.