Balls's smart new dividing line with Osborne: a recovery for the few or one for the many?

With the return of the economy to growth, the shadow chancellor seeks to shift the terms of the debate in Labour's favour.

This week's GDP figures (released on Thursday) will further cheer Tory spirits, with the economy thought to have grown by around 0.6% in the second quarter. It may have been three years in coming, but finally, it seems, the recovery has begun.

For Labour, the return of growth represents a political challenge. While welcoming the positive figures, it must avoid letting George Osborne off the hook for what remains the slowest recovery for more than 100 years. In his pre-emptive response in today's Guardian, Ed Balls attempts to perform this balancing act, describing any growth as "both welcome and hugely overdue". In order to make up the ground the UK has lost since 2010, he notes, the economy would need to grow by 1.3% a quarter for the next two years. 

It was Balls who, almost alone among the political class, warned that premature tax rises and spending cuts could strangle growth in his 2010 Bloomberg speech. But as he conceded in another recent speech, the last thing the public "want to hear from any politician is 'we told you so'". Labour must avoid making the error of attempting to re-run the 2010 election and of seeking to prove a counter-factual: that growth would have been stronger had the last government remained in power. 

Mindful of this, Balls wisely uses the piece to stake out a new dividing line with Osborne. The question now is less whether we have a recovery or not (although, as he rightly points, no one should repeat the error of taking growth for granted) but what kind of recovery we have. Is it one for the few or one for the many? While bank bonuses rose to £4bn in April as high-earners deferred their payouts in order to take advantage of the reduction in the top rate of tax from 50p to 45p, real wages are still falling and are forecast to do so until at least 2015. The next election could be the first in modern history that sees the majority of voters worse off at the end of the parliament than they were at the start. 

It's a smart line of attack, which is why it's encouraging that Labour seems intent on developing it. Balls announces that later this week he will launch a transatlantic commission on "inclusive prosperity" with Larry Summers, his former Harvard tutor and Bill Clinton's former Treasury secretary, to "investigate what reforms our countries need to generate more high-wage jobs for the future".

Many on the left have criticised Summers for his role in the 1990s financial deregulation that paved the way for the crash (for which he has since apologised), but he has consistently been on the right side of the austerity vs. stimulus debate, memorably declaring in April 2011: "I find the idea of an expansionary fiscal contraction in the context of the world in which we now live to be every bit as oxymoronic as it sounds. And I think the consequences are likely to be very serious for the countries involved."

He added of Britain: "I have always been a believer in being an empiricist about my convictions. So I would be happy to say that if Britain enjoys a boom over the next two years, coming from increased confidence I would be required to quite radically rethink my view as to how the macro economy operates…and be quite contrite about the seriousness of the misjudgements that I’m making. Those of you who know me can make a judgement about how big a risk I would take of putting myself in a position of great contrition and you might therefore conclude that I’m fairly confident that this experiment is not going to work out well." Unfortunately for the UK, Summers was entirely right in his assessment.

But while Balls and his fellow Keynesians lost the debate in 2010, they could yet win it in 2015. In that task, Summers will prove a valuable ally. 

George Osborne and Ed Balls attend the State Opening of Parliament on May 8, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Ken Livingstone says publicly what many are saying privately: tomorrow belongs to John McDonnell

The Shadow Chancellor has emerged as a frontrunner should another Labour leadership election happen. 

“It would be John.” Ken Livingstone, one of Jeremy Corbyn’s most vocal allies in the media, has said publicly what many are saying privately: if something does happen to Corbyn, or should he choose to step down, place your bets on John McDonnell. Livingstone, speaking to Russia Today, said that if Corbyn were "pushed under a bus", John McDonnell, the shadow chancellor, would be the preferred candidate to replace him.

Even among the Labour leader’s allies, speculation is rife as to if the Islington North MP will lead the party into the 2020 election. Corbyn would be 71 in 2020 – the oldest candidate for Prime Minister since Clement Attlee lost the 1955 election aged 72.

While Corbyn is said to be enjoying the role at present, he still resents the intrusion of much of the press and dislikes many of the duties of the party leader. McDonnell, however, has impressed even some critics with his increasingly polished TV performances and has wowed a few sceptical donors. One big donor, who was thinking of pulling their money, confided that a one-on-one chat with the shadow chancellor had left them feeling much happier than a similar chat with Ed Miliband.

The issue of the succession is widely discussed on the left. For many, having waited decades to achieve a position of power, pinning their hopes on the health of one man would be unforgivably foolish. One historically-minded trade union official points out that Hugh Gaitskell, at 56, and John Smith, at 55, were 10 and 11 years younger than Corbyn when they died. In 1994, the right was ready and had two natural successors in the shape of Tony Blair and Gordon Brown in place. In 1963, the right was unprepared and lost the leadership to Harold Wilson, from the party's centre. "If something happens, or he just decides to call it a day, [we have to make sure] it will be '94 not '63," they observed.

While McDonnell is just two years younger than Corbyn, his closest ally in politics and a close personal friend, he is seen by some as considerably more vigorous. His increasingly frequent outings on television have seen him emerge as one of the most adept media performers from the Labour left, and he has won internal plaudits for his recent tussles with George Osborne over the tax bill.

The left’s hopes of securing a non-Corbyn candidate on the ballot have been boosted in recent weeks. The parliamentary Labour party’s successful attempt to boot Steve Rotheram off the party’s ruling NEC, while superficially a victory for the party’s Corbynsceptics, revealed that the numbers are still there for a candidate of the left to make the ballot. 30 MPs voted to keep Rotheram in place, with many MPs from the left of the party, including McDonnell, Corbyn, Diane Abbott and John Trickett, abstaining.

The ballot threshold has risen due to a little-noticed rule change, agreed over the summer, to give members of the European Parliament equal rights with members of the Westminster Parliament. However, Labour’s MEPs are more leftwing, on the whole, than the party in Westminster . In addition, party members vote on the order that Labour MEPs appear on the party list, increasing (or decreasing) their chances of being re-elected, making them more likely to be susceptible to an organised campaign to secure a place for a leftwinger on the ballot.

That makes it – in the views of many key players – incredibly likely that the necessary 51 nominations to secure a place on the ballot are well within reach for the left, particularly if by-election selections in Ogmore, where the sitting MP, is standing down to run for the Welsh Assembly, and Sheffield Brightside, where Harry Harpham has died, return candidates from the party’s left.

McDonnell’s rivals on the left of the party are believed to have fallen short for one reason or another. Clive Lewis, who many party activists believe could provide Corbynism without the historical baggage of the man himself, is unlikely to be able to secure the nominations necessary to make the ballot.

Any left candidate’s route to the ballot paper runs through the 2015 intake, who are on the whole more leftwing than their predecessors. But Lewis has alienated many of his potential allies, with his antics in the 2015 intake’s WhatsApp group a sore point for many. “He has brought too much politics into it,” complained one MP who is also on the left of the party. (The group is usually used for blowing off steam and arranging social events.)

Lisa Nandy, who is from the soft left rather than the left of the party, is widely believed to be in the running also, despite her ruling out any leadership ambitions in a recent interview with the New Statesman.However, she would represent a break from the Corbynite approach, albeit a more leftwing one than Dan Jarvis or Hilary Benn.

Local party chairs in no doubt that the shadow chancellor is profiling should another leadership election arise. One constituency chair noted to the New Statesman that: “you could tell who was going for it [last time], because they were desperate to speak [at events]”. Tom Watson, Caroline Flint, Chuka Umunna, Yvette Cooper, Andy Burnham and Liz Kendall all visited local parties across the country in preparation for their election bids in 2015.

Now, speaking to local party activists, four names are mentioned more than any other: Dan Jarvis, currently on the backbenches, but in whom the hopes – and the donations – of many who are disillusioned by the current leadership are invested, Gloria De Piero, who is touring the country as part of the party’s voter registration drive, her close ally Jon Ashworth, and John McDonnell.

Another close ally of Corbyn and McDonnell, who worked closely on the leadership election, is in no doubt that the shadow chancellor is gearing up for a run should the need arise.  “You remember when that nice Mr Watson went touring the country? Well, pay attention to John’s movements.”

As for his chances of success, McDonnell may well be even more popular among members than Corbyn himself. He is regularly at or near the top of LabourList's shadow cabinet rankings, and is frequently praised by members. Should he be able to secure the nominations to get on the ballot, an even bigger victory than that secured by Corbyn in September is not out of the question.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.