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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.

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

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.