Balls's threat to abandon support for HS2 sets him up for war with Adonis

Andrew Adonis, the head of Labour's growth review and the architect of the project, has warned that cancelling the programme would be an "act of national self-mutilation".

The most significant line in Ed Balls's speech to the Labour conference was on HS2. Having previously warned that there would be no "blank cheque" from his party for the new high-speed line, he went further today, questioning whether it was "the best way to spend £50bn for the future of our country".

Balls said:

Under this government the High Speed 2 project has been totally mismanaged and the costs have shot up to £50bn. David Cameron and George Osborne have made clear they will go full steam ahead with this project – no matter how much the costs spiral up and up. They seem willing to put their own pride and vanity above best value for money for the taxpayer.

Labour will not take this irresponsible approach. So let me be clear, in tough times – when there is less money around and a big deficit to get down – there will be no blank cheque from me as a Labour chancellor for this project or for any project.

Because the question is – not just whether a new high-speed line is a good idea or a bad idea, but whether it is the best way to spend £50bn for the future of our country. In tough times it's even more important that all our policies and commitments are properly costed and funded.

The signal from Balls that Labour is actively considering withdrawing support from the project raises the possibility of a major party split over the issue. Andrew Adonis, the former transport secretary and the architect of HS2, recently argued in the New Statesman that it would be an "act of national self-mutilation" to cancel the programme. As the party's shadow infrastructure minister and the head of the party's growth review, he remains a significant figure and would likely have to resign his post if Labour came out against the project.

In his piece, Adonis warned that the urgent need to increase rail capacity (the West Coast Main Line will be full by 2024) meant there was "no free lunch - or pot of gold which can be diverted to other projects in anything but the very short-term, with more costly consequences thereafter". But many in Labour would like to transfer funds from HS2 to a mass housebuilding programme. It would allow the party to differentiate itself from the Tories while remaining within George Osborne's fiscal envelope. Today, Balls made it clear that he is sympathetic to their demands.

Shadow chancellor Ed Balls speaks at the Labour conference in Brighton. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Getty Images.
Show Hide image

How austere will Philip Hammond be?

The Chancellor must choose between softening or abandoning George Osborne's approach in his Autumn Statement. 

After becoming Chancellor, Philip Hammond was swift to confirm that George Osborne's budget surplus target would be abandoned. The move was hailed by some as the beginning of a new era of fiscal policy - but it was more modest than it appeared. Rather than a statement of principle, the abandonment of the 2019-20 target was merely an acceptance of reality. In the absence of additional spending cuts or tax rises, it would inevitably be missed (as Osborne himself recognised following the EU referendum). The decision did not represent, as some suggested, "the end of austerity".

Ahead of his first Autumn Statement on 23 November, the defining choice facing Hammond is whether to make a more radical break. As a new Resolution Foundation report notes, the Chancellor could either delay the surplus target (the conservative option) or embrace an alternative goal. Were he to seek a current budget suplus, rather than an overall one (as Labour pledged at the last general election), Hammond would avoid the need for further austerity and give himself up to £17bn of headroom. This would allow him to borrow for investment and to provide support for the "just managing" families (as Theresa May calls them) who will be squeezed by the continuing benefits freeze.

Alternatively, should Hammond merely delay Osborne's surplus target by a year (to 2020-21), he would be forced to impose an additional £9bn of tax rises or spending cuts. Were he to reject any further fiscal tightening, a surplus would not be achieved until 2023-24 - too late to be politically relevant. 

The most logical option, as the Resolution Foundation concludes, is for Hammond to target a current surplus. But since entering office, both he and May have emphasised their continuing commitment to fiscal conservatism ("He talks about austerity – I call it living within our means," the latter told Jeremy Corbyn at her first PMQs). For Hammond to abandon the goal of the UK's first budget surplus since 2001-02 would be a defining moment. 

George Eaton is political editor of the New Statesman.