Balls reaffirms Labour's commitment to cuts in 2015

Labour states unambiguously that it will be "cutting departmental spending in 2015-16" and will not borrow for "day-to-day spending".

While Labour's "cost-of-living" offensive has allowed it to reframe the economic debate in its favour, senior figures in the party know that it will struggle to win a majority unless it can convince voters that it can be trusted to spend money wisely. As Ed Balls says in his interview in today's FT, "Unless we can show . . . that we’ve got a plan which will work, the public won’t think that we will solve the cost of living crisis". 

To prove that Labour does have such a plan, Balls has launched the first phase of his "zero-based" spending review today. A zero-based review differs from others by requiring every item of spending to be approved, rather than merely changes to a pre-determined baseline. In other words, nothing is off the table. Labour plans to scrutinise spending in every area, including those protected by the coalition: the NHS, schools and international development. The document contains the most explicit statement yet that the party will cut departmental spending in 2015-16 and will not borrow to meet day-to-day spending:

We will be cutting departmental spending in 2015-16 and not raising it, with no more borrowing to cover day-to-day spending
The deficit forecasts might be slightly less dreadful than before (the OBR now expects the deficit to be £79bn in 2015-16 compared to £96bn in March; its 2010 forecast was £20bn), but the OBR's judgement that the improvement in the public finances is almost entirely cyclical means that the structural deficit (the part of the deficit that exists regardless of the level of economic output) is deemed to be no smaller than before; austerity cannot be avoided. 
 
But while Labour is committed to matching Osborne's departmental spending plans, there are many different ways to spend £313bn (the spending limit set by the coalition for 2015-16). While remaining within the Chancellor's fiscal envelope, Labour plans to identify "savings" and "switches" that better reflect its "priorities" (what Nye Bevan called "the religion of socialism"). As Balls suggested in his speech in June, this could include withdrawing funding for free schools in areas with surplus places, scrapping Police and Crime Commissioners, cutting the number of army officers and admirals, merging the four separate government motorist agencies, combining management functions in government departments, agencies, fire services and police forces, and requiring industries to contribute more to the cost of regulation. The party is also likely to vary the ratio of spending cuts to tax rises within Osborne's deficit reduction programme, for instance by reintroducing the 50p tax rate. 
 
These switch-spends and tax decisions will be included in Labour's manifesto, with a full Spending Review to follow after the election. It is also in the manifesto that the party will announce which areas, if any, it intends to ring-fence. This will almost certainly include the NHS. Polls show that it is the most popular spending area with voters and the above-average rate of inflation in the health service means it frequently requires real-terms rises just to stand still. With the Tories making it clear that they would continue to ring-fence the NHS after 2015, Labour has no intention of handing them an easy political victory. 
 
Here's the timetable for the zero-based review:
Phase 1 of the Zero-Based Review will involve the Shadow Chief Secretary and the Treasury team working with individual departments on a detailed response to the questions raised in this initial document. 
 
Phase 2 of the work will then identify initial savings and switches to reflect Labour's priorities and report before our manifesto. 
 
Phase 3 covering our first year in Government, will see the implementation of any immediate switches/changes to inherited plans and work on a full spending review for 2016-17 onwards. 
Two other points are worth noting. The first is that Balls has left himself room to borrow more than Osborne to fund investment in infrastructure, telling the FT that "any decision about capital" will depend on "the state of the economy". While polls show that voters are supportive of borrowing for areas such as housing, Labour will need to make the argument early enough to counter the inevitable charge from the Tories that it is planning more of the borrowing that "got us into this mess". 
 
The second is that the big fiscal question is not whether Labour will match the coalition's spending limits in 2015-16 (most governments deviate little from the plans they inherit) but whether it will remain within Osborne's envelope for the entire parliament. But for both political and economic reasons, don't expect an answer to that until after 2015. 
Ed Balls speaks at the CBI's annual conference on November 4, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Ignored by the media, the Liberal Democrats are experiencing a revival

The crushed Liberals are doing particularly well in areas that voted Conservative in 2015 - and Remain in 2016. 

The Liberal Democrats had another good night last night, making big gains in by-elections. They won Adeyfield West, a seat they have never held in Dacorum, with a massive swing. They were up by close to the 20 points in the Derby seat of Allestree, beating Labour into second place. And they won a seat in the Cotswolds, which borders the vacant seat of Witney.

It’s worth noting that they also went backwards in a safe Labour ward in Blackpool and a safe Conservative seat in Northamptonshire.  But the overall pattern is clear, and it’s not merely confined to last night: the Liberal Democrats are enjoying a mini-revival, particularly in the south-east.

Of course, it doesn’t appear to be making itself felt in the Liberal Democrats’ poll share. “After Corbyn's election,” my colleague George tweeted recently, “Some predicted Lib Dems would rise like Lazarus. But poll ratings still stuck at 8 per cent.” Prior to the local elections, I was pessimistic that the so-called Liberal Democrat fightback could make itself felt at a national contest, when the party would have to fight on multiple fronts.

But the local elections – the first time since 1968 when every part of the mainland United Kingdom has had a vote on outside of a general election – proved that completely wrong. They  picked up 30 seats across England, though they had something of a nightmare in Stockport, and were reduced to just one seat in the Welsh Assembly. Their woes continued in Scotland, however, where they slipped to fifth place. They were even back to the third place had those votes been replicated on a national scale.

Polling has always been somewhat unkind to the Liberal Democrats outside of election campaigns, as the party has a low profile, particularly now it has just eight MPs. What appears to be happening at local by-elections and my expectation may be repeated at a general election is that when voters are presented with the option of a Liberal Democrat at the ballot box they find the idea surprisingly appealing.

Added to that, the Liberal Democrats’ happiest hunting grounds are clearly affluent, Conservative-leaning areas that voted for Remain in the referendum. All of which makes their hopes of a good second place in Witney – and a good night in the 2017 county councils – look rather less farfetched than you might expect. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.