Why Labour can't and won't go on a "spending spree"

Balls has left himself with room to borrow to invest but the party's fiscal rules mean total spending will be falling for almost every year of the next parliament.

Was Ed Balls's latest commitment to fiscal responsibility just smoke and mirrors? That's the suggestion on the front of today's Times, which declares "Labour’s spending spree to cost £25bn". The paper reports that the party has "quietly drawn up spending plans that would allow it to borrow £25 billion more than the Tories after the next election, despite promising to match George Osborne’s pledge of clearing the deficit.

"A 'sleight of hand' by Ed Balls means he would be able to slow the pace of public cuts proposed by the Tories, opening up a further ideological divide between the two parties."

This refers to the fact that while pledging to eliminate the current budget deficit by the end of the next parliament, Labour has left itself with room to borrow for capital spending (unlike George Osborne, who has vowed to achieve an absolute budget surplus by 2020 at the latest). Judging by the Times's report, you might assume that Balls had hidden this fact. But the reverse is the case. Labour isn't matching the Conservatives' pledge to eliminate the total deficit and Balls was careful not to suggest otherwise. As he said in his speech at the Fabian Society conference last weekend, 

I am today announcing a binding fiscal commitment. The next Labour government will balance the books and deliver a surplus on the current budget [emphasis mine] and falling national debt in the next Parliament. So my message to my party and the country is this: where this government has failed, we will finish the job...We will get the current budget into surplus as soon as possible in the next Parliament. How fast we can go will depend on the state of the economy and public finances we inherit.

There was no "sleight of hand". 

Most of the media didn't bother to distinguish between current (day-to-day spending on public services, e.g. teachers' salaries and hospital drugs) and capital spending (investment in assets such as housing and roads) but the difference was there for those paying attention. 

Labour's position remains that it will make a formal decision on whether to borrow for capital spending closer to the election when economic circumstances are clearer. As Balls said in my recent interview with him, "In the speech I gave at Reuters in the summer, I said, and Ed and I both said, that’s a decision we should make much closer to the election when we’ve got more information about what the state of the economy is going to be. So we’ve been very clear, no more borrowing for day-to-day spending, but on the capital side that’s something that we’re going to continue to look at. I’m not going to rule it out, but I’m also not going to say now that it’s definitely the right thing to do."

So while there has been no deception from Balls, is he still planning a "spending spree" if he's back in the Treasury after May 2015? Again, the answer is no. As well as promising to eliminate the current budget surplus, Balls has also pledged to ensure "falling national debt" (as a proportion of GDP) in the next parliament. This second fiscal rule, which includes both current and capital expenditure, means that Labour won't be able to "spend like drunken sailors" regardless of what some on the left would wish. Total spending, the lion's share of which is current expenditure, will be falling for the majority of the next parliament. As the Times's own Daniel Finkelstein noted in his column yesterday, Labour is now committed to "a very difficult period of deficit reduction". Has the party left itself with room to spend more than the Tories? Absolutely. But there will be nothing resembling a "spending spree".

Of course, were there to be another financial crisis or a similar disaster, it's possible that Labour would abandon one or both of its fiscal rules (as Gordon Brown did in 2008 and as George Osborne did in 2012) but that wouldn't be a spending spree but an acknowledgment of economic reality. 

That the Times has taken none of the above into account has infuriated the party this morning. Labour has long been angered by what it views as the paper's increasingly partisan coverage under new editor John Witherow (a front page last year declaring "Labour engulfed by Co-op scandal" provoked particular ire) and today's splash will only worsen relations. 

Ed Miliband and Ed Balls at the Labour conference in Brighton last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Will Euroscepticism prove an unbeatable advantage in the Conservative leadership race?

Conservative members who are eager for Brexit are still searching for a heavyweight champion - and they could yet inherit the earth.

Put your money on Liam Fox? The former Defence Secretary has been given a boost by the news that ConservativeHome’s rolling survey of party members preferences for the next Conservative leader. Jeremy Wilson at BusinessInsider and James Millar at the Sunday Post have both tipped Fox for the top job.

Are they right? The expectation among Conservative MPs is that there will be several candidates from the Tory right: Dominic Raab, Priti Patel and potentially Owen Paterson could all be candidates, while Boris Johnson, in the words of one: “rides both horses – is he the candidate of the left, of the right, or both?”

MPs will whittle down the field of candidates to a top two, who will then be voted on by the membership.  (As Graham Brady, chair of the 1922 Committee, notes in his interview with my colleague George Eaton, Conservative MPs could choose to offer a wider field if they so desired, but would be unlikely to surrender more power to party activists.)

The extreme likelihood is that that contest will be between two candidates: George Osborne and not-George Osborne.  “We know that the Chancellor has a bye to the final,” one minister observes, “But once you’re in the final – well, then it’s anyone’s game.”

Could “not-George Osborne” be Liam Fox? Well, the difficulty, as one MP observes, is we don’t really know what the Conservative leadership election is about:

“We don’t even know what the questions are to which the candidates will attempt to present themselves as the answer. Usually, that question would be: who can win us the election? But now that Labour have Corbyn, that question is taken care of.”

So what’s the question that MPs will be asking? We simply don’t know – and it may be that they come to a very different conclusion to their members, just as in 2001, when Ken Clarke won among MPs – before being defeated in a landslide by Conservative activists.

Much depends not only on the outcome of the European referendum, but also on its conduct. If the contest is particularly bruising, it may be that MPs are looking for a candidate who will “heal and settle”, in the words of one. That would disadvantage Fox, who will likely be a combative presence in the European referendum, and could benefit Boris Johnson, who, as one MP put it, “rides both horses” and will be less intimately linked with the referendum and its outcome than Osborne.

But equally, it could be that Euroscepticism proves to be a less powerful card than we currently expect. Ignoring the not inconsiderable organisational hurdles that have to be cleared to beat Theresa May, Boris Johnson, and potentially any or all of the “next generation” of Sajid Javid, Nicky Morgan or Stephen Crabb, we simply don’t know what the reaction of Conservative members to the In-Out referendum will be.

Firstly, there’s a non-trivial possibility that Leave could still win, despite its difficulties at centre-forward. The incentive to “reward” an Outer will be smaller. But if Britain votes to Remain – and if that vote is seen by Conservative members as the result of “dirty tricks” by the Conservative leadership – it could be that many members, far from sticking around for another three to four years to vote in the election, simply decide to leave. The last time that Cameron went against the dearest instincts of many of his party grassroots, the result was victory for the Prime Minister – and an activist base that, as the result of defections to Ukip and cancelled membership fees, is more socially liberal and more sympathetic to Cameron than it was before. Don’t forget that, for all the worry about “entryism” in the Labour leadership, it was “exitism” – of Labour members who supported David Miliband and liked the New Labour years  - that shifted that party towards Jeremy Corbyn.

It could be that if – as Brady predicts in this week’s New Statesman – the final two is an Inner and an Outer, the Eurosceptic candidate finds that the members who might have backed them are simply no longer around.

It comes back to the biggest known unknown in the race to succeed Cameron: Conservative members. For the first time in British political history, a Prime Minister will be chosen, not by MPs with an electoral mandate of their own or by voters at a general election but by an entirelyself-selecting group: party members. And we simply don't know enough about what they feel - yet. 

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