George Osborne’s planned vote on an updated Charter for Budget Responsibility, the details of which he announced yesterday, couldn’t have been more clearly designed as a trap for Labour had it been called “Charter to make Ed Balls look fiscally irresponsible”. The hope was that the opposition would be snared by rejecting the Chancellor’s proposed path of deficit reduction as too aggressive. But against Conservative expectations, Balls announced: “This Charter is consistent with our position so we’ll vote for it”.
Three points meant the shadow chancellor felt able to support the Charter. The first was that it proposed eliminating the structural current deficit (the part that remains even after the economy has returned to normal growth), rather than the overall deficit. The need to win Lib Dem approval meant Osborne was unable to include the tougher target he announced at the Conservative conference in 2013. The result, as Balls noted, was that the Charter “adopted the same measure of the deficit the Labour Party has been committed to targeting for the last three years”.
The second was that rather than pledging to eliminate the structural current deficit by the fixed date of 2017-18, as earlier reports had suggested, the Charter insted pledged to eradicate it over a rolling, three-year period. This flexibility, built in at the urging of Vince Cable, means a future government could run a deficit in 2017-18 as long as it is forecast to clear it by 2020-21.
The third was that Osborne’s fiscal mandate was downgraded from a “target” to an “aim”, allowing the next government even greater flexibility over when the deficit is eliminated. This meant the Charter was compatible with Balls’s aim to eradicate the current deficit “as soon as possible in the next parliament” and his rejection of a fixed date.
But having avoided the trap of being seen as fiscally reckless, some argue that Labour has fallen into another trap by siding with the Tories. The SNP, Plaid Cymru and the Greens will use the move to argue that there is now no difference between the two parties on austerity. But Labour points out that its key dividing lines with the Conservatives remain intact. “We are still firmly opposing Tory plans to take public spending down to 35 per cent,” a Balls aide told me. By pledging to impose further tax rises on the wealthy (a 50p tax rate, a mansion tax, a bankers’ bonus tax, a steeper bank levy, curbs on pension tax relief) and to borrow for investment, Labour has given itself room to avoid £50bn of planned Conservative cuts.
Balls rightly rejected those (including one shadow cabinet minister) who urged the party to simply match Osborne’s plans and refuse to borrow for investment. As one Blairite shadow minister told me yesterday, achieving “credibility” on the deficit does not mean hugging the Conservatives close in the manner of New Labour.
Despite the Tories’ long-standing poll lead on the economy, Labour can take comfort from the finding that most voters support its policy. A ComRes/Independent survey found that 66 per cent do not believe that cuts should continue until the overall deficit has been eliminated with just 30 per cent in favour.
The Tories will continue to denounce Labour’s position as too soft, while the left denounces it as too hard, but Balls can justifiably argue that he has struck the appropriate balance between credibility and radicalism.