All the discussion in the press room ahead of Ed Balls’s speech to Labour conference was over what surprises he would spring. Last year he memorably used his address to threaten to withdraw support from HS2. For a pre-election conference, the two announcements briefed last night – a 5 per cent cut in ministers’ pay followed by a freeze, and a 1 per cent cap on child benefit increases for the first two years of a Labour government – seemed rather modest.
But as Balls reached his Brown-esque peroration, it became clear that there was no rabbit lurking in the shadow chancellor’s hat. The speech largely consisted of a series of previously announced crowd-pleasing promises – the repeal of the NHS act, no new free schools in areas with surplus places, the abolition of the bedroom tax, scrapping PCCs, and the restoration of the 50p tax rate – and a reaffirmation of Labour’s commitment to fiscal discipline.
There was, however, a significant new line on the latter. Balls announced for the first time that “in our manifesto there will be no proposals for any new spending paid for by additional borrowing.” As I’ve previously reported, having pledged to eliminate the current account deficit, rather than the total deficit (in contrast to George Osborne), Balls had left himself with room to borrow for capital spending (such as housing, roads and other infrastructure projects).
But as a spokesman for the shadow chancellor confirmed to me after the speech, he has now ruled out this option. “We will not make proposals in the manifesto for extra capital spending paid for by borrowing,” I was told. Policy commitments such as the pledge to build 200,000 houses a year by 2020 will be delivered by “prioritising housing investment within the existing capital settlement for the next parliament.” Having rejected the option of extra borrowing, Labour will now need to meet all its promises through tax rises or spending cuts elsewhere. Austerity really is here to stay.
That Balls felt it necessary to make this move is an acknowledgment of Labour’s weakness in this area. With polls showing that the party is still blamed by many voters for the financial crisis, and that the Conservatives enjoy a double-digit lead on economic trust, he was not prepared to gift the Tories an attack line by promising to borrow more. “It’s important to show all our pledges can be fully paid for,” a spokesman told me.
It is a decision that will dismay activists and economists on the left, who have urged Labour to pursue a Keynesian strategy of investment, but Balls will argue that it was a political necessity. Unless voters trust the party to manage the public finances, there may not be a Labour government at all. To be radical (freezing energy prices, capping rent increases, breaking up the banks, introducing a mansion tax), Labour also has to be credible. But some will question whether the right balance has been struck today.