Shadow cabinet members are privately expressing concern that Ed Balls needs to adopt a more clearly defined position on the budget deficit after recent statements that have left many of them confused.
The debate has been given greater force by a shadow cabinet meeting a fortnight ago in which the shadow chancellor bluntly warned colleagues that even under a Labour government there would have to be serious cuts, leading to “bleeding stumps” in the subsequent parliament.Balls also added that it would be impossible for any government to achieve the scale of cuts currently promised by George Osborne if the Tories won the election.
With the chancellor’s autumn statement due on 3 December, Labour and the Conservatives are both expected to focus on the economy over the next few weeks. However, there is still uncertainty about the speed and nature of the fiscal tightening Labour will accept. One shadow cabinet member said: “We need to decide whether we are the bleeding stumps party or the bleeding hearts party.”
There is frustration in some quarters that Labour are unable to make any promises for increased capital investment even though Balls has allowed himself room for manoeuvre in this area. One frontbench figure said: “We have gone from a position in the first half of the parliament of criticising the government for going too far too fast to one in which we say, ‘We’ll cut as fast as we can.’ If we are going to cut, we should say what. If we’re not going to cut as fast, we should say so, and reap some of the political benefit from that. At the moment we’re doing neither.”
Balls and the shadow chief secretary Chris Leslie will shortly to publish some of the outcomes of its zero based spending reviews, including some on home affairs, the ministry of justice, local government and asset management. These will give some specific ideas on how the party will try to cut the deficit in the next parliament.
Labour’s fiscal stance, set out nearly a year ago, is that it will deliver a surplus or balance on the current budget “as soon as possible” in the next parliament, but this leaves a range of options. Labour has not been precise about when it would seek to deliver a surplus, or how large.
Some Labour figures want Balls to be more open that he has given himself more room for manoeuvre than the Tories, while others insist Labour’s historic lack of economic credibility requires him to minimise his differences with the Tories.
The first camp argue that Labour should spell out more clearly how public services will be protected, a position brought into focus by the call from the NHS leadership last week for an extra £8bn a year. Some shadow cabinet members in spending departments, and probably Balls, also doubt that the Conservatives could in reality achieve the spending cuts it has proposed by 2018-19 and it would be better for Labour to be open about this.
The second, which includes some of those at the heart of general election campaign, believe Labour’s lack of polling credibility on the economy requires Balls to hug the Tories close on the deficit, then differentiate later through radical plans to rebuild a new economy, including banking reform and devolution to cities. This group claim the party must protect itself from likely Tory accusations that Labour would borrow tens of billions more.The debate has been intensified by a differing assessments of whether the Conservatives are starting to damage their own economic credibility by suggesting it can eradicate the deficit by 2018 with unprecedented cuts in spending and simultaneously offer large scale, but as yet unfunded tax cuts worth more than £7bn a year.
Some argue that the Tory offer on tax giveaways gives Labour political space to draw up the traditional election dividing lines of Labour investment versus Tory cuts.
The Office of Budget Responsibility has said that on current plans the budget will reach a surplus in 2017-18.
Independent thinktanks such as the Institute of Fiscal Studies and the Resolution Foundation feel that if Labour targeted reaching a current account surplus in 2019-20, instead of 2017-18, it would have £28bn more to spend cumulatively or billions less to cut from departmental budgets.
The Conservatives, but not the coalition government, are committed to securing an overall budget surplus covering current and capital spending by 2018-19, and Osborne has said he is likely to stage a Commons vote on his fiscal plans in the wake of the autumn statement partly in a bid to flush Labour out.
Some of the concern within the Labour party was prompted by a conference announcement by Balls that “in our manifesto there will be no proposals for any new spending paid for by additional borrowing”.
Some feared Balls was tying himself down in a new way on capital spending on items such as housing, roads and other infrastructure projects.
Matthew Whittaker, chief economist at the Resolution Foundation thinktank, questioned whether such an austere interpretation should be placed on Balls’s remarks.
He said: “Despite committing at their party conference not to borrow to fund any new manifesto pledges on current or capital spending, Labour have made it clear that they would have the freedom to borrow to fund the existing capital budget in the next parliament – equivalent to around £27bn a year.”
Balls’s supporters argue that he may not need to reveal more detailed thinking at a time when the government is on the defensive over rising borrowing, caused in part by lower wages and lower than expected tax receipts.
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