Ed Balls shifts Labour’s position closer to the Lib Dems: is this the start of a Lib-Lab realignment?

by Stephen Tall on June 4, 2013

Ed Balls and Vince CableEd Balls’ speech to Thomson Reuters yesterday grabbed headlines for its concession that paying a winter fuel allowance to the wealthiest 5% of pensioners could no longer be justified. The likely saving — at c.£100m a year, no more than a rounding error in the national accounts – may be modest, but the symbolism is significant.

This is Labour accepting (at long last) the new normal of austerity: current departmental spending will continue to be reduced in the next few years even as the long-hoped-for economic growth returns. Though Labour’s shadow chancellor is hard-wired never to accept the fact, he is having to come to terms with the obvious – the Blair/Brown government made spending commitments the nation couldn’t afford (as Nick Thornsby set out here).

All parties were complicit in this, by the way. While ‘Sunshine Dave’ and the Tories promised to share the proceeds of growth, the Lib Dems committed to expanding pretty much every public service going — new police, teachers, and nurses – and just add it to the tab, please. We’d have all been a lot better off (quite literally) if political parties had paid attention to Keynes in the boom years, and not just when the credit bubble went pop.

Politically the move matters: it opens up the space (previously occupied solely by the Lib Dems) of targeting welfare spending where it’s needed most. As I’ve argued before, we should be unashamed of putting forward the case for re-distribution as the foundation of not only a decent society, but also a prosperous one. Where once only Nick Clegg feared to tread, it’s now likely Ed Miliband and David Cameron will also step forth. Only Nigel Farage will stick by pensioners’ perks, ensuring Des Lynam can continue to heat his modest des-res.

More important, though less commented on, was Ed Balls’ decision to trail the dropping of his VAT cut, the key step in his much-vaunted ‘5-point plan for growth’. This is sensible, which is more than can be said for the original idea: the fiscal multiplier on a temporary VAT cut is too low to make it worth the Government’s while.

Instead, Labour will prioritise extra borrowing on capital investment. Fair enough: the Coalition’s second biggest economic mistake was to follow Labour’s March 2010 spending plans and slash the investment budget as the ‘easy’ way to turn off the spending tap. (The biggest mistake, by the way, was to put George Osborne in charge of the economy.)

It seems all those text exchanges with Vince Cable have had the desired drip-drip effect: Ed Balls is starting to talk the Lib Dem language. Re-distributing taxpayers’ money to those who need it most. And recognising that borrowing to invest is prudent (but spending on the never-never isn’t). There’s a re-alignment taking shape in front of us here – and that may turn out to be the most significant aspect of all in what Mr Balls had to say.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, a Research Associate for the liberal think-tank CentreForum, and also writes at his own site, The Collected Stephen Tall.