What a difference two years make

The reaction to Ed Balls’ speech on deficit reduction at the Fabian New Year Conference on Saturday couldn’t be more different to the reaction to the speech he made on the same subject to the same conference back in January 2012.

Of course there has been a Tory attack on the proposed increase in the top rate of tax back to 50p. But in Labour’s ranks there has been a solidly positive response to the speech, in sharp contrast to 2012.

I was on my way down to a party meeting in Kent when the 2012 Balls speech was made and remember Twitter going crazy as the Party’s left lined up to kick Ed. His crime was to suggest that as well as a “stimulus now to get the economy moving” we needed “a tough but balanced medium-term deficit plan” and that this meant we had to “be honest with the British people that under Labour there will have to be cuts, and that – on spending, pay and pensions – there will be disappointments and difficult decisions from which we will not flinch.”

A combination of the message, its specific application to resisting public sector union demands for a pay increase, and a failure to consult or inform those unions before the speech – described at the time by the Guardian’s Michael White as ” bad manners and … very bad politics” – meant that Balls and his boss Ed Miliband got publicly flayed by union leaders including Len McCluskey.

Len used a Guardian article to react by saying Ed Miliband was heading towards “the destruction of the Labour Party as constituted, as well as certain general election defeat”, and said that Balls’ “sudden weekend embrace of austerity and the government’s public-sector pay squeeze represents a victory for discredited Blairism at the expense of the party’s core supporters”. He even compared Balls to Ramsay MacDonald’s Chancellor Philip Snowden, one of the ultimate Labour insults, as well as talking about “Liam Byrne, Jim Murphy, Stephen Twigg and now Ed Balls: four horsemen of the austerity apocalypse.”

The subsequent NEC meeting was easily the most acrimonious, vituperative and unpleasant I attended. One observer described it as a carefully choreographed organised head-kicking for Ed Miliband (Balls avoided having to listen to the attacks on him as, like most of the Shadow Cabinet, he is not an NEC member). It was certainly a lonely experience for me coming in at the end of the “debate” on Ed’s report to say I had agreed with the stance his Shadow Chancellor had taken.

It was the point in this period in opposition where I most feared we were about to go down the same path of internal self-destruction we had in the early 1980s.

We didn’t, and two years later, Ed Balls has been able to deliver a similarly fiscally cautious message and get away with it.

His core message was remarkably similar:

“we must make sure the sums add up.

We cannot and will not duck the hard choices ahead.

Without fiscal discipline and a credible commitment to eliminate the deficit, we cannot achieve the stability we need.”

But Balls got the politics right this time by ensuring that the headline victims of the attempt to balance the budget will be the 1% of tax-payers earning more than £150,000 per year, rather than the focus in the previous speech on sticking to a pay freeze for all 5.6 million public sector workers (“Pay restraint in the public sector in this parliament would have been necessary whoever was in government”).

Put crudely, 5.6 million voters are more important electorally than 0.3 million (before anyone rushes to point it out, I will pedantically note that a tiny number of the people paying the 50p rate will be public sector workers e.g. about 600 senior council staff nationwide). And the 5.6 million are heavily represented in Labour’s own structures through our three biggest affiliates, including some of the NEC reps who had the harshest things to say back at that 2012 NEC meeting. Morally, the 0.3 million can afford it more. And economically if you have to hit people’s personal incomes doing it at the top is less likely to choke off recovery than at the bottom because the least well-off spend almost all of their disposable income, so cutting or boosting that has a more direct impact on immediate economic demand than at the top of the pay tree.

Balls explained the nuances of Keynesianism in his 2012 speech and this is consistent with classical Keynes – you boost spending and cut taxes to respond to a downturn but when the economy begins to recover you need a period of balancing the books.

Time has also been a great healer. As you get nearer to a General Election, Labour’s ranks usually close around the leadership because it’s too damaging to have big rows during the period while voters are making up their minds, and the questions of what one might do in government suddenly become real and require realistic answers, not rhetoric or theoretical stances. So the other half of Balls’ equation, that “there will be no more borrowing for day-to-day spending”, “by examining every pound spent by government from the bottom up, we will root out waste and inefficiency” and “we will look at new ways of delivering public services suited to tougher times” have had a blind eye turned to them by the left in the party and the trade unions.

Overall, the speech bodes well. Populist but fiscally and economically cautious, it showed Balls is determined to shut down the space for attacks on Labour’s economic credibility to be a threat in the General Election. And the reaction shows Labour has grown up a lot in the last two years and is serious about what it will take to return to power.