Politicians in trouble traditionally say that they are resigning to spend more time with their families. Alan Johnson’s resignation last week over ‘personal issues’ was unusual in that it seemed for once to be genuine. That’s not to say that there weren’t political reasons also for his departure. Had the shadow chancellor been performing supremely well in his post, one suspects he might have persuaded himself that his country and his party needed him, and that he had a serious job to do whatever his wife was up to.
But either way, it looks like another lucky break for Ed Miliband, following his victory in the Oldham East and Saddleworth by-election, and the resignation of David Cameron’s communications director, Andy Coulson, over the phone-hacking scandal. Johnson’s departure gets Miliband out of the hole he had dug for himself by failing to appoint the right man for the treasury job in the first place. That man was, of course, Gordon Brown’s protégé, Ed Balls, the best economic thinker in the shadow cabinet by far. Miliband minor was left looking faintly ridiculous as Alan Johnson stumbled from gaffe to gaffe, celebrating his own ignorance of economics and stumbling over the rate of employers national insurance. It was obvious that Miliband had made the wrong call.
Sending Balls off to the home office was not only a waste of his talents, it showed the new Labour leader to be weak. Surely, the only reason for sidelining Balls was to prevent him dominating the cabinet on the economy. Now Miliband has had to accept Ed Balls as his shadow chancellor anyway, and the question everyone’s asking is: has Miliband minor got the balls to handle him? He has a very dangerous rival now, at his side - arguably a more dangerous rival than Gordon Brown was to Tony Blair. There may have been no Granita pact, but Balls is now immovable and owes his leader nothing. If Ed Miliband fails to raise his game as leader, and so far he has been pretty unimpressive, then the ‘other Ed’ will be watching for the main chance.
Balls was, of course, the man closest to Gordon Brown, having worked with the former PM since he left the Financial Times. Balls remained at his mentor’s side to the bitter end in the Brown bunker, even as the Tories were edging their tanks into Downing St.. A notoriously pugnacious faction-fighter, Balls is loathed by Labour “modernisers”, and was accused by Alistair Campbell of being “full of bile” towards Blairites. Mind you, Tony Blair’s former press spokesman knows a thing or two about bile himself. Alistair Darling fought like hell to keep Balls out of the Treasury, essentially because he believed him to be an irresponsible “deficit denier” who would simply carry on spending until the men in white coast were called in from the International Monetary Fund to carry him away from a bankrupt Britain.
For his part, Balls claimed that the former Labour Chancellor’s scheme to cut the deficit by half in four years, as endorsed by the new leader, Ed Miliband, was too far too fast; that it conceded far too much ground to the Tory cutters and denied Labour the opportunity of attacking David Cameron over rising unemployment and public spending cuts. If you look at the numbers, Darling was planning departmental spending cuts not far short of the 20% or so eventually imposed by the Tory Chancellor George Osborne.
This dispute between the Ballsites and the Millibites went into abeyance during the post election period largely because unemployment, rather to everyone’s surprise, failed to rise as expected to three million. The economy seemed to be recovering,despite the deflationary policies of the Coalition. However this fundamental issue hasn’t gone away, and as the UK economy falters in the current fitful recovery, questions of economic policy will become central again. Inflation in Britain is rocketing, as the Bank of England keeps interest rates low and prints money through quantitative easing. A rise in interest rates cannot be far off if the Bank wants to retain a shred of credibility in 2% inflation target. This will be a critical moment because Balls will oppose any increase in interest rates, while Ed Miliband likely will not, at least not right away.
As far as the Ballsites are concerned, inflation is a necessary by-product of any sustained recovery because it reduces the size of the government debt and forces consumers to buy rather than save. Cynical it may be, because inflation robs savers and pensioners, but that’s how the Left-Keynsians in the cabinet look at the economy: essentially as a question of getting people to spend money, even if they haven’t got it. Same with government spending. The Left Keysians believe that public spending should increase, even with public borrowing at £150bn, because the alternative is unemployment and increased benefit costs. Ed Miliband tended much more to the Alistair Darling view that Labour could not be a responsible alternative government if it did not realise and accept that spending in the later years of the Labour administration, had got out of control. To be credible, Darling argued, Labour simply had to recognise that the government debt was unsustainable and that public spending had to be cut, even if the short term impact of this was deflationary.
Balls as shadow chancellor will now push for a high spending, high borrowing economic agenda whatever his leader thinks. . Ed Miliband is already weakened by the fact that he was not the clear choice of his party, and won the leadership on the strength of the trade union vote. It could easily degenerate into a war of briefing between the two Eds. However, there’s one big difference with the TeeBee GeeBees: Balls is not likely to seise the crown. His wife, Yvette Cooper, now the shadow home secretary, is generally regarded in the party as the most likely future leader, should Ed Miliband fall under a bus. Now that really would be a first: A man and wife team seeking the highest positions of state, as Chancellor and PM respectively. Just think what their domestic rows would be like.