Balls to Osborne: Go on, borrow more

By Peter Hoskin
_{Follow Peter on Twitter}

The hull of HMS Ed Balls has taken a real pounding in recent months – the Guardian published an editorial calling for him to be replaced; prominent lefties have written letters to the same effect; and David Miliband has been touted as a likely substitute. And yet, this week, Mr Balls appears to be bobbing happily across Westminster’s waters.

First, a poll suggested that voters are keener on policies when his name is attached to them. And now the shadow chancellor uses an interview with the Daily Telegraph to make a bold demand of George Osborne: to cut the basic rate of income tax in next week’s Budget. “If George Osborne, in this Budget, were to cut the basic rate of income tax, he says, “we would applaud him.”

The last time a Labour government cut the basic rate they funded it by scrapping the 10p rate. So how would Balls, if here were Chancellor, fund it this time around? The tax on bankers’ bonuses that would totally, definitely raise about £50 squillion? The mansion tax? No, here’s the kicker: according to the Telegraph report that accompanies the interview, Balls reckons Mr Osborne should fund it by borrowing more, at least temporarily.

There’s something significant about this. Of course, we already know – thanks to the Institute for Fiscal Studies, as well as Everything We Know About Politics – that a Labour Government would be borrowing more right now. But this is something that, on the whole, they’ve been reluctant to highlight themselves. That’s why they’ve tended to suggest a tax rise for every tax cut or spending hike (even if it’s the same tax rise each time). It’s why they have shied away from the words “deficit-financed stimulus”. And yet Mr Balls now seems to be recommending something along those very lines.

And it comes at a time when others are mooting the idea of extra borrowing to fund more spending or less taxation. Exhibit A is with Vince Cable’s “balance of risks” article for the New Statesman, earlier this month. But there are other exhibits, too, including the final paragraph of this recent Economist editorial. Neither may support Ed Balls’ calls for an income tax cut, but there’s a unifying theme between them all: borrow for growth.    

But there’s a problem for Mr Balls. As much as the mood music is changing, the public still broadly support the Coalition’s plans for deficit reduction – and it will be difficult to make them shift. Back in January, Ed Miliband argued that the government, with its rising deficit forecasts, is “borrowing for failure”. Can he and Mr Balls really convince people that there’s an alternative called “borrowing for success”?