Matthew Hancock makes a trial run of the Treasury's case against Labour's new leader

by Paul Goodman

I'm about to write heresy on the pages of ConservativeHome.  Ed Balls' recent speech on the economy was a good one.  That's to say, it consisted of a developed argument, backed up by facts and figures - not a facile jumble of soundbites and slogans.  Balls' case was that spending cuts now will force a double dip recession soon, and it's supported by some financial commentators: read, for example, Martin Woolf in the Financial Times (no left-winger).  The central issue for the Government is delivering its plan to drive down the deficit during the course of the Parliament.  If it loses the coming argument it's unlikely to win the next election.

This morning, Matthew Hancock, the new Conservative MP for Suffolk West, makes a counter-case in the Times.  He won't thank me for saying so, but he's in some senses a new Balls -  who fulfilled part of the role for George Osborne, in Opposition, that Balls played for Gordon Brown during the 1990s.  So it's not unfitting that he should have a pop at helping to form a media counter-consensus.  The core of his case is that recovery depends on growth, growth depends on low interest rates, and low interest rates depend on delivery of the Chancellor's plan.

He begins by claiming that this has helped market interest rates to fall -

"This week the rating agency Moody’s said that the UK’s AAA credit rating is safe because of the Government’s action. Interest rates for government borrowing for two or three years have halved since the election. Lower interest rates both save money and stimulate the economy. I grew up in a family that ran a small business, so I know just how much businesses benefit from lower interest rates. Homeowners benefit from lower mortgage rates, which matters even more since household debts are the highest in our history."

And goes on to maintain that spending reductions boost growth, not cut it -

A study in 2003 by the European Commission found that of 74 consolidations examined, in 43 cases growth accelerated. In the mid-1980s, Spain, Portugal, Denmark and Ireland all had to rein in large deficits and their economies grew as a result. Finland, Sweden and Italy found the same in the mid-1990s. After the large cuts made by Canada in the 1990s, its economy then grew. More recently, after tackling its deficit, Sweden is growing at more than 4 per cent

Hancock draws two other lessons from research: that consolidation "helps growth when it’s mostly done through spending cuts, not tax rises" and that "the evidence shows that the bigger the deficit, the more likely the cuts will help growth".  He also has a tilt at Ed Balls -

"Imagine if Bob Crow or Ed Balls were to become Chancellor tomorrow and halt the cuts. Would investors who lend so much to the Government have confidence in being paid back? Which global businesses would suddenly choose to invest in Britain?"

I suspect that Hancock doesn't stay awake at night worrying that Crow may soon set up in the Treasury.  Rather, he's trying to yoke Crow to Balls in the public mind - rightly, since Balls' speech was as catastrophic in content as it was excellent in form.  He's also attempting another task - a trial run of George Osborne's case against Labour's new Mili-leader, whose election will be announced on Saturday.

After all, whichever Miliband wins will make essentially the same argument as Balls, even if his position on the deficit is closer to Alistair Darling's.  Hancock's assault today will have been planned closely with the Treasury.  Expect to hear more of the case he makes today during the weeks and months to come.  The stakes couldn't be higher.