Ed Balls passes piano exam and seeks to call economic tune

http://www.guardian.co.uk/politics/2012/sep/27/shadow-chancellor-ed-balls-piano-exam

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It is not often that Ed Balls admits to quiet terror. But three months ago he faced his Grade I piano exam.

The buildup had been fraught. His piano teacher had told him he would be taking the exam along with six of her other pupils, all aged six to eight. On the morning of his exam, the shadow chancellor was sitting nervously in the waiting room alongside his fellow students when an urgent call came from Ed Miliband's office saying that he was needed at a joint press conference on the banks.

Balls asked whether he could be excused. He had been learning his three pieces for months and this was his last chance to get his Grade 1 before the examining board changed the pieces, forcing him to learn three new ones.

Miliband relented, and Balls took the exam, including clapping rhythmically, in the formal, unforgiving atmosphere music examiners love to generate. The examiner made no move to recognise his 45-year-old student. A jumble of nerves, he played the pieces too slowly and, as he left the room, he turned to the examiner, admitting: "That was so much more frightening than the House of Commons."

Happily he passed, albeit without a merit, and is now on Grade 2. "It totally frees my mind from politics," he says.

One suspects he may need those moments of release soon. He is now into the very hard yards of the shadow chancellorship, the moments when his judgment will be most tested. The shadow cabinet is trying to extract spending pledges from him. At the same time he is under pressure from union leaders angry at plans for a public sector pay freeze set out in a previous Guardian interview. The GMB leader, Paul Kenny, warned Balls not to expect a standing ovation at the end of his conference speech on Monday.

He was also singled out for attack at the Liberal Democrat conference, both by Nick Clegg and Vince Cable.

Balls retorts: "Clegg essentially said 'ignore the fact that we are in recession, that borrowing is rising and the plan has failed, but focus on the most narrow issue of which Tory cut he will not accept in 2015'. I am not going to get into an austerity bidding war with him when the austerity plan is failing."

He also scoffed at suggestions by Cable that there was no substantive difference between himself and Balls on the length of time it should take to eradicate the deficit. Cable said that Balls's sole slogan was "we should not cut the deficit in six years but seven".

"He made that up," Balls says. "Given that fundamentally he knows in his heart of hearts that he agrees with me, and not George, Vince has to pretend the difference between me and him is quite small, and between me and George is quite small. The truth is, I have a radical big difference with George, it is just that Vince is either biting his tongue or completely capitulated from what he believed before the last election." He adds: "We were told the right approach was tight fiscal policy and loose money. The counter argument from people like me has been that in a post-financial crisis, such as Japan in the nineties or across the world after the 1929 crash, monetary policy simply cannot do the job because confidence is so low. To say that you can just rely on loose monetary policy in such circumstances is the Ramsay MacDonald mistake.

"It is unbelievably frustrating to hear Cable acknowledge the fundamental problem is a lack of demand, yet not reach the obvious policy conclusion. When Vince was on the [Andrew] Marr programme, and I had been on earlier, I heard him say the problem was demand, and I wanted to run out onto the set and shout 'Eureka! Yes! Do something about it!' And what happened? Nothing."

Some around Cable have argued that the distinction between monetary and fiscal policy made by Balls is now artificial and that the two levers have effectively merged as the Bank of England becomes more interventionist.

Balls dismisses this as mere sophistry. "To be fair to the governor of the Bank of England, he is saying I cannot turn monetary policy into an arm of fiscal policy. If you want to issue debt in order to spend, that is a fiscal decision that should be done by the government on the government balance sheet.

"The reason why Osborne and Cable are tinkering at the edges and pressing the governor to take action is because their own political obstinacy and vanity is getting in the way of the need for fiscal action. It is not the Bank's job to use its balance sheet to attempt to target what is essentially fiscal spending guaranteed by the taxpayer. That is the government's job, and a budget decision. Fundamentally, the problem is that companies and consumers are not spending because of a lack of confidence."

He believes the public are even now only starting to understand the scale of the policy error. "We have lost £47.5bn of hard lost output against the 2010 budget forecast – that is £1,800 in lower income in every household before you consider tax losses. We are paying £24bn more out in welfare benefits. The national debt is going to be higher at the end of this parliament than the Darling plan that Osborne ridiculed. The economy may come out of recession in the third quarter, but the danger is that two years of slow growth becomes six years.

"By the time we get to the autumn statement in December, people will realise that borrowing is not going down, it is going up. George Osborne could be forced to dumping his fiscal rules, and retreat to annual fiscal budgeting."

That analysis in turn places more pressure on Balls to say more about how the government should address the crisis before 2015, something he intends to do in his conference speech. But it also means that, if Labour is elected, Balls has to reassure the electorate that he is serious about deficit reduction. He will not say if he will match coalition spending plans, but he does for the first time admit that he will conduct a review in which every budget will be open to fresh scrutiny.

"We have got to show that we have got a plan that will work in the short and long term. We have got to show we have a long-term plan on banking, vocational education and industrial strategy."

He then set out his plans for a root and branch spending review after the election. "We have to show we will not duck difficult decisions on public spending and on pay. We will face up to harsh truths. Everyone in the shadow cabinet knows there is no spending spree after the election. They know the inheritance is going be hard, and we will have to set out fiscal plans in our manifesto and in government.

"But the public want to know that we are going to be ruthless and disciplined in how we go about public spending. For a Labour government in 2015 it is quite right, and the public I think would expect this, to have a proper, zero-based spending review where we say we have to justify every penny and make sure we are spending in the right way."

He says the coalition's spending review in 2010 was conducted in haste in the worst kind of Treasury way. "This will provide us with a strategic look at everything in the round from first principles." Ironically, some in government agree. One ministerial aide said this week: "The idea of star chambers – when four very intelligent people meet for half an hour to settle a public spending dispute – just does not seem the best way to look at the future of government spending." Balls may yet get the chance to show if he can come up with something more sensible. If so, he will deserve a merit.