Ed Balls is several weeks into the job of shadow chancellor, a post he made little secret of coveting for months and which appeared likely to elude him until Alan Johnson’s surprise departure in January. It’s a daunting responsibility, given the pressing need for Labour to restore its economic credibility. And, while Balls and his four colleagues were touring the country for months of leadership hustings last summer, the coalition stole a march in defining the economic debate. Does he agree that Labour now faces an uphill struggle to restore its economic reputation?

‘No one’s denying that this is a tough challenge for us. But I don’t think we shouldn’t overstate this … The Conservatives never won the argument about trust.’ But neither did Labour, surely? ‘[People] knew that if it hadn’t been for us stepping in with Northern Rock and RBS, the actions we had taken on the economy and unemployment, things would be much worse, and I think it was an argument we were winning.’ So was it a case of the narrative being defined by the victors? ‘The victors have the run of the place and so I think we had a tough few months … [But] I think that the mistakes that George Osborne and the coalition are making raise very substantial questions about their credibility and whether they can be trusted. So I think it’s wide open.’

While this may cheer the party faithful, it’s arguably unreflective of the public mood. Many voters rejected Labour last May precisely because of its refusal to specify exactly where it would cut. Is it not now time to show that Labour can make tough choices itself as well as criticise the choices of the coalition? ‘You don’t get credibility by being tough’, the shadow chancellor responds. ‘You get credibility by being seen to deliver … It’s actually an undermining of credibility to think that to become more extreme strengthens your position.’

Balls reflects on the example of Norman Lamont’s hyperbole before the 1992 ERM crisis: ‘The lesson you learn from economics is that macho posturing is normally the precursor to a collapse of confidence.’ Given Osborne’s recent rhetoric, does Balls foresee the possibility of a further economic slump? ‘The crisis of confidence has already happened. We’ve seen the largest fall in consumer confidence for 20 years. Out there in the country people are getting very worried. Is George Osborne having a private crisis of confidence or is he totally in denial? He’s not invited me round for a drink, so I can’t tell you which of those things is right. Everything I see publicly suggests to me he’s still in denial. But there may be a little part of him which is quite worried, I would think.’

Yet the coalition’s mistakes are only one side of the story. What about Labour’s alternative? During last year’s leadership election, Balls went further than the other main candidates in calling for radical fiscal measures, not least his support for a 50p rate of income tax on earnings of £100,000 or more. Why did he take such a bold stance? ‘I was probably the first person to be strong in opposing VAT. I thought there were fairer ways to make tax decisions. So my argument was that the VAT rise was unfair, I thought David Miliband’s idea of the mansion tax was attractive and it could be made to work. And if we were making choices on the economy between VAT and the top rate of tax, I’d rather have stuck with a top rate of tax at £100,000.’ And does he stick by that position now? His answer is cautious: ‘Those are discussions that we still have to have … I think [my support for a £100,000 rate] depends. It depends very much on where we are in the future.’

While Balls is keen to keep his policy cards close to his chest, this response raises the question of whether a 50p top rate of tax is an issue of principle or a pragmatic means of balancing the books. Ed Miliband declared consistently throughout the leadership contest that he wanted to see the 50p rate remain permanently as a marker of ‘fairness in our society’. Yet Balls does not seem to share the leader’s commitment to a 50p rate as a matter of principle. ‘The principle is that the tax system should be progressive. There’s no principle at any particular rate. I think you have to be very careful not to turn rates into principles.’

Balls, of course, scored a credible third place in the leadership contest. But he point-blank refuses to comment on any ambitions he still harbours for a future contest. What then of his wife, shadow home secretary Yvette Cooper? Many were disappointed when she decided not to run and her evident popularity within the party makes her a potential future leadership candidate. This suggestion raises a wary chuckle from Balls, who is no doubt used to being quizzed on his wife’s career almost as much as his own. ‘Yeah, absolutely’, he says with a smile. So would he support her to stand in the future if she wanted to? His meandering answer reveals rather more about his own preoccupations than it does about Cooper’s ambitions. ‘The interesting thing about politics now is that you’ve got a generation of people here who actually are still kind of young’, Balls begins. ‘Having reached this point in our political lives, still being a bit young but having been around for a long time, the first lesson you learn is that you should really like doing the job that you’re doing. You can quite easily spend years feeling miserable, or optimistic or worried or pessimistic about what job you might do, but there’s a terrible danger that you suddenly wake up one day and realise … I missed my chance because I was so busy thinking about the next chance.’

One cannot help but view this as a reference to Gordon Brown’s long wait in the Treasury during Tony Blair’s premiership, a spectre which still haunts Labour and some fear may be repeated in the relationship between Balls and Miliband. Yet the respectful conduct of last year’s leadership campaign suggests that lessons have been learned.

Many, though, believe that Balls’ own entanglement in the tortuous Blair-Brown relationship, and his reputation for confrontation, hindered his leadership bid. Does he agree? ‘Of course. The truth is that people didn’t think I could win at the beginning. Nor did I. But at the end they thought “actually, he’s a very different politician from what we had realised.” But there’s no doubt that … I’d been defined by past battles.’ It’s difficult, however, to gauge whether Balls accepts the criticism that he cultivated this reputation; there almost appears to be a tension within him between wanting to show himself as a rounded politician and relishing his status as ‘the person the Tories most fear’. He readily agrees that he feels a responsibility to take the fight to the opposite bench. ‘I want George Osborne to know I’m there when I’m shadow chancellor … I don’t think people want a shadow cabinet of shrinking violets but at the same time do you want people who are insensitive or brutish? I think probably the leadership election allowed me to show people that I was … more the politician [people] wanted me to be rather than the politician they thought I was.’

While Balls has gained admirers within the Labour movement, many in the media continue to paint him as something of a statist, determined to view problem-solving through the lens of big government. This accusation appears to prompt some reflection on Balls’ part and he chooses his words with care: ‘I think the NHS was one of our great achievements as a party … I think that we showed in the downturn that with the right kind of government you can actually have unemployment falling even during a recession … and I don’t think any of those things … could have been done without the proper role of government.’ So the state truly is the answer? Balls leans forward, eager to emphasise his point. ‘I’m not naive about government. I think naivety is to believe that if the state walks away, somehow volunteering and civic responsibility can deliver social justice … [But] it is not possible to be a good economist and not understand the potential for government to fail. At the same time, you can’t study economics and politics and not understand that only with the right kind of government can you liberate individual potential and have a strong and fair and just economy which deals with the inherent … flaws in the markets. And I think that those two things are entirely reconcilable.’

That formulation sounds a little like it might have been drawn straight out of Blair’s ‘third way’ – something which Balls’ parting words serve only to reinforce: ‘I’m neither a centralist statist nor a naive libertarian. I’m firmly New Labour.’

Photo: Downing Street