George Osborne has long been a better reader of the opinion polls than steward of the economy. Since 2010, he has thus honed in on public perceptions that Labour cannot be trusted to run the economy in general, and control spending on welfare in particular. Last month’s speeches by Ed Balls and Ed Miliband both artfully side-stepped Osborne’s latest well-telegraphed trap – the 2015-16 spending review – and set out a distinctly Labour alternative on these key issues.

For three years, Labour has doggedly made the argument that a stimulus is needed to awaken the economy from its austerity-induced stupor. But this has fallen on deaf ears: most voters continue to place more trust in Osborne and David Cameron to run the economy.

Balls’ task, therefore, was to grapple with the challenge that Labour has lost the political argument while winning the economic case, while also recognising that an incoming Labour government will inherit rising public debt, a stubbornly high deficit, and tepid growth. He was right, therefore, to continue to call for capital investment to be brought forward, even at the risk of higher borrowing. But, by marrying his case for a short-term fiscal stimulus to a promise of ‘iron discipline’ in the medium term, the shadow chancellor has, at last, put Labour into a position from which it can restore its credibility while doing the right thing by the economy.

By acknowledging that ‘the next Labour government will have to plan on the basis of falling departmental spending’, Balls has also publicly recognised  the fact that Labour will not only not be able to reverse the coalition’s cuts, it is going to have to make some of its own. His reaffirmation of the pledge of a zero-based spending review and recognition that Labour will need to stick to Osborne’s spending limits in 2015-16 placed weight behind his talk of ‘iron discipline’.

The shadow chancellor’s decision to cut winter fuel allowance for the wealthiest five per cent of pensioners was politically important, too. By showing his willingness to take on a powerful group of voters – who have been largely shielded from the coalition’s cuts – Balls identified perhaps Labour’s greatest achilles heel: the perception that the party is incapable of taking tough but unpopular decisions. Together with the acknowledgement that Labour will not reverse the government’s removal of child benefit from higher-rate taxpayers, it also hints at a redefinition of the principle of universalism, one that will place a greater emphasis on maintaining, and indeed expanding, access to universal services. As Nick Pearce and Graeme Cooke argued in the last issue of Progress, in contrast to cash transfers, ‘spending on public services is more productive, in supporting employment over consumption. It is more resilient, with popular support for schools and hospitals infinitely greater and deeper than for benefits. And it is more solidaristic, underpinning real relationships rather than bureaucratic transactions.’

The Labour leader’s speech was as carefully calibrated as that of his shadow chancellor. He captured his challenge in one of its opening lines: ‘There is an extra responsibility on those who believe in the role of social security to show real determination to reform it.’

This was a speech with plenty of reformist meat. Some of it was familiar, but there were also some radical long-term plans. Miliband is right to want to arrest the growth in housing benefit and ‘move from benefits to building’, and to place local authorities at the centre of that effort. He also fleshed out the much-promised return to the contributory principle. His proposal – to raise the level of contributory jobseeker’s allowance while stretching from two years to five the period people will have to work in order to receive it – is the kind of imaginative thinking the party needs if it is to square the circle of controlling spending while placing the values of fairness and reciprocity once again at the heart of the welfare state.

Naturally, there are still questions that Labour will face on both welfare and spending. First, Miliband’s three-year cap on welfare spending is sound in principle but he will need to show how this might be implemented, especially in the years before the longer-term cost-controlling measures he outlined begin to work. As Paul Johnson of the Institute for Fiscal Studies has suggested, to meet its cap Labour might face the unpalatable choice of either cutting benefit levels or tightening eligibility criteria.

Second, the party’s plans for reforming public services remain less clearly defined. In health, for instance, the focus on ‘whole person care’ and breaking down the barriers between health and social care are the right ones. But quite how the party will honour its pledge to repeal the coalition’s NHS reforms without another ‘top-down reorganisation’ remains unanswered.

Finally, Labour vocally opposed the government’s plans to restrict child benefit to higher-rate taxpayers and any cuts in winter fuel allowance for wealthy pensioners. Now, however, the implication of Balls’ previous warnings that he would not be able to reverse every coalition cut has been spelt out explicitly. There are more hostages to fortune in the thicket of coalition policies that Labour has resisted. As these emerge, the party must hope that the voters regard them less as U-turns and more as indications of Labour’s realism and readiness to govern. As the election approaches, the party must consider more carefully the tone and language with which it opposes coalition policies which, in the short term at least, a Labour government may not be able to reverse.

But all that said, if Miliband crosses the threshold of No 10 in two years’ time, he would be right to reflect that last month marked a critical staging post in that tortuous journey.

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Photo: Dominic Campbell