Ed Balls pledges Labour will show fiscal discipline

Ed Balls, shadow chancellor, will try to boost Labour's poor ratings on the economy on Monday with a promise to show "iron discipline" with the public finances and a warning to his party that big spending cuts lie ahead.

In a pivotal speech, Mr Balls will start sketching out for the first time what Labour would do in power, including a warning to shadow ministers: "We will have to govern with much less money around."

To illustrate his priorities, Mr Balls will commit to abolishing winter fuel payments for the richest 5 per cent of pensioners paying the higher or top rates of tax, a move which would save the exchequer £100m.

Although Mr Balls cites the proposed cut as evidence that he is prepared to take tough choices, removing payments of £200 (or £300 for the over-80s) from rich pensioners will be one of his easier decisions.

In a speech in the City, the shadow chancellor will say that incoming Labour ministers will have to work within very tough spending limits, although aides say he is not committing to matching George Osborne's spending totals.

"We can expect to inherit plans for further deep cuts to departmental budgets at a time when the deficit will still be very large and the national debt rising," he will say. "The next Labour government will have to plan on the basis of falling departmental spending; Ed Miliband and I know that and my shadow cabinet colleagues know that too."

Although the speech lacks detail on future Labour spending plans, it goes some way towards answering critics who want the party to present a more robust economic alternative.

"The Labour party is back as the party opposing 'Tory cuts'," Mr Blair bemoaned in a recent New Statesman article, while Alistair Darling, former Labour chancellor has called on his party's leadership to be more frank about the need for cuts.

Mr Balls argues that his mission for the first three years of the parliament was to expose Mr Osborne's supposed economic mistake of cutting "too far, too fast", a policy which he claims has "failed catastrophically".

But Labour's high command recognises that the party's economic reputation remains a liability. A YouGov poll last month found that 36 per cent of people blamed Labour for the current spending cuts, while only 29 per cent blamed the coalition.

Moreover, the same polling organisation found that 44 per cent thought the Conservatives would take "tough and unpopular decisions" compared with 10 per cent for Labour. Mr Balls and Mr Miliband are trusted less on the economy than their Tory counterparts.

This week will mark the start of a concerted Labour fightback, with Mr Balls's speech to be followed on Thursday by a speech by Mr Miliband on welfare reform - another area where Labour lags behind the Tories.

With signs of a tentative economic recovery emerging, Mr Balls will move his focus away from his "emergency" five-point plan to stimulate the economy - including a temporary VAT cut - towards a longer time horizon.

He will signal Labour's plan to switch money from current spending to capital projects and will argue that "a temporary rise in borrowing" is justified now to give a boost to the construction industry and the wider economy.

"There is no point in vague promises about more capital spending in 2017 or 2020," Mr Balls will say, a reference to the coalition's plans for a £15bn boost in infrastructure projects from 2015-20.

A Treasury insider said: "Ed Balls has just confirmed he wants to borrow and spend even more now - exactly what got us into this mess in the first place. One pledge that saves less than half a per cent of the welfare budget is utterly meaningless when they have pledged to borrow and spend tens of billions more. Labour's plan for more debt would mean soaring interest rates for hardworking people."

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