Ed Balls: 'I want to escape the manipulated view of what I've done in the past'

The Labour leadership candidate tells Steve Richards he'd rather talk about the economy than his hard-man image

Ed Balls rushes into his office at Westminster after a meeting of the Shadow Cabinet. Another meeting is imminent. For a time at least the frenetic pace of government is replicated in a leadership contest. Nearby there is a pile of newspapers. One is opened at a page with a flattering column on Balls. He has had a quite a few of those, but to his intense frustration the praise is written on the assumption that he cannot win.

His pitch is clear, more so in policy terms than any of the other candidates. At its heart is an argument about the economy. He insists that the deficit is not as serious as even Labour argued at the last election. I ask him to explain this view, given that in the late 1990s he and Gordon Brown made the repaying of debt a central objective. Why is he more relaxed about the deficit now?

"Because I am unrelaxed about the prospects for growth and the world economy. The reason why there is support on the left and right for my position is that people understand the scale of the financial crisis and its aftermath and they are worried too... When the threat to the economy is inflation and profligacy then the right policy response is discipline, prudence and control. I was the person who argued for Bank of England independence in the 1990s. When there is the threat of inflation you bear down on that, but that isn't the threat at the moment."

There are significant figures in David Miliband's camp that do not believe Balls can win this argument on the deficit in opposition. But Balls draws a potent lesson from the party's recent history.

"In the 1992 election [which Labour lost] we allowed ourselves to be drawn into a flawed consensus about the virtues of the Exchange Rate Mechanism. Margaret Thatcher and John Major had taken us into ERM for the sake of a half per cent cut in interest rates and were supported by the CBI, trade unions Neil Kinnock and John Smith. Labour never escaped from joining the consensus. All the time Gordon Brown was shadow Chancellor from 1992 he could not escape from the straitjacket of that decision. Now this is the time to say there is an economic alternative."

He notes that the Mayor of London, Boris Johnson, has been arguing against precipitate spending cuts and jokes: "In London I have the support of Ken Livingstone and Boris Johnson. That's quite a big tent."

But he is opposed by Labour's former chancellor Alistair Darling and David Miliband. Both are adamant Labour should stick to its pre-election commitment to halve the deficit in this Parliament. In response Balls quotes his favourite economist.

"Keynes says when the facts change I change my mind. The facts have been changing fast. The concerns of the financial markets are increasingly about growth... David and Alistair and I agree the Osborne plan is flawed. That's the big economic judgement. On the second element Alistair always said we should not cut spending until the recovery is secured so there is no fundamental disagreement."

He looks back at the election with a sense of frustration. "Again we were worried about being outside the consensus... I'm afraid it sounded like saying our cuts will be fairer, but that's not enough to win an argument. The Coalition says there's no choice and that it is Labour's fault. If you are driven by opinion polls that is not leadership. We have got to change perceptions."

In his earlier answer he had claimed that he, along with Brown, had advocated Bank of England independence. Yet in his memoir Tony Blair writes that he had initiated the policy and had merely given Brown permission to announce it. Was Balls surprised? There is a long, diplomatic pause, one of several signs that he is desperate to move on from the past, but then he gets into his stride.

"Yes... I was surprised... I don't think Gordon thought Tony would do anything other than support it... When I presented the paper on independence for the bank two years before the election there was agreement around the table. Then on the Saturday after the election in May 1997, Gordon, a senior Treasury official and myself went to Tony's house in Islington to confirm the details. The official urged caution and I remember Tony saying: 'If Gordon thinks it's the right judgement let's do it.'"

Balls has been involved in a series of major policy decisions, opposing entry to the euro, tax credits, and the national insurance rise to pay for higher spending on the NHS. Yet he has not proclaimed seniority in this contest. He has been assertive on policy but not about himself. Here he is more explicit about seeking a break with the past, and in particular his reputation in some quarters as a malevolent schemer.

"I have been trying to shrug off a totally unfair manipulated view of what I had done in the last few years... I also didn't want to make my campaign about the past. David and Ed have talked a lot about the past. Are we New Labour? Is it a comfort zone? Of course we have got to decide what went wrong but I want to look forward on the basis of who can challenge David Cameron".

Gordon Brown failed in this task but the former leader's closest ally argues that while he was loyal he is a very different politician.

"I'm more of a risk taker. In fairness to Gordon he did take big risks but he agonised about them... I am much less scarred by the 1980s and early 1990s. Tony and Gordon were always refighting the 1992 election. Early on after our win in 1997 Gordon couldn't say the tax burden was rising when it obviously was because he feared the Daily Mail headline... that defensiveness was an overhang from 1992 and very debilitating for him and Tony because in the end people don't know what you stand for... for sure you can't face in different directions in the 21st-century media climate."

Balls is a supporter of the Alternative Vote, but is strongly opposed to the package of constitutional changes of which AV is a part.

"As things stand it is highly unlikely that Labour will campaign positively for AV in a referendum because of timing and the package looks very opportunist and I don't think we should give this credibility. If the timing changes and the Bill changes I will support it but I don't think that will happen."

More immediately he kills off speculation that he and David Miliband are talking privately about some form of deal. "There have been no private discussions."

So when Geoffrey Robinson, a Balls supporter, wrote in The Independent that he backed David second, there was no wider message about Balls' intention?

"Geoffrey rang me and told me what he had decided... I didn't ring him and tell him what to do." He points out that other supporters are putting the younger brother second.

He campaigns to win, but if one of the Milibands prevails does he want to be shadow Chancellor?

"It's much better as a leader to get the best people into the jobs they are most suited for. Attempting to balance by keeping people out who should be in never works. Gordon did that. He felt equilibrium mattered more than quality and that was a mistake."

I take that to be sound advice on composing a team and a hint that he would like to be shadow Chancellor if a Miliband wins this time.