Ed Balls: Out of the frying pan: Gordon Brown's protégé prepares for his new role on the backbenches

The Monday Interview: Prospective parliamentary candidate for Normanton

Gordon Brown unveils his spending plans for the next few years today, a supremely important political event that will shape the debate between the parties until the general election.

Brown prepares for his statement against the din of a fresh bout of frenzied speculation about his relationship with Tony Blair. Did Blair contemplate resigning? Might Blair still go before the election, enabling Brown to secure the crown?

For Ed Balls, Brown's special adviser until last week, seething speculation about the Government's spending plans and personal feuds has a familiar ring. But now he is viewing events from the unfamiliar perspective of a Treasury outsider.

Not that his selection as candidate for the safe Labour seat of Normanton has cut him adrift from Brown. They are in regular contact. Indeed, Balls will be in touch even on a busy day like this one. "I shall be messaging the Chancellor and all the others involved with today's statement wishing them luck. I am sure it will go well as all the others have." He should know. Until his departure from the Treasury he was deeply involved in the preparations for the statement.

On the prospects for public spending, Balls is optimistic. "We are presiding over the largest sustained increase in public spending for a generation. There have been some tough choices in the spending round - there always are - but we've already announced generous settlements for education and health. Today the Chancellor will announce significant sums for the Home Office, defence, security, housing regeneration, international development and several other areas. What is more, they will be increases for the next few years, so there can be proper long-term planning."

He adds that the Treasury has changed as an institution since 1997, no longer seen solely as the finger-wagging master that disapproves of public spending. Reports have suggested that Treasury officials were terrified of Balls, but he denies this, having nothing but praise for the "commitment to public service shown by the officials I worked with".

Other ministers do not always recognise such a smooth governing machine, especially when Blair and Brown have conflicting aspirations. There are reports of last-minute tensions between Downing Street and the Treasury over the spending review. Balls does not deny them. "The spending review is a tough process. We have to show fiscal discipline. We cannot suddenly find extra resources. But Tony Blair and Gordon Brown work closely together". I note that he acknowledges this can be a tough process. "Inevitably that is the case when there are negotiations over limited resources".

Even so, he is keen to dismiss stories about Brown being opposed to generous settlements for the Ministry of Defence. "It is personally upsetting for Gordon Brown when he hears or reads claims that defence is not one of his priorities. As well as a generous settlement in the last review we provided an additional £6bn for Iraq and other demands."

Balls claims that it is the duty of the Treasury to seek efficiency savings, but that does not mean defence is a low priority.

Inevitably the alleged tensions over defence spending are seen through the prism of the Blair/Brown relationship. Most government activity is seen through the same prism. On Saturday, the BBC reported that four cabinet ministers sought to dissuade Blair from resigning. Yesterday, some of the ministers raised questions about the original BBC report, but Balls does not dismiss it in the same way. He has no doubt that some senior figures, or one senior individual, were out to make mischief."This story is astonishing. It is beyond belief that anyone could think that such a story can do any good to the Government or the Labour Party. There are some who are constantly trying to undermine the partnership between Tony Blair and Gordon Brown for reasons I can't fathom."

I ask him directly whether the Chancellor has put pressure on Blair to stand down so that he can take over before the election. Balls gives a carefully worded answer. "Gordon Brown fully supports Tony Blair. He has always believed that what is important is not the office you hold, but how you perform in the office you hold. He is proud to be Chancellor. He would never do anything for reasons of personal ambition, but acts in the interests of the Government and the country."

As far as the Chancellor's intentions are concerned, Balls is more precise about rumours that he might resign to run the International Monetary Fund. He confirms that Brown gave this serious thought in 1999. "Given Gordon Brown's interests in tackling global poverty, he thought about it carefully, but decided he had more to do here." According to Balls, the Chancellor was sounded out again recently, but was clearer than in 1999 that he did not want it, that he had more to do here.

As far as Balls and Brown are concerned, the sustained increases in public spending are part of what they have to do here. The emphasis is an astonishing switch from their early caution. The two of them began planning Labour's economic policies soon after Brown became shadow Chancellor in 1992. At first they placed more stress on what a Labour government would not be spending. They were determined to convince voters that Labour could be trusted to run the economy. Now they celebrate the more generous spending levels.

"Today will be an important parliamentary occasion. The Conservatives will have to give some idea whether they oppose the increases in spending we plan in areas such as security in the face of the threat posed by international terrorism. Will they, for example, condemn the significant increase that Gordon will announce for international development?"

Possibly there is a wider political message in his broader assessment of Brown, what he has being trying to do as shadow Chancellor and then at the Treasury. "Gordon Brown is not interested in short-term gimmicks, quick headlines. From 1992, he knew Labour was not trusted to run the economy so we had to plan over several years how we could build up the voters' trust. In securing trust, he hopes to build a progressive consensus to achieve a wider set of objectives."

I point out the irony that while Labour might be trusted to run the economy, the Government is still not trusted because of the war against Iraq. He gives half an answer. "I am sure at the election we will be trusted to run the economy."

The Conservatives claim that Balls is wrong even in relation to the economy. They argue that, under Labour, taxes will go up to pay for the spending programme announced today. Balls is emphatic that every penny will be accounted for and can be financed without tax increases. "We're making our long-term commitments in the context of a stable economy. The programme Gordon will announce today is affordable."

So do you rule out tax increases? "We have already introduced a tax rise. In 2002 we put the case for a rise in national insurance on the grounds that the money was needed for a substantial investment in the NHS. We carefully planned that increase, securing the trust of voters, putting the case for a tax-funded NHS and the need for a big rise in funding, and finally announced the tax rise."

Whenever the prospect of future tax increases is raised, Balls returns to the past, the increase in the 2002 budget. Probably this signals a pride in that important moment for social democratic politics, a tax rise that polls suggested was popular, but also a fear that it cannot be repeated in the foreseeable future. I will be surprised if Labour enters the next election pledged to increase taxes.

Instead, Balls and the Chancellor will parade the report prepared by Peter Gershon on the scope for efficiencies in the Civil Service. In theory, the savings will release billions of pounds. Civil servants are fretting nervously and in some cases angrily as they contemplate big job losses. Balls puts it more positively. "We will show that real savings can be made, but we want to transfer the savings to the front line services, employing, for example, more teaching assistants and teachers."

Balls is reflecting on the spending review at his house in Castleton. The house is in the constituency of his wife, the minister Yvette Cooper. Conveniently, it is only two miles away from Balls's prospective constituency. I recall meeting him the day after Cooper won selection for her seat in 1997. He was euphoric, almost in awe of her political elevation. Although he is one of the most influential figures in the Government, he has been resolved for some time to take the same political path as his wife. "I knew, or rather hoped, that last spring's budget would be my last in that job. It was time to move on."

Gordon Brown joked with friends last week that "Ed is at the cricket today. Now he's a parliamentary candidate he can enjoy himself." Still, Balls has quite a lot on his hands. He spent much of Saturday looking after their two young children - a third is due later this year - as his wife attended to constituency duties. As a local candidate, he will have public engagements too. What with these duties and the demands of regular conversations with the Chancellor, Balls will be busy until the next election. After that he will be even busier.

THE CV

Born: 25 February 1967 in Norwich

Family: Married to Yvette Cooper, two children

Education: Nottingham High School, Oxford University, Harvard University.

Career: 1989-90 Teaching fellow, Harvard

1990-1994: Columnist, 'Financial Times'

1994-1997: Economic adviser to shadow Chancellor

1997-1999: Economic adviser to the Chancellor1999-2004: Chief economic adviser to the Treasury

2004: Prospective parliamentary candidate for Normanton

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