Special Report: Britain's Economic Woes

Ed Balls: Pressure grows for Plan B as triple dip threatens

The Shadow Chancellor tells Jane Merrick it is 'utterly irresponsible' not to change course

As an adviser and later a minister in the previous Labour government, Ed Balls says there was a "golden rule" that prime ministers should be careful what they say at 35,000 feet – wary that making decisions on long plane journeys might lead to slips that could have lasting damage. But following the raucous and jovial pizza and fondue dinner enjoyed by David Cameron, George Osborne and Boris Johnson at the Alte Post restaurant in Davos on Thursday evening, when the Chancellor knew the economy had shrunk again, he says the maxim should be adapted to: "be careful how you behave when you're in a ski restaurant at 5,000 feet".

Mr Balls thinks that the alpine restaurant scene – likened by one observer to a reunion of the Bullingdon Club, with Mr Cameron and Mr Osborne making jokes at the Mayor of London's expense – stands as a metaphor for the Prime Minister and Chancellor's "reckless" handling of the economy. In an interview with The Independent on Sunday, Mr Balls said: "What they say about the economy is more important than what they eat or where they drink. But it's indicative of a wider attitude.

"The dinner captures a mood of recklessness. There is a recklessness about getting the GDP figures and putting yourself in that position. This is the Osborne-Cameron way, it's reckless. They are taking the most reckless political gamble with the economy, for political reasons, and it's not paid off. It's been economically catastrophic."

On the eve of the last GDP figures in October, Mr Cameron promised that the "good news will keep coming". Mr Balls added: "Now that just looks completely out of touch and utterly complacent. It is quite a big moment. [The Government saying] 'our plan is working, we'll just carry on regardless' just looks grossly irresponsible."

Mr Balls repeated his call for an immediate VAT cut of 2.5 per cent – costing £12bn – to put money into consumers' pockets, which would lift the economy from its -0.3 per cent doldrums.

But it is not just Labour that is pressing the Chancellor to change course. Following Nick Clegg's admission last week that the Government should have speeded up capital spending in the early days of the coalition, senior figures in both the Liberal Democrat and Conservative parties are urging the Prime Minister, Deputy Prime Minister and Chancellor to implement Lord Heseltine's growth report, published last October, which calls for Plan A austerity to be replaced by a vigorous programme of construction, handing greater powers to local enterprises and making a decision on airport expansion within months – rather than the current deadline of 2015.

The Business Secretary, Vince Cable, is pressing for a massive house-building programme of 100,000 homes in a year – and more action to get banks to lend.

Sir Menzies Campbell, the former Liberal Democrat leader, is also calling for a change of course. He said: "The overwhelming requirement after the 2010 election was to restore stability in an economy which looked as if it was out of all control. The policy of stability has been successful; the issue now is economic growth.

"Having demonstrated that stability has been achieved in my opinion provides a stable foundation for policies which would assist growth, and the Heseltine report of last autumn provides an effective blueprint for such a programme."

The Lib Dem peer and former Treasury spokesman Lord Oakeshott said: "It's pathetic to see George Osborne hiding behind eurozone weakness when the big black hole in our economy is construction – down by a tenth last year. It's not Europe's fault that house-building's collapsed to its lowest peacetime level since 1923. If construction had only been flat last year, GDP would have risen by 0.7 per cent and George Osborne would have been singing, not crying, in the snow in Davos."

Crucially, and despite his presence at the Alte Post gathering, one of the leading critics of Mr Osborne is now the Mayor of London. Mr Johnson, apparently tearing up a temporary truce with the Prime Minister not to rock the boat, laid into the austerity strategy from the Davos platform the next day. He called for investment in housing and transport – two of the key measures in Lord Heseltine's report – lambasting the "hair shirt, Stafford Cripps" agenda. The reference to transport underlined his desire for a quick decision on a new airport or runway in the South-east. Lord Heseltine, and allies of Mr Johnson, believe the Howard Davies commission into airport expansion must publish its findings sooner than the current timetable of 2015.

Even the bankers are weighing in, with Jim O'Neill, chairman of Goldman Sachs Asset Management, warning that the GDP figures showed that "policy has been on the wrong path". The International Monetary Fund has also warned there should be a reassessment of tax and spending policy.

The Tories point out that Mr Balls's charge of "reckless" is a bit rich coming from the closest political ally to Gordon Brown, who left the country saddled with a huge deficit and debt, and that the deepening eurozone crisis of the past two years has left the economy with little room to grow. Yet Mr Balls insists that the eurozone cannot be solely to blame, saying a Labour government would not have imposed a VAT rise to 20 per cent, which has pegged back high-street spending.

The one thing that the Government can point to is the encouraging news on jobs last week – unemployment is down, a picture at odds with the GDP figures. But Mr Balls claims that, while more people are in work, there are also more people accepting fewer hours and lower wages, which is putting a squeeze on living standards. He says the Labour government looked at axeing child benefit for higher earners, which the coalition has just implemented, 15 years ago and "concluded it would be shambolic, chaotic, expensive, unfair and very difficult to deliver".

Given the reported tension between him and Ed Miliband, will Mr Balls be Shadow Chancellor at the next election? "The golden rule of politics that I've learnt is to plan 10 years ahead and always think today might be your last day. Ed and I are working together and we're working back from general election day."

And what about his adversary, Mr Osborne? In the wake of the GDP figures many Tory MPs were privately voicing doubts over whether he should stay. Yet although Mr Cameron has said in the past he would be prepared to fire his friends, sacking the Chancellor would be such a huge admission of failure of strategy and policy that confidence in his government would be undermined.

As the ComRes poll for this newspaper shows, Mr Cameron won an immediate surge in support after his pledge on a referendum on Europe – helping to explain the uproarious atmosphere at the Alte Post. But despite the joviality, Mr Osborne knows his political life is in danger. When confronted by Ben Stewart, the Greenpeace activist who took a covert photo of the group and who asked him if Britain was about to go into a triple-dip recession, Mr Osborne turned thunderous. Mr Stewart said: "The smile turned into a scowl in a second. It was quite chilling."

Bad news week

3: The number of times Britain will have been in recession in four years, if it enters a triple-dip recession

10.2 per cent: The amount by which the mining and quarrying output fell by in the last quarter of 2012 – the biggest decline since records began

3.3 per cent: The economy is now this much smaller than its peak in the first quarter of 2008, having recovered only about half the output lost during the financial crisis

£15.4bn: The amount the government borrowed in December last year; £0.6bn more than the year before

0.3 per cent: The amount by which the economy shrank in the last three months of 2012

4p: The amount by which a litre of petrol is going to increase within the next few days

News
Clare Balding
peopleClare Balding on how women's football is shaking up sport
Arts and Entertainment
Carrie Hope Fletcher
booksFirst video bloggers conquered YouTube. Now they want us to buy their books
Arts and Entertainment
Damien Hirst
artCoalition's anti-culture policy and cuts in local authority spending to blame, says academic
Sport
premier leagueMatch report: Arsenal 1 Man United 2
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksNow available in paperback
Arts and Entertainment
A comedy show alumni who has gone on to be a big star, Jon Stewart
tvRival television sketch shows vie for influential alumni
Arts and Entertainment
Kirk Cameron is begging his Facebook fans to give him positive reviews
film
Life and Style
Small winemakers say the restriction makes it hard to sell overseas
food + drink
News
i100
Life and Style
fashionThe Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Sport
Tony Bellew (left) and Nathan Cleverly clash at the Echo Arena in Liverpool
boxingLate surge sees Liverpudlian move into world title contention
Voices
Neil Findlay
voicesThe vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Life and Style
food + drinkMeat-free recipes and food scandals help one growing sector
News
i100
Arts and Entertainment
Jason goes on a special mission for the queen
tvReview: Everyone loves a CGI Cyclops and the BBC's Saturday night charmer is getting epic
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Reach Volunteering: Financial Trustee and Company Secretary

Voluntary Only - Expenses Reimbursed: Reach Volunteering: A trustee (company d...

Recruitment Genius: Senior Project Manager

£45000 - £65000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Shopfitter

Negotiable: Recruitment Genius: This is an opportunity to join a successful an...

Recruitment Genius: Digital Sales Account Manager

£25000 - £30000 per annum: Recruitment Genius: A Digital Sales Account Manager...

Day In a Page

Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible
Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

Look what's mushrooming now!

Meat-free recipes and food scandals help one growing sector
Neil Findlay is more a pink shrimp than a red firebrand

More a pink shrimp than a red firebrand

The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

Oeuf quake

Bill Granger's cracking egg recipes
Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

Terry Venables column

Wayne Rooney is roaring again and the world knows that England are back
Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

Abject leadership is allowing football’s age-old sores to fester

Those at the top are allowing the same issues to go unchallenged, says Michael Calvin