Miliband rebuffs Balls – and his strategy for tackling the Tory cuts

The new Labour leader's choice of Alan Johnson as shadow Chancellor is a signal of economic intent, says Andrew Grice

Alan Johnson was a surprise appointment to the key post of shadow Chancellor yesterday as the new Labour leader, Ed Miliband, adopted a safety-first strategy when he allocated the jobs in his Shadow Cabinet.

The former home secretary will lead Labour's response to the government-wide spending review to be unveiled by Chancellor George Osborne on 20 October. By declining to give the shadow Chancellor's post to Ed Balls or his wife, Yvette Cooper, Mr Miliband suggested that he will not make a major departure from the policy of Gordon Brown's government to halve Britain's £155bn deficit over four years. Mr Balls and Ms Cooper fear that sticking to this line might enable the Coalition to describe its cuts as "Labour cuts" made necessary by the failures of the previous administration.

In Labour's leadership election, Mr Johnson supported David Miliband, who wanted to maintain the policy. Last month, Mr Johnson called on Labour to adopt a "sensible approach", saying that people "don't want to see the deficit go on forever". Mr Balls argued forcefully for Labour to support a slower deficit-reduction programme to avoid the risk of a "double-dip" recession. As Gordon Brown's former chief economic adviser, who later became a Treasury minister, he has made no secret of his desire to land the shadow Chancellor's job.

Yesterday, he admitted that he was "surprised" to become shadow Home Secretary but insisted he was "pleased" and rallied loyally behind Ed Miliband. "Obviously, the economic argument has been very important to me – that is why I stood for leader of the Labour Party," he said. "But to me it has never been about the job you are doing and the particular personality, it is about winning the argument."

Mr Johnson, 60, was branded a "caretaker appointment" by the Tories and may not keep the job until the next general election. He distanced himself from Mr Balls's approach, saying he did not agree that halving the deficit over four years was too short a period.

He described Labour's existing policy as "just about right" but gave himself some wriggle room, endorsing Ed Miliband's view that it was "a starting point". "Nothing is preserved in aspic," Mr Johnson said. "There have been developments since the general election. We need to take all those into account." He added that the Coalition Government was cutting spending "too deeply, too quickly".

Ed Miliband's allies pointed to Mr Johnson's wide experience as a former secretary of state for education, health, work and pensions, trade and industry and at the Home Office. But he has no economic background and also once admitted that he saw himself as "not good enough" to be Prime Minister. An ultra-loyalist, his appointment will allow Ed Miliband to impose his own stamp on the Labour Party's economic policy.

Ms Cooper, who was also tipped for the shadow Treasury brief and is also a former Treasury minister, was instead appointed shadow Foreign Secretary – a senior but relatively low-profile post in opposition. Insisting it was a "great honour" to do her new job, she admitted Labour had been wrong about the Iraq war, saying: "There weren't weapons of mass destruction so, of course, that means we were wrong about that. We have to recognise that and move on from that."

Thursday's Shadow Cabinet election turned out well for the Balls-Cooper household; Ms Cooper topped the poll and her husband was third. Second place went to John Healey, who backed Mr Balls in the Labour leadership contest. But the Shadow Cabinet announcements were less good. Although Mr Healey landed the important health portfolio, Mr Balls's allies on the back benches were privately disappointed by the share-out of jobs, saying it showed Ed Miliband wanted to keep Mr Balls at arms length.

The Labour leader's supporters denied that, saying his appointments had ensured a balanced team. Jim Murphy, who ran David Miliband's leadership campaign, was made shadow Defence Secretary.

Ed Miliband said his line-up was drawn from a broad range of talents across the party. "My team is united in one central mission for the future – to win back the trust of the British people and take Labour back to power," he said. "Together, this new generation of Labour will work together to reject the pessimism of this Coalition Government as we set out our vision of what Britain can achieve. Our values are those of the British people, and this Shadow Cabinet will ensure the hopes and concerns of working families are at the heart of our offer to the country."

Mr Miliband will name his junior frontbenchers today and will address the Parliamentary Labour Party when the Commons returns from its summer break on Monday. His new Shadow Cabinet will meet on Tuesday and he will face David Cameron at Prime Minister's Questions for the first time on Wednesday.

Andy Burnham, who stood in the leadership election and came fourth in the Shadow Cabinet poll, is the new shadow Education Secretary and has another important job as Labour's election co-ordinator. Sadiq Khan, who was Ed Miliband's campaign agent, was rewarded with the post of shadow Justice Secretary and will also be Nick Clegg's opposite number on constitutional and political reform.

Two former cabinet ministers who failed to win seats in the Shadow Cabinet ballot made a swift comeback as Mr Miliband exercised his right to appoint some extra members. Peter Hain will shadow the Welsh Office and Shaun Woodward, a former Tory MP, the Northern Ireland Office.

The Tories calculated that between them, Shadow Cabinet members had 189 years of service on the government payroll. Philip Hammond, the Transport Secretary, said Mr Johnson's views were "a bit of an unknown". "It is a very surprising appointment," he added. "Ed Miliband said he wanted to move on to a new generation of Labour politicians but Alan Johnson is frankly from the last generation."

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