Osborne 'will permanently weaken Britain'

Chancellor's policy is dangerous, warns Ed Balls

George Osborne's refusal to change the coalition's deficit reduction strategy despite the deepening double-dip recession will "permanently weaken" Britain's economy, Ed Balls claims today.

The Shadow Chancellor, in an interview with The Independent on Sunday, appeals to Business Secretary Vince Cable to join him in a "new national consensus" on the future of the economy. The move is designed to drive a wedge between dissenting Lib Dems and the Government.

Mr Balls says the Government's "sit on your hands strategy" of hoping the Olympics will drive the country out of recession is "dangerous" and will leave families and businesses paying a "long-term price".

The grim warning follows worse-than-expected GDP figures last week, which showed the British economy had shrunk by 0.7 per cent in the last quarter.

After the growth figures were released, Mr Cable raised eyebrows in the Treasury by declaring that he would "probably" make a good Chancellor – but distanced himself from his Lib Dem ally, Lord Oakeshott, who called for Mr Osborne to be replaced.

Mr Balls says today: "I would love there to be a new national consensus on the right way forward, and I would love the Lib Dems to want to be part of that. I would like to be part of that too, because I think that's what the country needs and deserves.

"As the IMF said last week, the long-term impact on the underlying strength of the British economy will be more young people unemployed and businesses investing in other parts of world. All of those things add up to an economy which ends up permanently weaker, not just temporarily weaker."

Mr Balls also claimed that Ed Miliband is doing better than Tony Blair and Margaret Thatcher did as opposition leaders because he is setting the agenda. The Shadow Chancellor told The IoS: "Ed has been able, on the economy, on phone hacking, to set an agenda in opposition. Tony Blair and Margaret Thatcher did not manage to set the agenda in 1994/5 or 1976/7 in the way Ed has done in the past year."

In his interview, Mr Balls, who is married to Shadow Home Secretary Yvette Cooper, admits he is undergoing a "mid-life crisis" and reveals he has passed his Grade 1 piano exam.

Yesterday there was better news for the Chancellor when the ratings agency Standard and Poor's confirmed Britain's triple-A status.

Mr Osborne said the verdict from Standard & Poor's showed the "world has confidence" in the coalition's economic policies – a comment immediately described by Labour as "complacent".

The IoS has learnt Mr Cable was furious that Lord Oakeshott had called for what he called the "work experience" Chancellor to be fired and replaced by the Business Secretary. When officials broke the news, Mr Cable exclaimed: "Oh God" and immediately phoned his friend to tell him it "wasn't helpful him doing this".

A senior Lib Dem source said: "Vince really didn't know about it. He was quite pissed off. The myth has built up that they are thick as thieves and are utterly in cahoots. A lot of the time it isn't true. They have known each other for a long time but there are things they disagree on. This is one."