Steve Richards: The two Eds are facing an open goal, but scoring won't be easy

Soon enough, Miliband and Balls will have to decide on big questions relating to tax and spend, and the size of the state, in the context of deep cuts in public spending

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Can Labour win the battle over the economy, the issue that decides elections? On one level Ed Miliband seeks victory in the most propitious of circumstances. A coalition moves at the speed of a high-speed train, except for when it screeches to a halt and reverses, as it has done several times and will do so again over the NHS reforms. The economy did not grow in the last quarter, and soon unprecedented cuts will make their mark, imposed in a parliament where no party secured an overall majority. Politically, an Opposition could ask for little more.

Yet there are several reasons why the seemingly dreamlike sequence for Labour presents daunting obstacles. The Coalition has to some extent successfully blamed the economic situation on the previous government. On this David Cameron and Nick Clegg dance to the same tune, in a dynamic that is unusual and therefore more potent. For many years Labour and leaders of the Liberal Democrats reserved most of their scorn for the Conservative Party, at least in relation to economic policy. Now Clegg sneers at Labour's record with the same level of disdain as Cameron and George Osborne.

As such Clegg is firmly part of an anti-Labour alliance, however he chooses to mark distance with the Conservatives in the coming months. Blaming Labour is a potentially potent weapon. The Conservatives deployed it with brutal success for four elections after 1979, reviving images of the "winter of discontent" even in the general election of 1992.

The weapon is sharper because parts of the still influential Blairite wing within Labour agree that spending went out of control on their watch, or rather Gordon Brown's watch. Their leading spokesman, Tony Blair, made the argument in his memoir and in doing so provided a reminder of a broader challenge for Ed Miliband. Parts of the Blairite wing are, to some extent, admirers of Cameron/Osborne, an admiration that is more than reciprocated. The wing can make waves still, not least in the media. After the leadership of the Liberal Democrats, they are a third protective layer for Cameron and Osborne and almost as important.

The protective layers form part of the current blurred ambiguity in British politics, reflected in yesterday's press conference with Miliband and Balls. Both declared their support for the alternative vote in the forthcoming referendum, but Miliband was utterly dismissive of Clegg and confirmed he would not appear on a platform with him. Oddly for such a dry issue, the politics of the AV referendum are electrifying, with as many unanswered questions as The Killing, the brilliant Danish thriller on BBC4 in which a twist seems to occur every 30 seconds.

If there were to be a "Yes" vote, as Miliband wishes, the main beneficiary – in the short term at least – would be Clegg. Yet Miliband cannot want to give Clegg a political boost. But what is the outcome that most damages the Coalition in the longer term? Perhaps it is the "Yes" vote that breathes new life into Clegg. Or perhaps it is not. The question is a live one in the upper reaches of Labour and without definitive answers. While the Coalition has set its course with a clarity that is almost mind-boggling, the path for the Opposition is foggy.

The fog is impenetrable partly because the state of the economy by the time of the election is impossible to predict. All that is certain is that there will not be a great deal of spare cash around to make a thousand credible spending pledges. There never is. This is another dilemma for Labour's leadership. While it opposes some of the cuts with good cause, it cannot commit to restoring them. The tripling of student fees is emblematic. Miliband and Balls oppose the rise and support a graduate tax, a policy opposed by Blairites, as Peter Mandelson makes clear in a subtly provocative new chapter to the paperback edition of his memoir.

In theory, the arrival of Balls should make such a graduate tax more feasible as his predecessor, Alan Johnson, was an opponent. But at the election, is Labour going to propose a substantial increase in public spending on students as one of its main priorities? There are many such policy traps amid the public outcry.

And then, of course, still to come is the biggest trap of them all. Before the election Osborne will probably announce significant tax cuts to come into effect if the Conservatives are re-elected. Does Labour oppose them? Does Labour dare to enter an election proposing substantial tax rises, a stance it did not take during the three successive campaigns it won? The bravest the party got was not to rule out increases in National Insurance.

These challenges are not easy, especially the last. At this early stage all that can be discerned is that Labour is not responding as it did to defeat in 1979, which was to split and have a civil war on the assumption that the pendulum would swing their way at the next election however they behaved in the meantime. There is no such complacency now, almost the opposite. Only last week, David Miliband delivered a lecture analysing the defeat of the centre-left throughout Europe, and Douglas Alexander warned that moral outrage was not an electoral strategy.

For two relatively young politicians, Ed Miliband and Balls have been exposed to the intense heat of winning elections, and indeed losing them. In their pre-budget news conference yesterday they did what all politicians do as they chart new courses. They returned to successful phases of their past, deploying that old New Labour device of a popular tax to pay for a VAT cut on fuel and jobs for younger adults.

In the mid-1990s it was a tax on the privatised utilities that did the trick. Yesterday it was the banks. That will do for now, but soon they must decide on much bigger questions relating to tax and spend, and the role of the state in the context of deep cuts having been implemented. In doing so they must keep their party united, woo a largely hostile media and show a bit of ankle to those Liberal Democrats disillusioned with the Coalition.

The policy decisions for Miliband and Balls are more complicated than for Blair/Brown in the mid-1990s precisely because the Government is moving at the speed of an unreliable express train.

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