Leading article: Ed Miliband's next challenge

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The new Labour leader faces one issue above all, and that is the state of the public finances. It is the question the Liberal Democrats failed to answer satisfactorily when they joined the coalition. Nick Clegg's party put on an impressive show of honesty at its annual conference in Liverpool last week, except on the issue of the deficit. Mr Clegg and his colleagues rightly refused to apologise for working with another party to secure many Liberal objectives, but on the deficit they retreated to Thatcherite simplicities for simpletons.

Mr Clegg in his speech compared the national finances to those of a household, a favourite device of Margaret Thatcher's, which simply fails to engage with the argument made by most serious economists: that public spending should not be cut too soon or too fast. The danger of the coalition government's policy is that curbing demand will cut employment, reduce tax receipts and postpone our eventual emergence from the pit of debt into which we were pitched by the global financial crisis.

Of course, any responsible government has to weigh such factors against its creditworthiness, preserving Britain's AAA rating. But the idea that, between the election on 6 May and the signing of the coalition agreement on 11 May, the Greek sovereign debt crisis shifted the balance of risk is a little too convenient to be credible.

Ed Miliband ought to have an easy task. But the manner of his election, as the beneficiary of the trade union machine against the instincts of Labour MPs and party members turns it into a steep slope.

The easy thing would be for him to oppose each and every cut in the Comprehensive Spending Review next month. It might even earn Labour a reward in the opinion polls, but such gains would not be based on deep foundations – for two reasons. One is that everyone knows that the deficit was made worse by the fiscal irresponsibility of the Labour government, and that a Labour government, had it been re-elected, would have had to cut public spending too, albeit later and less. The other is that the deficit will look very different by the time of the next election, and a double-dip recession will either have become a reality or will have disappeared into the dustbin of forgotten fears.

One day, however, the argument for Keynesian stimulus will weaken and it will become more important to balance the books. Mr Miliband has to avoid being boxed in as a spendthrift opponent of all cuts, which means learning the right lessons not just from Labour's history but from the coalition in the here and now.

For all the rhetoric about moving on from the Tony Blair and Gordon Brown era, Labour needs to relearn the lesson of the early New Labour years, the rigorous policy preparation of 1994-97. This was when Mr Blair and Mr Brown, working together despite deep personal tensions, ruthlessly eliminated vote-losing hostages to fortune and tried to think ahead to what the big early decisions in government would be.

There are also important lessons to be learned from the coalition. So far, it has impressed with the sense that it is a "no-headline" government. This may be a trick of presentation, but David Cameron and Mr Clegg behave as if their eyes are on the horizon rather than on the morning's newspapers or tonight's bulletins. Second, it has been a collegiate government. Partly, this has been forced on Mr Cameron by the need to work with the Lib Dems, but partly it seems as if the Prime Minister is confident enough to avoid the compulsion to be, personally, identified with every "eye-catching initiative" in the way that Mr Blair did. The third lesson is, of course, that it is a coalition, and Labour may need to deal with the Liberal Democrats, either before 2015 or after the next election – for there is no guarantee that it will deliver a Labour majority. That means that Ed Miliband ought to mind his language about the Lib Dems, eschewing the lexicon of treachery and betrayal for that of fellow-feeling and common ground.

Thus the lesson for the new leader can be boiled down to the truism: elections in this country are won in the centre ground. Easy to say; harder to act upon rigorously. Easy to take for granted when Labour came out of the last election in a stronger position than most members expected. Easy to feel that the job is done when Labour is the main repository of protest votes. But first he has to persuade the country that he deserves a job handed to him by a trade union stitch-up.

The test for Mr Miliband is whether he can resist the easy path.

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