Profile: Ed Balls - Brown's young egghead

Paul Routledge on the whiz-kid who has shaped New Labour's economic revolution

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A FREELANCE journalist wrote to Ed Balls, the Chancellor's economics adviser, recently to ask what sort of pay rise he needed to restore the value of his earnings, which had not been increased for five years. He had to wait for a reply, but when it arrived, it was a masterpiece of economic calculations, concluding that he should be paid pounds 1.12 for every pounds 1 he received in 1993.

Taking time off from planning next week's Budget to advise an acquaintance was characteristic of his generosity. Equally typical was that his advice was so complicated as to render it, in practical terms, difficult to act on. This is, after all, the man who introduced us to the concept of "neo- classical endogenous growth theory" in a speech he wrote for Gordon Brown, which prompted Michael Heseltine's hilarious retort: "It's not Brown's, it's Balls'!".

Since then, Ed Balls has slipped into the decent obscurity of the Whitehall machine, but he is already reckoned by Whitehall insiders to be the most influential outsider in the Treasury since John Maynard Keynes. There, however, the resemblance ceases. Keynes's influence on post-war Labour cabinets was based on his argument that the state could "spend its way back to prosperity". That made a virtue of investing public money in projects which would provide employment and revive a stagnant economy. Although Denis Healey had his doubts, Keynesian philosophy dominated Labour thinking for two generations, until Gordon Brown as Shadow Chancellor, egged on by Ed Balls, denied this political inheritance, and the party's "tax and spend" strategy was ditched before the general election.

The voters bought it, although doubts have been raised about the authenticity of the conversion. The Tories claimed to have identified dozens of tax rises in Mr Brown's first Budget, and confidently predict that there will be more next week. True, Labour's promise applied only to the basic rate of income tax, which allowed considerable scope for raising extra tax revenue for the radical welfare-to-work programme: the windfall tax has been imposed on privatised utilities; pension funds have been taxed. Moreover, interest rates have gone up five times, raising sharply the cost of mortgages.

Perhaps Ed Balls is a closet Keynesian. He and the Paymaster-General, Geoffrey Robinson, spent 12 months before last May's election working on the windfall tax and Labour's first two Budgets. He talked regularly to Sir Terry Burns, Permanent Secretary at the Treasury, before the general election. He now has unrivalled access to the Chancellor: a desk in his private office and sufficient clout to walk into Mr Brown's office whenever he likes. Ken Clarke's advisers were lucky to see him for a couple of hours a week. The question that arises naturally about the Budget is whether it's Brown's or Balls's? Those close to the Chancellor say the big ideas are almost invariably his own. He decides the priorities - jobs for the young and getting people off welfare. Ed Balls then works out how to make the policies work. This is an extraordinary achievement for a man just entering his thirties.

The Balls family came from the land. Like many in Victorian England, they were farm labourers who migrated to the city - Norwich in their case. When Ed Balls's grandfather, who drove a lorry for the gas company, died of cancer he left what we now know as a one-parent family. But Ed's father, Michael, won a scholarship to grammar school and went on to study zoology at Keble College, Oxford. He became an academic, and his first post was at the University of California in Berkeley during the turbulent student power era in the late Sixties. Michael Balls was on the side of the students. When he returned to England he married Carolyn, who had left school at 16 to look after her mother and who worked in the local chocolate factory. Ed was their first child, born in 1967.

The family moved to Nottingham when he was eight years old. He went Nottingham High School, a grant-aided grammar, where he started to play politics, spurred on by an economics teacher by the name of Peter Baker, who ran the politics society. The first big-name speaker to speak at the school was Edwina Currie, at the height of her fame in the mid-Eighties. She was considered to be far to the right of Genghis Khan and Ed Balls redressed the balance by inviting striking Nottinghamshire miners to speak. Balls experienced the miners' strike at close quarters. His family lived in Keyworth, a village to the south of the city lying close to Cotgrave colliery - divided, like the rest of the coalfield, between strikers and working miners. Michael Balls was chairman of the ward Labour Party, which Ed joined as soon as he was eligible, at 16.

He was a young man in a hurry. Having carried off the academic honours at school, he followed his father to Keble to read PPE. At Oxford he made a mark by joining the Tory and Liberal clubs as well as Labour. This provided his best man with some wry jokes when Ed married Yvette Cooper, Labour MP for Pontefract and Castleford, two months ago. Balls himself has always maintained that he spread himself around so he could attend meetings attended by government ministers - though he never bothered. These days his action would be regarded by the spin-doctors as evidence of an inclusive view of the world. Ten years ago it just seemed odd.

He was president of the Junior Common Room and was a student rep on Keble's finance body for two years. He also wrote a student disciplinary procedure that was copied around other Oxford colleges, though there is no record of it ever being used on him. He played rugby and soccer for his college, further evidence of an inclusive view. Balls graduated in 1988 with a first, having spent his summers working for the Midland Bank, feeling a bit of a provincial-boy-lost in London. He worked at the Treasury for a couple of months in the summer of 1989 researching topics such as foreign exchange intervention, and was first noticed by economists when he wrote a report on regional employment in Britain, which went down particularly well in Harvard, where he went on a Kennedy Memorial Scholarship. There he was taught by and became friendly with economists such as Larry Summers and Larry Katz, who later went to work for Bill Clinton on his New Deal for America. He also acquired a Mormon girlfriend, who introduced him to the arcane delights of Salt Lake City.

Back home with a master's degree in public administration, Balls became a journalist, writing leaders at the Financial Times. But his sights were plainly set on higher things. In 1992, when John Major staged his humiliating withdrawal from the ERM, he wrote a Fabian Society pamphlet about the future of Labour's economic policy, advocating an independent Bank of England and a new approach to investment and to tackling unemployment. This challenging piece brought Ed Balls to the attention of Labour's new Shadow Chancellor, Gordon Brown, who called him into his office in 1 Parliament Street, where regular discussions on economic policy were begun. He worked on sections of the policy statement put to Labour's 1993 party conference, and Mr Brown's subsequent pamphlet on beating unemployment. It was an awkward time for Labour's modernisers. The Shadow Chancellor was going too fast for some of his colleagues, particularly on the left.

Eventually Gordon Brown asked Ed Balls to quit the FT and join the political project full-time, on a substantially reduced salary. "People thought I was mad," he has told friends, but he never doubted that it was the right thing to do. Still only 28, he went to work at Westminster in February 1994, arriving shortly after another, slightly older enfant terrible, Charlie Whelan, who had just taken up post as press adviser to the Shadow Chancellor. They made a formidable pair. Brown and Balls rewrote Labour's economic strategy, ditching the old "tax and spend" image. Whelan overcame the initial scepticism of the media and, by painful degrees, the trio created the idea that Labour could be trusted to manage the economy prudently, and that it was dedicated to getting people back into jobs through the welfare-to-work programme.

The death of John Smith, and the swift emergence of Tony Blair as the leader of New Labour, could have marginalised Ed Balls, in the same way that Neil Kinnock's favourites became "the disappeared ones" under Smith. But Gordon Brown's iron grip of the economic portfolio ensured that his influence remained substantial. Ed Balls had also arranged for Messrs Blair and Brown to meet his economic mentors from Harvard. It has not gone unnoticed that many of the themes of welfare-to-work have a distinctly American feel, and they can be traced back, at least in part, to Mr Balls's influence.

Writers on economics, who can be quite as dismal as their science, offer the view that Ed Balls may be very clever, but that his attachment to intellectual fashions makes him vulnerable. Indeed, one of Larry Summers's senior Harvard colleagues has complained: "With this method, it's easy to be too clever by half." Another view is that Mr Balls "lacks the long sweep of experience". Such interpretations unwisely assume that Ed Balls is calling the shots, not Gordon Brown.

They do share a vision, which probably owes more to Presbyterianism than Clintonomics: Ed Balls was a regular C of E churchgoer until the age of 18, and Mr Brown is a notable son of the manse. Professor Richard Layard, director of the Centre for Economic Performance at the London School of Economics, who worked with the Treasury team in the days of opposition, argues: "Ed is idealistic. He is concerned with achieving real results and making life better for ordinary people."

Except that he hasn't met very many ordinary people since he left Nottinghamshire more than a decade ago. Oxford, Harvard and the Financial Times are not exactly watering holes for the proles. Perhaps the best thing that has happened to Mr Egghead is that, following his marriage to Ms Cooper MP, his second residence is in Castleford, a former mining town in West Yorkshire. Few places are more "ordinary" than Castleford. In the Treasury Ed Balls relies on artificial models to test his theories. In her constituency he will see the real thing.

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