Steve Richards: The truth about Osborne and Balls

Osborne will insist there is no Plan B until he has to implement one. He changed policy so often in opposition he will do so again

In judging politicians, look at the policies and not the caricatures presented by media orthodoxy. The caricatures change from time to time and are nearly always inaccurate. The policies are there for all to see. Nowhere is this scrutiny more necessary than in relation to the battle over the economy, one that has become more vividly urgent with the appointment of Ed Balls as shadow Chancellor, and this week's growth figures that suggest the economy is flat-lining at best.

The elevation of Balls was greeted with a frenzy that is both flattering and potentially dangerous for the new shadow Chancellor. Most of the assessments that accompanied his return to an economics brief were patronising and set him up for a fall.

I must have read a thousand times that Balls is an "attack dog", well suited for opposition, a brilliant parliamentarian who will score some short- term hits against George Osborne, and in doing so will fire off some indiscriminate bullets against his own colleagues. The implication of this assessment is that in the end Osborne is a more considered strategist, pursuing a more thought through economic policy, and is suited for governing.

The reality is much more complicated. Osborne is a witty and quick-thinking parliamentary performer who will sometimes get the better of Balls in Commons exchanges. Balls is quick at the Dispatch Box and will be alert to any flaw in his opponent's argument, but he will not always win these encounters. Unquestionably he will pursue Osborne around the clock, which will be a novelty as the Chancellor has been largely free of scrutiny through his time in opposition and since he moved into the Treasury.

But Balls is most formidable as an economist who applies policy-making to the daunting demands of political context. My book Whatever It Takes highlights the degree to which Balls worked on the policy detail that restored Labour's busted credibility on the economy after its fourth election defeat in 1992. After acquiring a stable macro-economic framework, Labour acquired space to invest more in public services and retain the support of enough voters to win elections, a rare combination and one that currently eludes left-of-centre parties around the western world.

In order to achieve such a sequence, Balls was willing to challenge Bank of England and Treasury orthodoxy, an experience that gives him the confidence now to question the occasionally evangelical and seemingly partisan assumptions of the current Governor, Mervyn King.

Balls's reputation during this earlier phase in his career is a reminder of how caricatures of wilfully misunderstood politicians can change. I recall the normally perceptive David Blunkett telling me despairingly when he was Education Secretary that Balls was a monetarist. He could not have been more wrong. Balls is a Keynesian and had his first row with Peter Mandelson when the latter briefed the The Sunday Times in 1995 that Keynesian economics were dead under New Labour.

More recently, the stereotype of Balls suggests he is at least as bothered about destroying internal opponents as policy-making. This suggests to me that Balls is not yet the complete politician. He would not have allowed such a reputation to form if he were more alert to deadly perceptions. As ever, the reality is more multi-layered. Towards the end of the last government other ministers and advisers were more briefing than briefed against. In one conversation an adviser to a minister spent half an hour telling me that she did not trust Balls and his briefings. I gently pointed out she had spent the last 30 minutes briefing against Balls.

The policy-making of Osborne also presents a more confused picture than his current, partly self-proclaimed, stereotype as an unyielding figure of Thatcherite conviction, striding determinedly through the current storm. Although firmly on the right in terms of his economic beliefs, he has strode back and forth on several occasions already. He began his tenure as shadow Chancellor in 2005 by floating the merits of flat taxes, a policy that even The Economist regarded as too right wing and iniquitous. Next there was an apparently profound shift in Tory economic policy as Osborne told his party conference in 2006 that tax cuts must not be their focus, but economic stability. A year later he made a tax cut his main focus, the near abolition of inheritance tax.

In between he announced sensationally that he would support Labour's spending plans and not change them. When the financial collapse happened he uniquely proposed immediate spending cuts and opposed a fiscal stimulus. As the next election moved into view, further tax cuts were promised. Once the election was safely out of the way he announced that the deficit would be wiped out in a single term, leading to spending cuts on an unprecedented scale.

The challenge in terms of his latest economic policy is still to come. The evidence so far offers him little comfort. Forecasts for growth were revised downwards after his so-called emergency Budget last summer. The Coalition has been exaggerating the dangers of the UK sinking like Greece for so long it is not surprising that consumers have stopped spending before most of the cuts come into effect. The big test for Osborne will not be the next quarter's growth figures, but the third and fourth quarters. They will reflect more fully the consequences of cuts and the VAT increase.

On the basis of actual past records, rather than misleading stereotypes, how will Balls and Osborne respond to the continuing drama? Balls has recognised the dangers of sweeping cuts when a recovery is precarious, but that does not mean he will frame an economic policy at the next election that proposes only tax rises to pay for increases in spending. On the basis of his time in the Treasury and in opposition in the 1990s, tax cuts will be in the mix.

So too will an attempt to expose the Coalition on grounds of competence as much as ideology, although values will play a bigger part after Blair and Brown tested to the limits the language of apolitical managers. Balls will not spend his time plotting against Miliband. He knows the reputation as a schemer set him back from Day One of the last leadership contest and is aware that in politics things happen, such as his sudden appointment as shadow Chancellor.

Osborne will insist there is no Plan B until there is a need to implement one. He changed his policies often enough in opposition to suggest he could do so again. Cameron and Osborne are brilliantly calm when under political fire, such as when Brown almost called an early election, but tend to panic over reaction to policies.

One influential minister said to me when I asked him this week why he was so sure that their economic policy would work: "I am absolutely sure we were right to announce the deficit plan last summer". Perhaps he was suggesting inadvertently that the announcement was necessarily stabilising, but the actual cuts might not have to be so severe if they clearly are jeopardising recovery. Thatcher relaxed her policies in 1981 when they were obviously making matters worse, so there is a precedent from the decade on which their policies are based.

Judged on past policy records Osborne will not stride through the storm with no alternative if the tempest gets worse. Balls will form an economic policy that will be subtler than an echo of Labour's vote-losing past.

'Whatever it Takes' is published by Fourth Estate

s.richards@independent.co.uk; twitter.com/steverichards14