The realpolitik behind Labour’s energy price freeze

by Atul Hatwal

In the run up to Labour conference, a new policy to tackle rising energy costs was widely anticipated. After a summer of atrocious headlines, and with an Autumn of fuel price hikes in prospect, Ed Miliband needed a rabbit to pull out of his policy hat at conference.

For many within Labour, the natural solution seemed to be a new windfall tax on the utilities. It had worked well in the 1990s, when Labour was last in opposition, forcing the Tories to defend the largesse of the fat cats while generating funds to help tackle youth unemployment.

So when Ed Miliband announced the energy price freeze it was a genuinely striking political moment. There had been no pre-briefing or preparation and media and party alike were stunned.

While the media have subsequently focused on the mechanics and implications of a price freeze, from an internal Labour party perspective, politically the more interesting question is: why was a windfall tax rejected?

After all, it draws the same dividing line as the price freeze without any connotations of a 1970s style price control policy and given the windfall tax’s previous successful implementation, the public would be more likely to believe it would be enforced (the ComRes poll today found that 52% of the public do not think Labour will enact the price freeze, with 41% believing it will).

Even centrist Tories like John Major and Rob Halfon think a windfall tax would be justified.

The answer is to be found in the deteriorating relationship between Labour’s leader and his shadow chancellor, a dysfunction which is increasingly defining policy-making within the party.

Beyond the personal bristling between the two from the outset of Ed Miliband’s leadership – let’s not forget Ed Balls spent most of the preceding twenty years as Miliband’s senior in the Brownite hierarchy, only to suddenly be junior post 2010– the origins of the tension are based in two competing political strategies that have never been reconciled.

Ed Miliband’s original plan on becoming leader was to make a decisive break with both the Blair and Brown past. His leadership campaign demonstrated how he would differ from Blair. But he also wanted to draw a clear distinction with the policies of Gordon Brown, principally on immigration and public spending.

On the economy, the Miliband plan ‘A’ was to tighten Labour’s fiscal stance while opposing the Tory cuts as politically motivated. To deliver this strategy he made a deliberate choice not to appoint Ed Balls as shadow chancellor, but opted for the Blairite Alan Johnson.

In contrast, Ed Balls’ analysis was that Labour needed to focus exclusively on Tory responsibility for the recession rather than starting a political conversation about Labour’s spending plans, and what it had got wrong in the past.

The Balls approach always envisaged a commitment to remaining within the government’s future spending totals – as Gordon Brown’s main adviser in the 1990’s, he had been the leading champion of matching government plans – but this was for much later in the parliament, once Tory economic credibility had been destroyed.

The collision of these two strategies has hobbled Labour’s economic message and fractured the relationship between Labour’s leader and shadow chancellor.

For Ed Miliband, tentative early attempts to shift Labour’s position on spending were argued against by Ballsites in shadow cabinet. Sources within Ed Miliband’s circle have suggested that every time he tried to move on spending, there would be a text or a mail from Yvette Cooper on the importance of defending the Labour government’s record and concentrating on the Tories’ failings.

When Alan Johnson resigned, and Ed Miliband could not avoid appointing Ed Balls, the ban on any early re-positioning on spending was cast in stone. Shadow cabinet advisers, and members of the leader’s office, dubbed Ed Balls “Dr No” and Yvette Cooper, “Rosa Kleb” following their refusal to countenance discussion on spending commitments.

But without the balancing rhetoric on reining in spending, the attacks on the cuts have helped reinforce the image of Labour as the party of out of control spending. Even after a recession, years of a flat-lining economy and plummeting real wages, Cameron and Osborne hold a substantial and growing lead over Miliband and Balls on economic competence.

As Labour’s economic numbers have deteriorated, so have relations between the two Eds with both thinking that if their strategy had been properly followed, then Labour wouldn’t be in such an economic hole.

Shadow cabinet sources indicate it was only the combined pressure of the leader’s office, the shadow cabinet and Labour’s disastrous polling on economic trust that forced Ed Balls into making the June statement committing to Tory spending plans for 2015/16.

Left to his own devices, this would have been delayed by over a year.

For the leader’s office, the experience of dealing with Ed Balls’ team on spending has been like drawing teeth. The reality is that Ed Miliband has been largely shut out of economic policy and is not politically strong enough to overrule the shadow chancellor when it comes to tax and spending.

So, before conference, when Ed Miliband was faced with the political need to act on energy costs, party sources suggest a windfall tax was discussed but discarded in large part because of the political difficulties of imposing a new tax policy on the shadow chancellor.

Instead, Ed Miliband opted for a commitment on energy that that he knows carries greater risks of defining Labour as an anti-business throwback to the 1970s but that is resolutely outside of Ed Balls’ ambit.

The paradox of the policy is that a move which has been reported as demonstrating the leader’s strength – and in fairness, courage is required to take a chance on a totally new approach – has been driven, in part, by his weakness in defining Labour’s fiscal policy.

This is the realpolitik behind Labour’s energy price freeze.

Atul Hatwal is editor of Uncut


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6 Responses to “The realpolitik behind Labour’s energy price freeze”

  1. Mike says:

    If this article is accurate, frankly my opinion of Ed Balls has gone up. I had assumed it was Balls and his NewLabour-style trapped thinking that was demanding Labour gives in to the Tories on the economy — and it’s worth noting that, since his announcement that Labour would match Tory spending plans, Labour’s economic trust numbers have only gone further down. Far from gaining “credibility”, it’s simply given the impression that Labour are admitting they overspent when they were in government (in which case, why would people want to put them back in government again if they feel even Labour are admitting they’re econonomically-incompetent), while also planting the question in people’s minds about what the point in voting Labour is if they’re just going to do the same as the Tories.

    With that said, the energy prize freeze was inspired, and is much simpler to understand and stands out to ordinary people a lot more than a “windfall tax” would. However they arrived at that position, I’m glad they did.

  2. Labour Supporter says:

    Funny that Lord Mandelson and Ed Balls were spotted having tea together after the energy price freeze announcement and Lord Mandelson criticised it. Lord Liddle, Mandelson’s mate, has also gone and criticised it publicly. Mandelson opposing HS2 and Ed Balls is shifting us to an anti-HS2 position. Ian Austin, a Brownite, called for Mandelson to run the general election campaign. Is Balls plotting with Mandy?

  3. Danny says:

    “If this article is accurate”

    Do you read much of Atul’s stuff? He’s does a good job of giving the impression he’s “in-the-know” but the reality is his articles are heavily agenda-driven and pure speculation.

    The phrase “take it with a pinch of salt” exists for his ramblings.

  4. Robert says:

    I agree Danny. Atul seems desperate for there to be a major split when there are only differences of emphasis. My impression is that Ball and Miliband are united in rejecting Atul’s Blairite approach.

  5. swatantra says:

    Atul tells it as it is, and not through the rose tinted glasses of many shortsighted and myopic wishful thinking members of the old Left. Sack Balls now. And Cooper. But bring back Mandelson, to run that strategic and vital Election Campaign.

  6. Andy Prendergast says:

    The reason for looking at a price cap as opposed to a windfall tax represents a need to convince normal people that they will directly benefit form the policy. Any proceeds from a windfall tax would be too easily swallowed up into government expenditure and would therefore leave tax payers with high bills but without any obvious benefit. The Tory response to the policy has demonstrated their fear as to the popularity of the policy and thus represents a real success on behalf of labour by taking the iniative. The whole 1970’s arguement represents little more th the usual knee jerk response from political journalists long isolated from the real world.

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