Shadow chancellor Ed Balls campaigning in Cheshire
Ed Balls, shadow chancellor, has sought to reassure a sceptical City that an incoming Labour government would not drive banks and wealth creators out of Britain, pledging not to pursue “heavy-handed and dirigiste” regulation.
Attempting to answer Square Mile criticism of Labour’s plans to increase taxes and regulation, Mr Balls insisted in an interview with the Financial Times that his party understood the vital role played by financial services. “You don’t cut off your nose to spite your face,” he said.
Business figures will question how Mr Balls’s rhetoric squares with his plan to increase the bank levy, to impose a one-off bank bonus tax and to raise the top rate of income tax to 50 per cent.
More than 100 business leaders this month signed a letter backing the Conservatives amid concern at the economic policies of Labour leader Ed Miliband — who once labelled some companies “predators” — and his plan to intervene in certain markets.
Mr Balls said he and the Labour leader had spent 20 years working in the Treasury and in senior political jobs and understood the need for a balanced relationship between politicians and business.
“Ed Miliband and I have never run a business but we have more experience than anybody in British politics in working with business,” he told the FT.
“Financial services, properly regulated with the right leadership and values, have a big role to play in the British economy,” he said, adding: “Ed Miliband knows how important banks are to our economy.”
Mr Balls said those with the “broadest shoulders” — including those who had enjoyed big rises in income in the past five years — had to pay more to convince the country that the free-market economy was working fairly.
But he said that while the 50p income tax rate would be in place throughout the next parliament, Labour would seek to reduce it when fiscal conditions allowed: “It’s not a principle for me,” he said.
Mr Balls said Labour would not insist that banks be forced to dispose of branches once they exceeded a certain market share, rather that it would trigger a competition review to see whether any problems arose.
He would ensure that banks were properly regulated but he hoped that HSBC and Standard Chartered would retain their headquarters in Britain. “There are some who would say ‘good riddance’: I’m categorically not one of those.”
Mr Balls pointed out that HSBC was concerned about Britain’s future in the European Union and he criticised the “potentially very dangerous” promise by David Cameron of an EU referendum, saying it was causing great concern in Washington.
Ed Miliband and I have never run a business but we have more experience than anybody in British politics in working with business
The shadow chancellor said that if Labour won the election he would resist any sale of the government’s stake in Royal Bank of Scotland at below the “in price”: “I would be instinctively unhappy about selling the first tranche of shares at a discount.”
Mr Balls also promised to work closely with Mr Miliband in government — avoiding any repeat of the damaging splits between Tony Blair and Gordon Brown.
The shadow chancellor has asked Sir Nick Macpherson, the Treasury’s top civil servant, to ensure that relations with Number 10 would be open and collaborative under a Miliband administration, in contrast to the poisonous atmosphere which prevailed during the New Labour years.
Mr Balls was a central figure in that drama. As Gordon Brown’s top adviser in the Treasury he regularly clashed with Mr Blair. The former prime minister reportedly complained that he felt like “an abused wife” after one confrontation.
Relations between David Cameron and George Osborne since 2010 have been remarkably cordial and Conservatives say that in the event of a Labour election victory, Mr Balls and Mr Miliband would repeat that dysfunctional New Labour relationship.
Mr Balls and Mr Miliband have not always operated smoothly together; they both worked as officials at the Treasury under Mr Brown (Mr Balls was the senior partner) and contested the Labour leadership in 2010. But Mr Balls insists their partnership has grown stronger since his appointment as shadow chancellor in 2011.
He says normal pre-election conversations between the opposition and the civil service had taken place. “I’ve asked Nick Macpherson to make sure we have really clear arrangements for close working between No 10 and No 11.”
I’ve asked Nick Macpherson to make sure we have really clear arrangements for close working between No 10 and No 11
The Labour leader has not guaranteed that he would make Mr Balls his chancellor, although he has praised him in recent speeches and anticipated working with him on the party’s first post-election Budget.
George Osborne routinely portrays the “the two Eds” as the men who “crashed the economy”, citing their role in the Treasury during the Brown era, in which the former Labour chancellor claimed to have abolished boom and bust economic cycles.
So Mr Osborne will be surprised to hear Mr Balls dwelling on the experience he says he and Mr Miliband have in working with business.
Mr Balls, speaking on a train between a business meeting at Birmingham airport and a campaign stop in Chester, says FT readers have “known about me for 25 years” ever since he wrote an economic notebook for the paper in the early 1990s.
He prefers to dwell on the advice he dispensed to Mr Brown at the Treasury on keeping Britain out of the eurozone and granting independence to the Bank of England, rather than the events leading up to the financial crash of 2008.
While Mr Miliband has divided business into “predators and producers” and routinely attacks City excess, Mr Balls is seen by some top bosses as a more fruitful interlocutor.
But Mr Balls says that unless those with the “broadest shoulders” make a bigger contribution and ordinary people feel the economy is operating fairly, it is harder to make the case for the free market economy.
He has acknowledged that bank regulation was too loose before the crash but has never accepted the Tory charge that Labour overspending in the Brown years contributed to Britain’s fiscal mess.
UK general election
The UK faces its closest and most unpredictable general election in memory on May 7
The shadow chancellor presents himself as a fiscal disciplinarian who wants to get the current budget “into surplus” by the end of the parliament, but has given few details of the tax rises or cuts needed to achieve that goal.
Mr Balls places great emphasis — Tories say too much — on raising Britain’s productivity through investment in skills, infrastructure and by reforming the planning system, hoping that higher growth can eat away at the deficit.
So will Mr Balls be as abrasive as a Labour chancellor as he was in his dealings with Tony Blair when he was a mere adviser? Mr Balls, an enthusiastic baker, admits that his bulky physique means it is hard to shake off the old image: “You are always going to be described as a bruiser rather than a cupcake maker”.