Balls warns the Left: Labour must wield the axe after 2015

The Shadow Chancellor yesterday began to set out Labour’s new tougher line on public spending, pegging the party to the coalition Government’s spending plans for 2015-16 as he warned his colleagues in the Shadow Cabinet they should expect to work within the tough departmental settlements due to be unveiled later this month.

Mr Balls’s speech marked the beginning of a key period for Labour ahead of a keynote address on the economy by leader Ed Miliband later this week, with the party clear it must build trust in its economic policies if it is to secure victory in 2015.

Chancellor George Osborne will set out the coalition’s post-2015 spending plans on June 26, and Mr Balls made clear that for its first year at least, an incoming Labour Government would have to work within them.

“With the Chancellor refusing to change course, Labour must start planning now for what will be a very tough inheritance in 2015,” Mr Balls said. “It will require us to govern in a very different way with much less money around. We will need an iron discipline and a relentless focus on our priorities.”

Mr Balls’s most striking pledge was to end Labour’s clear commitment to the principle of universal benefits, confirming plans to save £100m a year by removing winter fuel payments from around 600,000 wealthier pensioners.

The move immediately drew fire from trade unions and within the Labour Left.

The Morley and Outwood MP also floated a number of other areas his party may seek to make savings if it wins the 2015 election.

Elected police commissioners, introduced by the coalition for each of the 39 police forces across England and Wales last November, are one likely target. The elections suffered from an extremely low turn-out and some PCCs have since been criticised for being profligate with public money.

“When we are losing thousands of police officers and police staff, how have we ended up spending more on police commissioners than the old police authorities, with more elections currently timetabled for 2016?” Mr Balls asked.

HS2 Ltd, the body set up by the Government to deliver the new high-speed rail line to the North, may also be cut by Labour, with responsibility for delivering the £33bn project handed directly to Network Rail.

“Should we be spending millions on a separate company to deliver High Speed 2 when we already have Network Rail, which after all is responsible for rail infrastructure?” Mr Balls asked.

He also hinted that Labour would be unlikely to fund many more “free schools” after 2015, and questioned the need for the new “titan” prisons designed to offer extra prisoner places.

But Mr Balls suggested capital budgets should still be increased to boost UK plc. Signalling a shift away from Labour’s call for a temporary VAT cut, the Shadow Chancellor said while that currently remained the “right prescription”, if the economy began to recover over the next year “the balance of advantage will shift from temporary tax cuts to long-term capital investment”.

On pensioner benefits, the Shadow Chancellor said the £100m saving was “not to be sniffed at” and said “something important about our priorities”.

“When our NHS and social care system is under such pressure, can it really remain a priority to pay the winter fuel allowance to the richest five per cent of pensioners – those with incomes high enough to pay the higher or top rates of tax?” Mr Balls asked.