Today sees the evil Fabians holding their “The Economic Alternative” conference and Ed Balls is the keynote speaker.  To raise the curtain he has an interview with Mary Riddell in the conference edition of the Fabian Review. Print deadlines however mean the interview was given some weeks ago when the party line repeated ad nauseuam was different to what it is this morning. In the interview Balls says of the Tory deficit reduction strategy “Nobody in the Labour Party should get into the idea that it has to be this way”.

What a difference to his Guardian interview this morning in which he claims “My starting point is, I am afraid, we are going to have keep all these cuts.”

Same line of questioning, very different answers. The reality of public scepticism regarding Labour’s credibility on the economy and pressure from Shadow Cabinet realists combined with the weakness of Ed Miliband’s authority has forced Ed Balls to switch to George Osborne’s ‘Plan A’. There is no alternative.

Guido had better things to do than attend Chuka Umunna’s speech yesterday at an event organised by the re-energised IPPR, but that’s not to say he didn’t have eyes and ears in the room. There was a panel discussion afterwards featuring, among others, Lord Myners and Deborah Hargreaves, the Chairman of the self-appointed High Pay Commission. The event was trailed with a suitably hand-wringing leader in the Guardian which, once again, left them open to accusations of rank hypocrisy. Editor Alan Rusbridger’s package was up 7% to £605,000 last year and when a hack in the audience asked the High Pay Commission panel if this reward for failure was acceptable, with his characteristic charm, Myners instead chose to play the man rather than the ball, describing the hack that had asked the question as ”embittered”. Deborah Hargreaves was more forthright:

“The answer is no and maybe that is why they need an employee representative on the remuneration committee.” 

Which was rather honest considering Guardian editor Alan Rusbridger was until recently her boss, when she was his business editor and she still contributes occasional articles. Sadly nobody mentioned City tycoon and hedge fund boss Paul Myners’ multi-million pound modern art collection…

After leaving Downing Street a few months ago, in less than clear circumstances, policy-chief James O’Shaughnessy popped back onto the radar in this morning’s Times. Not only has he penned a passionate article about Gove’s education reforms, but he’s put his money where his mouth is:

“This is why I left Downing Street to start a new social business that aims to operate schools and to provide educational services based on a blend of traditional values and positive psychology: because after ten years as a policy wonk I believe that lasting change will only happen from the bottom up.”

However his blue sky days aren’t quite over yet. Having left Policy Exchange in 2007 to go to work for Cameron, Guido hears on the wonk-vine that he is on his way back to his ideological home. Policy Exchange are heading into their tenth year and are said to be lining up some big projects to celebrate. Guido understands that O’Shaughnessy will be coming back part-time to work, surprisingly enough, on the education side of things. You read it here first…

The Labour left and the Guardian are getting very worked up about the perfectly reasonable housing benefit cap proposal

“for example Louise Ryan, 41, who lives with her husband and two children in Islington, north London, will see the £438-a-week benefit, which covers the rent, reduced to £340 under the changes to housing benefit introduced this month.”

To just afford that £438 rent those of us who work would have to earn as below:

That rent alone is higher than median wages. It takes the taxes of four people on median wages to cover Louise’s rent. Add on her other benefits and Louise has a household income equivalent to a working family with a household income of over £40,000.  Where is the social justice in paying welfare benefits to people that are higher than the majority of the tax paying working people’s take home pay? This simply cannot continue.

To be fair the Labour shadow work and pensions secretary Liam Byrne recognises this, so the Labour left have begun excoriating him as “a reactionary”. The ubiquitous Owen Jones, author of “Chavs“, is representative of the Labour left. He thinks it is “progressive” to pay out to welfare recipients more in benefits than the majority of working people earn:

"Labour says it supports the principle of the benefit cap" – sorry, what? guardian.co.uk/society/2012/j… That's it – Liam Byrne has to go.—
Owen Jones (@OwenJones84) January 02, 2012

The Guardian reckons thousand of benefit recipients will have to move out of Kensington and Chelsea. Doesn’t your heart bleed? Guido really hopes that Owen Jones succeeds in getting the Labour Party to go into the election with a manifesto commitment to reverse the cap. It will be a huge electoral liability on the doorstep…

For the second time in a month Peter Mandelson’s think-tank, Policy Network, has launched a policy salvo against the direction the Labour Party is taking under Miliband. Mandelson privately is contemptuous of young Ed, these high-minded wonkish policy exhortations are the respectable manifestation of that contempt.

Last month his think-tank published “In the Black Labour: Why fiscal conservatism and social justice go hand-in-hand” is a discussion paper in which the authors; Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen, called for Labour to embrace fiscal conservatism. The paper was an explicit rebuttal of the kamikaze economics of Ed Balls endorsed by Ed Miliband, which poll after poll shows is not seen as credible by the public. Despite the state of the economy Cameron and Osborne are supported by the British public to a far greater extend than Miliband and Balls.

In exactly the same vein shadow pensions minister Gregg McClymont MP and Oxford historian Ben Jackson have written a paper for the think-tank warning that austerity governments often defeat opponents and that historically the Tories have achieved this on multiple occasions. They also urge Miliband to abandon his “predators and producers” rhetoric and ”put forward a more convincing strategy for private sector growth than the Conservatives”. McClymont and Jackson further warn that Ed Miliband must avoid the “tax and spend” trap and “a simple defence of the public sector and public spending”. Alas that is Labour policy in a nutshell..

See also: Labour-Centrists Laying Down Reality-Based Policy Ideas

It is a fact of life that they stop manufacturing news over Christmas, which is why the papers are filled with even more dross than normal. Double-page jumbo cryptic crosswords help you while away the time between Christmas lunch and the turkey sandwiches. Guido has something equally as cryptic but far more rewarding…

If you can figure out how a Eurozone state can leave the Euro you could win £250,000. Guido isn’t joking, the Wolfson Economics Prize will be awarded to the person “who is able to articulate how best to manage the orderly exit of one or more member states from the European Monetary Union.”

You have a month until the deadline for submissions on January 31, 2012. So instead of snoozing in the armchair after lunch dreaming of escaping to sunny lands dream of rich sunlit post-Euro uplands. According to the Wolfson Prize announcement the detailed issues that exiting the Eurozone raises include:-

• Whether and how to redenominate sovereign debt, private savings, and domestic mortgages in the departing nations.
• Whether and how international contracts denominated in euros might be altered, if one party to the contract is based in a member state which leaves EMU.
• The effects on the stability of the banking system.
• The link between exit from EMU and sovereign debt restructuring.
• How to manage the macroeconomic effects of exit, including devaluation, inflation, confidence, and effects on debts.
• Different timetables and approaches to transition (e.g. “surprise” redenomination versus signalled transitions).
• How best to manage the legal and institutional implications.
• A consideration of evidence from relevant historical examples (e.g. the end of various currency pegs and previous monetary unions)

The Wolfson Economics Prize, worth €286,000, is the second biggest cash prize to be awarded after the Nobel Prize. It aims to ensure that high quality economic thought is given to how the Euro might be restructured into more stable currencies. Guido is read widely in  City dealing rooms, crammed with bond market vigilantes and Phd wielding economic analysts. Given the paucity of bonuses this year, best get your thinking caps on…

Full details from the website:
policyexchange.org.uk/WolfsonEconomicsPrize

Talking to Labour insiders, ambitious young PAds, think-tankers and old hands alike, the candid admission is that they are stuck with Ed Miliband because as with Gordon Brown, there is no-one else. Ed gets a regular mauling at PMQs despite a terrible economy, still looks and sounds like the kid who does the photocopying, has failed to impress the British public and is unable at this stage of the electoral cycle to push further ahead in the polls. His shadow chancellor can never win the argument, because the argument he makes is that the British public is wrong and because it is Ed Balls who is making the argument. Dislodging Ed Balls would risk fraticidal conflict and not getting him off the television screens will guarantee Labour won’t be given a hearing on the economy.

The Labour Party’s centrists and the realist operators who just want power have written off the 2015 electoral prospects of the Labour party under the two Eds. So it is against this backdrop that we should look at two new publications that have just come out. Labour’s Business written by Luke Bozier and Alex Smith argues that the party should be pro-business, it even has one brilliantly simple business-friendly idea that the government should steal immediately – small businesses should have one person as their point of contact at the HMRC. One person who is responsible for dealing with issues arising from the complexity of the myriad of taxes – VAT, NI, capital gains, corporation taxes and the like – burdening small businesses.

“In the Black Labour: Why fiscal conservatism and social justice go hand-in-hand” is a new Policy Network discussion paper in which the authors; Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen, call for Labour to embrace fiscal conservatism. Policy Network is backed by Peter Mandelson, so is not exactly a fringe ginger group. The paper can be seen as a direct rebuttal of the kamikaze economics of Ed Balls endorsed by Ed Miliband, which poll after poll shows is not seen as credible by the public. Despite the state the economy is in George Osborne is believed and supported by the British public.

The policy details in the two papers won’t worry their Coalition opponents, they will however be seen as part of a slow move back towards the electorally potent reality-based politics of New Labour, rather than the one-more-heave-to-the-left politics of Ed Miliband. Ed Miliband and those around him believe the electorate is moving towards the positions of the Occupy and UK Uncut activist groups, a strategic error that will guarantee them electoral defeat in 2015. If Labour’s reality-based wonks want to be in government before they are old men, they have got to either get rid of the Eds or convince them to tack to the centre. These are the opening salvos…

Quentin Letts on the Institute for Government…

“a silo of Guardianista gibberish”

Yesterday saw the third CBI-TUC annual footy match; the pro-business lobby beat the anti-business lobby 4-3 to win the cup pictured above. There must be a metaphor there somewhere, especially given that Guido hears that things were quite heated with penalties awarded against both sides. The row has continued off of the pitch today in the wake of the brave suggestions, leaked to the Telegraph, from Adrian Beecroft. The venture capitalist advising the government has finally put the employment “rights” stranglehold on growth to the top of the policy agenda:

“The rules both make it difficult to prove that someone deserves to be dismissed, and demand a process for doing so which is so lengthy and complex that it is hard to implement… This makes it too easy for employees to claim they have been unfairly treated and to gain significant compensation.”

These employment rules are far more complicated than the offside rule and prevent British businesses from competing on a level playing field with international competitors. Interviewed on Sky News, Mark Littlewood of the IEA called the rules “a real burden and a real fear” in the business world, and it’s true that there are now untouchable elements within all sectors, but the public-sector in particular. It’s nearly impossible to sack a useless teacher…

There are five million small businesses in the UK. If just half of them can be persuaded to take on one more member of staff then this country would not be facing an unemployment crisis. If businesses could hire and fire flexibly they would be less reluctant to take the risk of hiring new staff. There is some suspicion that this report has been trailed today in an effort to move on the debate from Europe with something that appeals to right-wingers, but if anything it is yet again reminding Tory backbenchers of the disproportionate power the LibDems have in government. Before a proper debate has even begun, Norman Lamb, the voice of Nick Clegg, has already come out to say that it’s “madness” and they will block such a move. Sound familiar..?

Guido has been marking various comings and goings in Downing Street and at the Policy Unit – supposedly the key ideas engine of a reforming government. Now run by non-political, technocratic, civil servants not known for radicalism. Chris Brown, referred to yesterday, is the education adviser whilst Paul Kirby and Kris Murrin run the unit. It seems to Guido that the Policy Unit could do with some outside talent.

The most obvious candidate to run a centre-right government’s policy unit would be Neil O’Brien who heads Policy Exchange, the biggest centre-right think-tank that basically supplanted the old, now slimmed-down, Conservative Research Department as the main source of Tory policy thinking.  James O’Shaughnessy, the former Policy Unit head, was ex-Policy Exchange…

Given we have a coalition government perhaps a former LibDem wonk might be appropriate. Mark Littlewood, now at the Institute of Economic Affairs, is the most orange of Orange Bookers and a former LibDem head of spin with a reputation for shaking things up. Coincidentally they have both been spotted coming and going to Downing Street…