Darling under fire as Brown plans reshuffle

LONDON (Reuters) - With the Labour Party facing a rout in Thursday’s local and European elections, Prime Minister Gordon Brown looks sure to reshuffle his cabinet and Chancellor Alistair Darling could be the most high-profile victim.

Chancellor Alistair Darling speaks at the Institute of Directors (IOD) annual conference at the Royal Albert Hall, in London in this file photo from April 29, 2009. REUTERS/Stephen Hird

Some aides say they have been urging Brown to put schools minister and close ally Ed Balls into the Treasury for a while, arguing it would bring more discipline to the ministry and give Labour a better chance of winning a national election due by next year.

Darling has also become embroiled in the ongoing row about MPs’ expenses and Brown said on Monday that the chancellor had made a “mistake” in claiming a service charge for a flat he owned and had let out.

Darling said he had repaid 350 pounds and apologised for the claim which covered a period in 2007 when he was moving out of his London flat and into the chancellor’s official residence in Downing Street.

Darling said he had no plans to resign. Asked about speculation that he might be replaced in a government reshuffle, Darling told television reporters: “It is up to the prime minister. He has got to decide the team he wants.”

A source close to Brown told Reuters that reshuffle plans have reached a stage where which officials would move departments has been discussed though no decisions have been taken and probably won’t be until after the local and European elections on June 4.

“He (Brown) would be mad not to put Ed in now,” the source said. Labour is well behind in the polls and set to lose power to the Conservatives next year after ruling since 1997.

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Appointing Balls risks making economic policy more left-leaning as he may try to burnish his credentials as a future Labour leader with the party’s traditional base. But his room for manoeuvre is limited by the dire state of the public finances.

Other advisers say they are concerned that sacking a chancellor sends the wrong signal to markets at a critical time and would look like Darling was being set up as a fall guy after having to deal with the banking crisis and the recession.

The economy is set to shrink at its fastest pace since World War Two this year and public borrowing has hit a record high as the government has had to shell out billions of pounds to bail out the banking sector.

Analysts say Darling has done the best he could under the circumstances. But his position has been weakened by the ongoing expenses scandal that has engulfed politics for a month.

Markets would likely take Balls being moved to the Treasury in their stride.

A former journalist with the Financial Times, he is well known to them as a former Treasury minister and as Brown’s right-hand man when he was chancellor for a decade. His wife Yvette Cooper is a current Treasury minister.

Balls was one of the architects behind the decision in 1997 to grant the Bank of England independence to set interest rates and helped devise the five tests on membership of the euro single currency.

He also has close ties with White House senior economic adviser Larry Summers, whom he studied under at Harvard, and U.S. Treasury Secretary Timothy Geithner, which would stand him in good stead with London currently holding the G20 presidency.

But Treasury officials told Reuters they are concerned that Balls as chancellor would lead to a flurry of initiatives designed to garner media headlines. Many have been impressed by Darling’s calm and steady approach.

Darling, 55, is also less likely to take risks than Balls, 42, part of a younger generation of ministers who will probably fight to replace Brown at some stage..

Additional reporting by Keith Weir, Peter Griffiths