At the Fabian Society conference, John Hewitt Jones questions Labour's financial policy.

Arriving at the London Institute of Education last Saturday it was clear that this was indeed the right place for the 2012 Fabian Society conference. Shoals of suit-clad, Guardian-clutching socialist young things moved between reception points and media desks, surrounded by advertising for the New Statesman.

There was a considerable media presence: TV cameras, sound recordists, eager journalists, all present for one reason. The central feature of the day was to be a keynote speech from Shadow Chancellor Ed Balls, outlining Labour’s new critical approach to fiscal policy.

For those without a notion of the organisation’s role, the Fabian Society is Britain’s oldest think tank. Affiliated to the Labour party, it’s a left-wing institution that has played a central role in defining the direction of the Labour party’s policy since 1884. An appropriate place then to launch the fight-back, with a day of events billed as ‘The Economic Alternative’.

It is likely that in many peoples’ minds Ed Balls doesn’t cut a particularly impressive figure; his performance at the dispatch box is often accused of being underwhelming. But his credentials as an economist make impressive reading. In his youth Balls won a Kennedy Scholarship to Harvard, after Oxford, before working as a staff writer for the Financial Times and as a policy advisor to the treasury.

And this appeared to be home territory: Labour’s economic expert delivering a left wing speech to a hall packed with nice friendly socialists. But it was not to be. Right from the outset the conference had a feeling of urgency, a sense that the clock was ticking (a sense heightened by some outspoken heckling from the audience), because there’s no two ways about it; Labour, at the moment, is a party in crisis.

Much of Balls’ speech was rambling and unappealing, lacking the gleam of the Blair sound bite. However, it was clear from the outset that, regardless, this man has a supreme grasp of fiscal policy. The central tenet of Balls’ argument is this: The current government’s response to the financial crisis - strict, swift austerity cuts alone - isn’t working.

As we wait for last year’s GDP figures to be published on Wednesday, forecasters are predicting that these will show the UK economy shrinking in the final quarter, and that the country will fall back into recession within the next few months. Even George Osborne has admitted in a BBC interview that he’s feeling rattled. As it stands, the government will fail to hit its target of reducing the deficit by 2015.

Balls presents a persuasive case. Whilst the cuts are necessary, he argues, austerity alone can’t stimulate growth in the economy. It really isn’t just a case of playing the opposition and challenging the government’s action, but providing solid alternatives.

As a close admirer of John Maynard Keynes, Balls is convinced that now is the time that the government should be injecting short-term stimulus packages into the economy to create jobs. And he’s not the only one. Even the international credit rating agencies are saying that austerity measures on their own are not going to get Europe out of the economic downturn.

The key problem facing Labour at the moment is one of fiscal credibility. Even if Balls and his peers do turn out to be right, it’s nigh on impossible for their small voices, a mere fraction of the Labour party, to be heard above the voice of the Conservative coalition. You only have to watch Prime Minister’s Questions to see the efficacy of the government’s relentless optimism and unwavering mantra of austerity. To the electorate, it would be unsurprising if Labour didn’t seem to have a definitive position.

It looks as if they are playing a game of catch-up, and admitting that they’ve been wrong all along, although the figures don’t necessarily provide evidence for this. Were Labour to follow Balls’ lead and define their position on the economy, they would present a more united front.

The problem here lies in balancing the necessary internal debate in the months looming up to the next general election, and attempting to unite as a party over a single economic plan in order to prove their competence.