Ed Balls has staked out public spending as the decisive election battleground, insisting that with the right economic conditions Labour could still offer real-terms increases in the schools budget after 2011.

The Schools Secretary, Gordon Brown’s closest ally, defied Cabinet caution to declare the choice for voters was a Government that wanted to increase investment in public services or a Tory party that wanted reductions to fund tax cuts. But Labour had to be “smarter and defter” in its approach to investment, he said.

He also said Mr Brown was not in politics for himself, apparently acknowledging hints that the Prime Minister would walk away if he thought it was in the country’s interests. But he insisted that Mr Brown was the right man to take Labour into the election.

“He will always do what is right for the country and the Government. That is the Gordon Brown I have known for 15 years. What I will be saying to him is the right thing for him to do is to take us into the election,” he said. Mr Balls, who raised Treasury hackles last week by talking of real-terms spending increases on schools and hospitals after 2011, made clear that he was not referring to the whole education budget.

He said that the budgets for the years after 2011 had not been set and “we do not know how things will turn out”.

Mr Balls went on: “This is conditional. But if the economy strengthens as I think it will, if we can get unemployment down as I think we can and if we can make the right kind of efficiency savings which I think we can, we can continue to deliver to the front line the resources we need to lock in and build upon the progress we have made in the public services.”

Asked whether there could be real-terms increases, he said: “As I said last week if we did those things we could see real-terms increases. But these are matters for the spending review.”

Mr Balls said that he had found a £655 million saving in his budget to free up resources for another priority.

“I have shown I am willing to make tough savings to release resources for our priorities. I am willing to think radically about the school system to make efficiency savings.”

He added: “What I am not willing to do is to see the school budget cut in order to fund a multi-billion pound tax cut for inheritance tax relating to the 3,000 people with the richest estates. That is the position of Michael Gove [the Shadow Education Secretary].

“Michael Gove’s position is that health and international development are protected but that education will pay for the inheritance tax cut. That is the starkest of political choices.”

Mr Balls said he wanted to achieve spending increases if they could be achieved whereas the Conservatives as a matter of principle did not want them and were making a decision to cut spending by 10 per cent in order to pay for their tax cuts.

He said that his remarks last week had deliberately referred to the “schools budget”, implying that the overall education budget might not be protected.

He said: “It is not for me to decide what my share for education is. I was careful to say schools. How the cake is cut depends on its size and where priorities are. The point I am making is that as a Labour Government we want to keep investment going forward. We think that is a priority for our country.

“The Conservatives as a matter of principle do not want to see investment. We have always known this. In 2001 and 2005 the Conservatives said as matter of principle they thought economy and society would be stronger with £20 billion of spending cuts. That is what they have always believed. That is the choice.”

He said that Labour would have to make tough choices and think harder. “But our instinct will be to build upon record school building, more teachers and assistants, record numbers of police, more apprentices — things which will equip us for a strong economy.The Conservatives do not agree with that. They think the economy will be stronger if we cut the school and hospital building programme to pay for the national insurance rise we have announced and they don’t support, and the inheritance tax cut.” He went on: “Are we going to have to be smarter and defter in the way we invest for the future? Of course. And it will be tough. Are the Conservatives going to try to repackage their cuts? Of course they will. But in the end does anyone doubt the difference in philosophy, vision and value? I don’t think the public doubts it for a moment. That is David Cameron’s biggest problem.”

Asked about Mr Brown’s problems and a weekend interview that suggested he might one day walk away from politics, Mr Balls said that the 24-hour news cycle led to massive volatility. “I would say my confidence that this election is not lost for us is matched by David Cameron’s certainty he has not got this election won. It is totally up for grabs. It is tough at the moment. I think when people think about economy and tough decisions Gordon Brown is the right person to lead us into the next election.”

Mr Balls, who was close to becoming Chancellor until Alistair Darling dug in his heels in the recent reshuffle, said that he had never “agitated” for a change. He had been preparing for the the schools White Paper for 18 months and would have been hugely frustrated not to introduce it. He admitted he did not know what was going to happen, but he had never pressed to move.

“The moment you stop wanting to do the job you are doing and start thinking about the future or next stage is the point when you start to lose a grip with reality. Prime Ministers decide whom they want in positions. I love my job.”

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