The sight of Ed Balls bellowing at George Osborne – his face a shade of cinnabar according to the Daily Mail – while Labour MPs looked away was the defining image of Thursday’s Autumn Statement. Politically the moment was significant too.

For Mr Osborne, the sight of his Labour shadow drowning in a sea of Tory noise was vindication of his belief that Mr Balls cannot compete with the coalition on the biggest issue of the day: the economic recovery.

It has also added to his certainty that the Tories should not get bogged down in a war of attrition with Labour over cost-of-living issues, and that the party does best when it keeps the conversation on growth, jobs and the deficit.

“Labour just doesn’t have an answer when you ask them what is their economic policy,” said one ally of Mr Osborne. “They shouldn’t be making it that easy for us.”

There has been frustration in the Osborne camp in the last two months at the way David Cameron has been dragged on to Labour’s terrain in a series of ragged retreats on the question of energy prices.

Meanwhile, Mr Osborne’s focus on the big picture in the Autumn Statement is fully endorsed by Nick Clegg and Vince Cable: indeed the Lib Dems have been frustrated at seeing Mr Cameron falling into Labour’s trap.

Spurred on by Mr Balls’ apparent reluctance to talk about the recovery and future fiscal tightening, Mr Osborne and the Lib Dems have agreed a strategy intended to press home their perceived advantage in 2014.

First they will draw up a new “charter” to supposedly enshrine fiscal consolidation in the next parliament and challenge Labour to support it. Second they will put to a Commons vote plans for new controls on welfare.

Although the Tories and Liberal Democrats will have different tax and spending priorities at the next election, the two parties intend to present a common front as fiscal disciplinarians fighting supposed Labour profligacy.

Mr Balls’ faltering performance has led some Labour MPs to mutter that his days as shadow chancellor are numbered, although allies of Ed Miliband insist that “everyone can have off days”.

They point to a snap Ipsos Mori poll that found the public had more sympathy with Mr Balls’ argument that Mr Osborne was “in denial” about the cost-of-living squeeze than with the chancellor’s claim that his economic plan was working.

But one senior Labour MP was not convinced: “The problem is less about Ed’s performance but about the argument: it’s not clear that ‘cost of living versus the recovery’ really cuts it. We need to say more about the future shape of the recovery and paint a picture of how the economy might look in five years’ time.”

Although Mr Balls stuck to the cost-of-living script favoured by Mr Miliband and Labour pollsters like Stan Greenberg, he knows Labour cannot vacate the field on the macroeconomic arguments.

In the next few weeks he will start his “zero-based” spending review, challenging shadow ministers to identify cuts to help the party display its fiscal credibility by matching coalition spending plans in election year.

Mr Balls is also preparing a new set of fiscal rules for inclusion in the Labour manifesto – he says he will not be bounced by Mr Osborne and his budget “charter” – which will set out plans to run a budget surplus and to bring down overall debt.

The shadow chancellor has admitted privately that his attempt to shout “over 300 braying Tories” on Thursday was not his finest hour. The serious grind of carving out a new fiscal message for Labour is now under way.

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