Morning briefing..

ACRIMONIOUS SCENES


George Osborne won yesterday’s vote for an MP-led inquiry by a majority of a hundred,  but he hasn’t won his battle with Ed Balls. His attempt to link Mr Balls to the Libor rate-rigging scandal were addressed by the man with fury. “He has impugned my integrity,” Mr Balls shouted. But George didn’t give up, saying he would not take lectures from a man who had “smeared his way through 13 years of Labour government”.

At yesterday's Policy Exchange shindig, George sought to make light of it with quips about “my good friend” Ed Balls - but wounds from the rancorous day could take longer to heal. Not least because the exchange has  sparked quite a reaction in the papers. The FT  calls it "the most acrimonious scenes witnessed at Westminster for years", the Guardian says it was "bad-tempered" and  our leader calls the pair more "squabbling schoolchildren than statesmen".

But the battle goes on. Mr Balls, while accepting his defeat on inquiry vote, has pledged that Labour will keep calling for an independent inquiry into the culture of banks. George, however, is showing some muscle by pumping more cash into the Serious Fraud Office for the investigation.

George should cool it though. His MPs are not impressed. The Times  reports that he’s attracted widespread Tory criticism from normally loyal MPs. They reckon he’s not spending enough time on the economy and has a “disproportionate obsession” with his opposite number. Among them, Andrea Leadsom, a member of the Treasury select committee, said the name-calling was “a great shame...I don’t think it’s helpful.”

Dominic Grieve didn’t do George any favours during the debate as he intentionally threw the government’s timetable into doubt when arguing against Labour’s proposals. He said their plan might clash with the police inquiry and get delayed. Sadly, this would also be true of the government’s plan. Mr Balls thanked Grieve for being "very helpful". Ouch.

ARMY SLASHED

The action yesterday was not limited to the Libor scandal. Philip Hammond’s 20 per cent cuts to the Army  have caused uproar. The Tory Party are furious. One minister told us that the PM was “not interested” in warnings that the Army would be too small and that it might not be viable, while Bob Stewart, the former British UN commander in Bosnia who is now a Tory MP, said the cuts had been “savage” on English county regiments. You can read more  here.

Our leader  says there can be little defence for the cuts: “It’s bad enough that Britain is opting out of being a major military player - but the cuts to the Army lack any strategic vision.” The Mail’s leader says it leaves Britain “diminished.”

The FT’s is more supportive, but warns: “A regular army of 82,000 is the minimal critical mass for a country with Britain’s ambitions. To fall below this level would fatally compromise the country’s military prowess.”

It will be interesting to see if the Government holds its line. It's not just that this plan leaves us worryingly unable to cope with any foreign policy surprises: politically, the Tories are endangering their cherished status as the party of a strong Armed Forces, to the deep disgruntlement of the men in regimental ties.

ECONOMY CRASHING

Meanwhile, in the real world, the Bank of England have injected our ailing economy with another £50 billion (the FT  has splashed on it). This, of course, is George Osborne’s “textbook” response to the crisis, and one tried across Europe and America. So far, it hasn’t worked here. Will this round be different?

The BoE’s decision came amidst surprise interest rate cuts in China and Europe. Indeed, as if Europe’s stalling economy wasn’t enough to worry about,  Jeremy Warner has an interesting blog on China’s hard landing. The country might be growing, he explains, but not fast enough.

REEVES’ PARTING SHOT

If the Tories vote down Lords reform, they can say goodbye to a majority at the next election, warns Nick Clegg’s outgoing SpAd, Richard Reeves, in an interview with  the Independent. Even clubbing together with Labour to call for a referendum on Lords reform will  scupper any chance of Lib Dem support for new parliamentary boundary changes that could gift the Tories 20 seats at the next election. The Lib Dems would retaliate by delaying the reforms until after the 2015 election.

Mr Reeves warns:  “Anyone who thinks Nick Clegg will shrug his shoulders, say 'never mind' and 'everyone tried our best', will be in for a rude awakening... A deal is a deal.”

Labour strategists will be licking their lips at this news. Will they be able to resist causing maximum destruction to the Coalition over this next week? Their current plan to vote against the timetable, but not the principle of Lords reform looks quite modest given the potential damage they could inflict.

GLASMAN BARRED

And finally, whispers from Wednesday night’s Spectator party suggest that Ed still hasn’t recovered from the “Blue Labour” fiasco. While the Labour leader’s former guru, Lord Glasman, was at the party, I’m told a “praetorian guard” prevented him from reaching the leader.

TWEETS AND TWITS

Chuka Umunna’s demonstrates that he’s ‘down with the kids’:

“@ChukaUmunna: @streatfest kicked off today! check out the website for full deets”

POLL WATCH

Latest YouGov/The Sun results: Conservatives 35%, Labour 43%, Lib Dems 8%, UKIP 8%

Overall government approval rating: -33

TOP COMMENT

In The Telegraph

Con Coughlin:  Don't expect our new remodelled army to fight a major war

Fraser Nelson:  For George Osborne and Ed Balls, the Libor scandal is a fight to the death

Nigel Farage:  The time will never be right for David Cameron to hold a referendum on the EU

Leader:  There is little defence for Philip Hammond's military gamble

Best of the rest

Mary Dejevsky in the Independent: I'm a Europhile – but I'm not afraid of an EU referendum

Max Hastings in the Mail: Fight a war? Soon our tiny army will barely be up to Trooping the Colour

Philip Stephens in the Financial Times: Truth and retribution replace age of excess

Simon Jenkins in the Guardian: Parliament, not Leveson, is the best place for this inquiry

THE AGENDA

Today: Eric Pickles publishes the draft Audit Bill

Today: Chris Grayling attends the Benefit Tourism conference