December 5, 2012 7:02 pm

Chancellor makes best of bad job

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There may be worse to come but Labour has been left scratching its head

There was a bubble in George Osborne’s political stock that swelled during his first year as chancellor. The bracing decisiveness of his 2010 Budget, which committed the coalition government to the UK’s longest austerity programme since the war, turned him into perhaps the most talked about finance minister in the west. But the hype could never survive an economic recovery that was always likely to be choppier than he was counting on. Then, after his derided Budget of this year, the political markets overcorrected. A provocative tax cut for the rich and some ignominious U-turns on a few fiddlier measures were enough to see Mr Osborne hastily discounted as a tin-eared trickster.

Westminster is an excitable place, and only now is the chancellor’s stock beginning to settle in a sensible place. Growth in the past quarter and the well-received appointment of Mark Carney as the next Bank of England governor have stabilised his condition somewhat. He needed an accident-free Autumn Statement, too, and he seemingly delivered one yesterday, although these fiscal events sometimes take a while to unravel. Leaks in advance were kept under control, thanks to co-operation from the Liberal Democrats. Bad news – about the extension of austerity well into the next parliament, and the improbability of Mr Osborne’s debt target being met – was finessed but not concealed. He was also spared the humiliation of announcing that borrowing is actually on the rise, something the Treasury has dreaded for most of this year.

The government's fortunes tend to track those of Mr Osborne, who is central to almost all its works in a way that not even Gordon Brown was as New Labour’s colossus at the Treasury. Any personal recovery for him therefore has wider implications. But the really heartening thing for the government is not any of the chancellor’s recent fillips (for they are no more than that) but the gradual re-emergence of a reality that has been submerged during the coalition’s midterm malaise. Yes, the economic situation is bleak, with stagnant growth and budget cuts scheduled to continue for longer than even flinty pessimists predicted in 2010, never mind the sanguine Office for Budget Responsibility. But the underlying politics of the situation slightly favour the Conservatives, as they always have.

Though trust in the coalition’s economic management is slipping, voters still blame the previous government and a combination of external events, namely the banking crash and the eurozone crisis, for their country’s plight. There is not yet a popular backlash against austerity, only an increasingly grudging forbearance. As I wrote in September, austerity is also changing the very make-up and potentially the political behaviour of the electorate, with private sector workers soaring in number just as the public sector payroll is cut. This trend in employment, as Mr Osborne confirmed, is continuing.

More important than any of this, though, is the difficulty of Labour’s position. Indeed, the political significance of yesterday lay not in the autumn statement itself but the response to it by Ed Balls, the shadow chancellor, a formidable politician who seemed untypically cowed in the House of Commons. After a rampant year for Labour, it was a glimpse of how far the party has to go to command a hearing, let alone trust, on the economy. The problem has three layers.

The first is that Labour’s own profligacy in office (supported at the time by Mr Osborne) has not been forgiven. Many voters who deplore the government will not entertain the opposition on the issue. Those who do then encounter the second problem blighting Labour’s economic policy, which is its complexity. The idea that borrowing more in the short term might actually be the ultimate deficit-reduction strategy is internally consistent and enjoys a famous pedigree. But it is difficult to sell. The government’s economic message, for all its exaggerations, has a bludgeoning clarity to it.

Finally, beneath the macroeconomic vision, Labour finds itself in an awkward position on many budgetary specifics. Its ambiguity on welfare, an issue on which it is almost impossible to out-tough the public, allows the government to portray Labour as the party of idlers. Its refusal to say whether it would reverse Mr Osborne’s cut to the top rate of income tax somewhat blunts the party’s attacks on the policy. Indeed, from now until the election, the government will increasingly ask Labour, which notionally supports the bulk of the consolidation, to name the cuts of which it approves. It is not clear the party knows.

The Autumn Statement was no triumph. 2013 may yet be grimmer for Mr Osborne than 2012. But it has made it clearer that, if the government is unlucky in its economic circumstances, it is rather fortunate in its enemies.

janan.ganesh@ft.com

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