On Wednesday, George Osborne will stand before MPs to present his “autumn financial statement” – and there are two terminological inexactitudes just in the title of the event. Only astrologers and the Treasury, who have it in common that they make dodgy predictions that only the credulous would plan their lives by, regard early December as belonging to the autumn. The Met Office along with everyone else thinks of this time of year as being winter.
Financial statement? That implies a cool and objective accounting of the national balance sheet. The chancellor will read out a lot of figures, trumpeting those on growth that make him feel good, and racing through those on the deficit that make him look bad. Some of his numbers may even bear a glancing relation to reality. But this will be, above all else, a political event. Mr Osborne would not be Mr Osborne if he were not hoping to extract every drop of partisan advantage from the occasion. Six months out from a general election that is more unpredictable than any for at least 40 years, it is the political calculus that most interests the chancellor and his party.
His first objective sounds simple, but is proving to be fiendishly difficult for him and his neighbour, the prime minister. They are desperate to try to change the subject of the national political conversation. For weeks, it has been dominated by Europe and immigration. “It is so fucking stupid. We have been stuck on Ukip’s issues,” sighs one exasperated senior member of the government. The Christmas gift that prime minister and chancellor most ardently desire is to get the conversation back on to the economy, the territory on which they think they have the advantage over both Labour and Ukip whom they want to paint as equally risky for the country’s future prosperity. The Lib Dems share that hope. There are no votes for Nick Clegg’s party in an auction about who will be toughest on migration. On the economy, the Lib Dems think they deserve and might get a bit of credit.
Number 10 scheduled David Cameron’s supposedly “definitive” speech on immigration for the Friday just gone in the hope that this would draw a line under that argument, persuade his party to shut up about it and clear the way for the chancellor to swivel the nation’s focus on to the economy this Wednesday. Like many of Downing Street’s cunning schemes, it has not worked to plan. The media, having been encouraged to believe that the prime minister’s speech would be a “game-changer”, have reacted with a sense of anticlimax when he stepped back from advocating the new controls on EU migration that had floated out of Number 10 beforehand.
One blackly humorous Labour figure jokes: “The media management has been so cack-handed that, for a moment, I thought we’d done it.” The Tory leader’s coded hint – “I rule nothing out” – that there could be circumstances in which he would campaign for withdrawal from the EU satisfies no one. It is not explicitly threatening enough for those on his backbenches who want him to hold a gun to the head of the rest of Europe and sounds very much like blackmail to continental audiences. The main achievement of the speech has been to highlight the impossibility of finding a position that reconciles Europhobic opinion within the Tory party with what might be acceptable to Britain’s partners in the EU. The prime minister’s failure increases the pressure on his chancellor to have a success this week that makes the economy a more important topic for the nation.
George Osborne has a couple of good lines and will make the most of them. We’ll hear a lot about growth, currently running at an annualised rate of around 3%, and job creation. On some measures, as the chancellor will repeatedly stress, Britain is currently the fastest growing economy in the developed world. The worm in his apple is that this is not translating into a feel-good factor towards the government, which worries Tory strategists. Nor is it improving the cash flow into the government’s coffers, which perplexes Treasury officials. The Treasury thought they’d have an extra £11bn from tax this financial year; the actual number has come in at less than £2bn.
As one Treasury insider puts it: “The problem with the public finances is not spending, but receipts.” Policy-makers at the Treasury and Bank of England and the invigilators at the Office for Budget Responsibility aren’t sure and don’t agree about why the expected tax revenues have not turned up. Some think it is a lag effect and tax receipts will catch up over time. Others are coming to the conclusion that it is a sign of something more structural and enduring, which would lend support to the Ed Miliband thesis that we’ve got the wrong kind of recovery because it is being built on too many poorly paid, part-time and insecure jobs.
Whatever the reason, it leaves the chancellor even further adrift from his original target to clear the deficit. Back in 2010, it was his declared ambition that he would have the structural deficit eliminated by 2015. That task was supposed to be the defining mission of the coalition. As it turns out, he is less than half way to getting there – and has recently been going backwards. George Osborne has actually borrowed more than Alistair Darling, his Labour predecessor, planned to do. As a proportion of GDP, Britain’s deficit is higher than that of Portugal, France and Italy – those European “basketcases” of Tory rhetoric. It is higher than that of Greece. That has several political consequences. It slightly relieves Labour’s vulnerability. Labour still scores badly with voters on economic credibility and it is a very safe bet that the chancellor will play the Tory tune that his opponents can’t be trusted with the nation’s finances. But there is less force to these attacks when he has so dramatically failed in his self-described central mission.
The worsening position on the deficit makes David Cameron’s party conference promise that a re-elected Tory government would deliver income tax cuts look even flakier. With the deficit set to be around £100bn this year, how would those tax cuts be funded? With more savage cuts to spending or rises in other taxes that they aren’t telling us about? Answering that question becomes even more difficult for the Tories. And it leaves the chancellor with little scope to toss pre-election lollipops at the voters. I am sure he will come up with a few items designed to grab headlines and please the Tory crowd behind him, but any rabbits that he drags from his hat are likely to be scrawny. One person highly familiar with the contents of the chancellor’s statement says: “There definitely won’t be any big giveaways. Overall, there will be a slight tightening in the public finances.”
There is division within government about what tone he should take. A view common among Tory strategists is that it helps their party when voters worry about the economy because it makes a Labour government sound more of a gamble. That is what David Cameron was up to a fortnight ago when he emerged from the G20 in Australia to say that “red lights are flashing on the dashboard” of the international economy. Some ministers see a danger – and they are right – in telling voters they should be anxious. There are certainly a variety of uncertainties in the international outlook, but overstressing them could have the effect of damaging consumer and business confidence, a mistake the coalition made early in its life when it tipped Britain back into recession. The political risk is that it makes Osborneland sound like Narnia under the White Witch: always winter, never Christmas.
To try to invest the event with a bit more optimism, and some sense that the coalition is working for some longer term goals, there will be a lot of emphasis on infrastructure spending. Most of the work in this area has been led by the chancellor’s Lib Dem number two, Danny Alexander, but that won’t stop the Tories trying to nick whatever credit might be going. In the run-up to the statement, expect to see a lot of senior members of the coalition in hard hats and high-vis jackets on construction sites. One of the projects that will be announced by the chancellor is a tunnel under Stonehenge to ease a bottleneck on the journey from London to the West Country. Jokes one Lib Dem minister: “There will be an unseemly battle between us and the Tories to see who can get to the A303 first thing on Monday morning.”
None of which can disguise the coalition’s failure on its central mission. The deficit, which was supposed to have been cleared by the time of the election, will be the biggest fact of life in the next parliament as well. Whoever wins next May, that presages more cuts and more painful ones than we have seen in the current parliament since any that were easy have already been done. None of the parties is willing to say where they would get all the savings from. That will be the elephant in the Commons on Wednesday. No, strike that. That will be the herd of pachyderms in the room.
