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So what does a "one nation" welfare policy look like, Ed?

Osborne's benefit cuts will test whether Labour's new doctrine is more than just a slogan.

Labour Party leader Ed Miliband addresses workers at Islington Town Hall on 5 November in London. Photograph: Getty Images.

The mood in the Conservative Party may not have significantly improved as a result of the Autumn Statement but it has stabilised.

None of the problems that the party had before Wednesday – summarised in a sequence of by-election thrashings in recent weeks - have gone away. The news that George Osborne delivered to the House of Commons on Wednesday was unremittingly bad. The economy is expected to have shrunk over the course of this year. Unemployment, which has crept down in recent months, is forecast to rise again in 2013. Growth, when it returns, will be meagre. The Chancellor’s promises that the national finances would be repaired over the course of the current parliament are broken. 

So if Osborne drove the economy into a ditch, why did he appear to step out of the wrecked car on Wednesday with a smile on his face? He won the day in the parliament – no-one in Westminster seriously disputes that. Ed Balls fluffed his lines and never fully recovered his rhetorical poise. An off day doing a tough gig, aggravated by an old speech impediment, say the shadow chancellor’s allies. A fair-and-square defeat engineered by Osborne’s political cunning, say the Tories.

The allocation of points in verbal jousting in the Commons is largely irrelevant beyond that handful of people who have a professional duty to tune in live. MPs’ morale and press opinion are modulated by points scored in the chamber, but not in a way that has a measurable impact on voting intention.

The Tories are pleased with the way the day went because it showed Osborne back on his game after a long slump. Since he is their election strategist as well as the Chancellor, it matters a lot to Conservative MPs if he is judged to be a potent player of political games. Plainly, he still is.

As I wrote on the day, the deadliest political device in the Autumn Statement was the announcement of a Welfare Uprating Bill. This will enshrine in law a limit of 1 per cent to the amount a range of benefits can rise every year for three years (a cut in real-terms). This measure doesn’t require its own signature piece of primary legislation. The only reason for dedicating a tranche of parliamentary time to a single item in the Chancellor’s menu of deficit reduction measures is the intention to skewer Labour over the course of the debates.

The sub-inflation uprating does a lot of fiscal heavy lifting. If Labour opposes it – and it looks certain that in some form they will – multiple challenges ensue. They will need to explain whether they think £2.5bn per year ought to be taken from somewhere (or someone) else. If not, they can be accused of lacking determination to contain the deficit. Then there is the political damage that Osborne thinks can be inflicted by presenting Labour as a party that likes to lavish cash on workless layabouts. Opinion polls show Britain always receptive to that message.

I have written before about the dangers to the Tories of thinking that voters will reward them for flint-heartedness, even if it appears to meet a public appetite. Meanwhile, the Labour leadership is hopeful that the Chancellor has misjudged the impact of his benefit cuts, since a larger proportion of them fall on working families than Osborne ever admits.

In a recent New Statesman interview, Liam Byrne, the shadow work and pensions secretary, set out why and how he thinks welfare can be turned into a vote-winner for Labour rather than an electoral liability. In short, the strategy is to present the Tories as plunderers of the pockets of the very “strivers” on whose behalf they claim to act. That message, Byrne believes, will become all the more potent when the ugly social consequences of poorly targeted cuts start to show.

That appears to be the line of attack that the opposition is taking in response to the Autumn Statement. Labour has some solid data on its side in this argument, but public and tabloid media attitudes will not be turned easily. If it happens it would indicate a significant change in the terms of political debate and a substantial strategic setback for the Tories. The moment when a big, headline-grabbing welfare cut stops being perceived by a majority of voters as necessary and starts looking plain vindictive is probably the point at which the Conservatives’ moral authority to run the country at a time of austerity is irrecoverably lost. Osborne clearly believes he can swing the axe pretty hard without crossing that compassion threshold.

Navigating this debate will be the first proper test of Ed Miliband’s "one nation" philosophy. This new defining creed for the Labour Party was revealed to approving reviews in the leader’s annual conference speech in October but hasn’t been much developed since. It has, like past slogans, been crow-barred into press releases, massaged into speeches and dangled from parliamentary questions. It isn’t yet identified with a set of ideas or the beginnings of a policy platform.

This makes senior Labour people nervous. Although the idea is only a couple of months old there is already fear that one-nation will get stuck on the page and not evolve into a practical project that expresses the party’s position on key issues - such as welfare reform.

So what might a one-nation response to the coalition’s plan to raise benefits by 1 per cent annually look like? If I understood Miliband’s conference speech correctly, especially the passages on post-war reconstruction as the guiding spirit for Britain’s recovery from financial crisis, I imagine the basis of his welfare policy would be an attempt to restore legitimacy to the very idea of social security with a patriotic appeal to solidarity in a time of economic emergency.

It would probably start with a steely denunciation of coalition policy as a cynical device to turn different groups of British people against each other in a brutal competition for limited budget resources. It would decry the language that Osborne uses to promote his welfare cuts as dishonest, since he pretends that only the workless are affected, and dishonourable, since he assumes that those without jobs are choosing "a life on benefits," when the majority are victims of an economic calamity that deprives them of the opportunity to work.

It would point out that, in reality, those out of work who depend on benefits, those in work who depend on benefits and those who receive no benefits at all but feel short of cash are not in some zero-sum-game race. It would assert instead that they are in a common economic and social endeavour. They are one nation with a collective interest in maintaining a functional welfare safety net. Funding social security would then be cast as a positive choice Britain makes because it is civilised country that does not casually tolerate children going hungry and homeless.

Having established those moral imperatives and, thereby, having reassured the wing of the Labour Party that has waited years for a leader to say such things with authentic passion, this hypothetical one-nation policy doctrine would move onto the subject of responsibility and affordability. It would point out that free-riding – the acceptance of benefits without contribution or commitment to work – betrays the spirit of solidarity just as does the refusal to provide for those desperately in need. It would accept the prospect that centralised, state-administered handouts might not be the most effective way to resolve stubborn social problems, nor the most cost-efficient. It would point out that the re-legitimisation of social security can only happen when the recipients feel some involvement in the decisions being made about their future and when those who pay for it all believe everything possible is being done to maximise the social return on their investment.

That would mean embracing the power of innovation – looking at new ways to help the jobless into work and experimenting to see which incentives are most effective. It would not, for example, reject out of hand the Work Programme – the government’s project to use private companies, social enterprises and charities as alternative providers of welfare-to-work support (although it would reasonably attack the implementation and design of the existing scheme).

In short, a one-nation welfare policy would shamelessly steal David Cameron’s "big society" rhetoric. It would assert a higher moral authority to make the idea work on the grounds that Labour can be trusted to reshape state provision without ulterior ideological motives. It would claim that Labour is the real big society party, not because deep down it sees state spending as a form of wickedness that infantilises citizens and suffocates enterprise but because it recognises that public services can be made more effective and popular by modernisation and innovation – which means importing new ideas from outside the closed shop. Because Labour intrinsically believes in a public sector ethos it has the authority to negotiate a grand bargain with the private sector to deliver services in a way that honours that ethos.

As I’ve argued before, the way Labour will achieve credibility on the deficit is not by simply declaring itself willing in theory to make cuts and not in practice saying which ones. Fiscal prudence can be signalled more profoundly by Labour proving it is sincerely interested in new, practical ways to get more for less out of public services.

I have no idea if this busked meander around an imaginary one-nation welfare line would work. It might just alienate everyone – the left would denounce the call for reform as a Blairite revanche; the right would see the appeal to solidarity as crypto-Bolshevism. It would, at least, mark a significant divergence from the established tone of political debate. It would also signal a refusal to fight the battles ahead on Osborne’s terms.

The confidence that there are no other terms is the real reason why the Chancellor and his allies have come away from the Autumn Statement feeling discreetly rather pleased with themselves. Perhaps they are right. But if there is another way of looking at the political challenge facing the country – a more optimistic, imaginative one that appeals to voters' better instincts and not their basest fears – Miliband rather urgently needs to say what it is. He needs Ed Balls to sign up to it. And they both need to express it in some manner other than the lifeless subject heading on yet another one-nation email from the Labour Party press office.