Balls set for revenge as Osborne faces new failure on the deficit and debt

The Chancellor will be forced to announce that the deficit will be higher this year and that the debt won't fall until 2018.

When George Osborne delivered his first Budget in June 2010, he declared: "Unless we deal with our debts, there will be no growth." But the Chancellor has learned that the reverse is true – unless you stimulate growth, you can't deal with your debts. In last year's Autumn Statement, he abandoned his target of reducing debt as a proportion of GDP by 2015-16, extending it until 2016-17. Today's FT reports that the Budget will see this ambition further delayed until 2017-18 as the OBR downgrades its growth forecasts for the fifth time since it was created. Growth in 2013 is now expected to be just half of the 1.2 per cent predicted in December. 

But worse for Osborne, as I've previously reported, is that he will be forced to announce, for the first time since entering the Treasury, that borrowing is expected to be higher this year than last. Until now, even as growth has disappeared, the Chancellor has been able to boast that the deficit "is falling" and "will continue to fall each and every year". But no more. Even with the addition of £2.3bn from the auction of the 4G mobile spectrum, borrowing will still be greater than last year. With just two months' worth of figures to go (the figures for February will be published on Thursday), the deficit is currently £5.3bn higher than in 2012. To ensure it falls, Osborne would need to borrow £23.4bn or less in February and March, compared to £28.6bn last year. As the OBR noted last month, "to meet our autumn forecast would now require much stronger growth in tax receipts in the last two months of the year than we have seen since December, or much lower-than-forecast expenditure by central or local government". Ed Balls, who was wrongfooted last year when Osborne unexpectedly announced that the deficit would continue to fall (it later became clear that the Chancellor had mischievously bagged the 4G receipts early), will have his revenge.

The combination of a shrinking economy and a rising deficit will add force to Labour's charge that austerity is "hurting but not working". Even Conservative MPs are beginning to ask what all the pain has been for if the national debt won't begin to fall until 2018. Osborne is expected to meet his fiscal mandate to eliminate the structural deficit but since this is "a rolling five year" target that aim also won't be achieved until 2017-18. The Tories, however, are confident that they can turn this failure to their advantage. First, they can argue that Labour's response would be to "borrow even more". Following Vince Cable's recent intervention in the New Statesman, which saw the Business Secretary urge the government to borrow to invest, Balls is more confident about making the case for deficit-financed stimulus but Osborne believes that the public won't accept the argument that you can "borrow more to borrow less". Keynes's paradox of thrift is just too paradoxical. 

Second, if the next election is again fought over austerity, the Tories will argue that they, not Labour, are the best choice to "finish the job". While polls show that voters believe the government is cutting "too far and too fast", Cameron and Osborne continue to be rated above Balls and Miliband for economic competence. With further deficit reduction required, the Tories' hope is that voters will turn to the original axemen. It's for this reason that Miliband is determined to define the election as a contest between two competing visions of society and the economy, rather than as a narrow contest over austerity. How successful he is in doing so will do much to determine its outcome. 

George Osborne leaves 11 Downing Street on February 27, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Forget the progressive alliance - it was the voters wot won it in Richmond

The Labour candidate on how voters have acted tactically for decades.

The Richmond Park by-election is both a triumph and a setback for the concept of an anti-Tory progressive alliance. As the Labour candidate, I was bombarded with emails and tweets saying I ought to stand down to prevent Zac Goldsmith being re-elected long after it was technically impossible for me to do so even if I had wanted to. I was harangued at a meeting organised by Compass, at which I found myself the lonely voice defending Labour's decision to put up a candidate.

I was slightly taken aback by the anger of some of those proposing the idea, but I did not stand for office expecting an easy ride. I told the meeting that while I liked the concept of a progressive alliance, I did not think that should mean standing down in favour of a completely unknown and inexperienced Lib Dem candidate, who had been selected without any reference to other parties. 

The Greens, relative newbies to the political scene, had less to lose than Labour, which still wants to be a national political party. Consequently, they told people to support the Lib Dems. This all passed off smoothly for a while, but when Caroline Lucas, the co-leader of the Greens came to Richmond to actively support the Lib Dems, it was more than some of her local party members could stomach. 

They wrote to the Guardian expressing support for my campaign, pointing out that I had a far better, long-established reputation as an environmentalist than the Lib Dem candidate. While clearly that ultimately did little to boost my vote, this episode highlighted one of the key problems about creating a progressive alliance. Keeping the various wings of the Labour party together, especially given the undisciplined approach of the leader who, as a backbencher, voted 428 times during the 13 years of Labour government in the 1990s and 2000s, is hard enough. Then consider trying to unite the left of the Greens with the right of the Lib Dems. That is not to include various others in this rainbow coalition such as nationalists and ultra-left groups. Herding cats seems easy by contrast.

In the end, however, the irony was that the people decided all by themselves. They left Labour in droves to vote out Goldsmith and express their opposition to Brexit. It was very noticeable in the last few days on the doorstep that the Lib Dems' relentless campaign was paying dividends. All credit to them for playing a good hand well. But it will not be easy for them to repeat this trick in other constituencies. 

The Lib Dems, therefore, did not need the progressive alliance. Labour supporters in Richmond have been voting tactically for decades. I lost count of the number of people who said to me that their instincts and values were to support Labour, but "around here it is a wasted vote". The most revealing statistic is that in the mayoral campaign, Sadiq Khan received 24 per cent of first preferences while Caroline Pidgeon, the Lib Dem candidate got just 7 per cent. If one discounts the fact that Khan was higher profile and had some personal support, this does still suggest that Labour’s real support in the area is around 20 per cent, enough to give the party second place in a good year and certainly to get some councillors elected.

There is also a complicating factor in the election process. I campaigned strongly on opposing Brexit and attacked Goldsmith over his support for welfare cuts, the bedroom tax and his outrageous mayoral campaign. By raising those issues, I helped undermine his support. If I had not stood for election, then perhaps a few voters may have kept on supporting him. One of my concerns about the idea of a progressive alliance is that it involves treating voters with disdain. The implication is that they are not clever enough to make up their mind or to understand the restrictions of the first past the post system. They are given less choice and less information, in a way that seems patronising, and smacks of the worst aspects of old-fashioned Fabianism.

Supporters of the progressive alliance will, therefore, have to overcome all these objections - in addition to practical ones such as negotiating the agreement of all the parties - before being able to implement the concept. 

Christian Wolmar is an award winning writer and broadcaster specialising in transport. He was shortlisted as a Labour mayoral candidate in the 2016 London election, and stood as Labour's candidate in the Richmond Park by-election in December 2016.