There is a new consensus about the economy and – believe it or not – Labour called it first

Buried in the coalition’s austerity programme is the kernel of acceptance that, ultimately, government is the solution to economic malaise.

The Conservative Party’s dedication to the memory of Baroness Thatcher is hardly in doubt. Grief at her death earlier this year brought more unity to the party than any of the policies David Cameron has devised for that purpose. In case the point was missed (it wasn’t), a group of Tory backbenchers propose renaming the August bank holiday in honour of the Iron Lady (it won’t be).

But when it comes to influencing government policy, Mrs T is rivalled by the man who brought her down. Michael Heseltine may not enjoy the veneration of his party but he has the ear of its leaders. Earlier this year, he published a plan for stimulating growth by giving regions more control over spending. Chunks of the report have been adopted as government policy. Ask Treasury ministers and advisers about their economic strategy and the chances are that Heseltinian intervention will get a reference before Thatcherism.

Westminster has been so busy noticing the victory of the right in an argument about cuts it has barely clocked the left’s victory in an argument about the duty of the state to foster growth. There is cross-party agreement on the need to spend scarce resources on infrastructure. There is near consensus that the state should be doing more to nurture promising, innovative sectors of the economy. The discredited 1970s practice of “picking winners” has been adjusted and rebranded. It is now a “modern industrial strategy”. Every party will have one in its 2015 manifesto.

Not everyone has received the new wisdom. There are Conservatives who despise all state meddling and think that the only good government intervention is lighting a bonfire of employment rights and workplace protection. Osborne recognises the need to keep that wing of his party fed with meaty policy chunks but his own views are more nuanced.

Cabinet colleagues say the Chancellor privately accepts that Britain already has a liberal labour market and a relatively low-regulation economy. Future growth, in other words, will be spurred by government getting stuck in, not getting out of the way.

Osborne took a gamble on hard and fast cuts in the hope of fighting an election with a tamed deficit and booming economy. That move failed. But cynical risk-taking is not the same as ideological rigidity. Osborne’s allies say his urge to win is greater than his eagerness to parrot Thatcherite shibboleths.

The really zealous expressions of Conservatism are elsewhere, in Michael Gove’s campaign to prise schools away from localauthority control, for example, or in a welfare policy that sees help from the state as a cause of poverty rather than its alleviation. In a fiercely ideological field, economic management is one of the more pragmatic bits of the coalition agenda.

Labour detests the idea that Osborne is flexible. The Chancellor’s refusal to change course has been an opposition mantra. Any dabbling in pro-growth intervention is dismissed with scorn. Money for infrastructure, say shadow ministers, is dwarfed by earlier cuts to capital spending budgets. Funds aimed at supporting new businesses sit idle. If the coalition wanted local growth plans, why scrap regional development agencies? Vince Cable might fancy a new industrial policy but, says Labour, the real agenda is set by old Tory reflexes: tax cuts for the rich; devil take the hindmost.

There are obvious reasons for Ed Miliband and Ed Balls to depict Cameron and Osborne as captives of an outmoded and callous creed. At a glance, the cap fits. But by belittling the Tory conversion to active government, Labour misses the opportunity to claim a moral victory. Under the last government, Peter Mandelson led the interventionist revival with his call for a more “strategic state” to navigate chaotic forces of globalisation. In candid moments, Heseltinian Tories concede that Mandelson was right.

Neither Labour nor the Conservatives dare admit that their economic views are converging. The fortification of opposing trenches, separated by boggy no-man’s-land (aka the Lib Dems), has become a strategic necessity and a source of intellectual comfort. Yet the proximity is clear to anyone outside the two tribes. Labour has accepted that budgets must be cut, as the Tories said all along. The Tories are borrowing to keep the economy afloat, as Labour predicted they would.

Both want to spend on infrastructure and skills. Both are working their way towards a more vigorous industrial policy. Both are planning manifesto chapters on beefing-up consumer regulation to address the rage of people who feel permanently ripped off by banks, utilities, rail companies and pretty much every other essential service, many of which are in the private sector. The political pendulum is swinging towards more, not less, intervention in the economy. That should favour Labour – but before the opposition can take any credit for the new consensus, it has to prove that the consensus is there. That means recognising there is more to Tory economic policy than cuts.

Buried in the coalition’s austerity programme is the kernel of acceptance that, ultimately, government is the solution to economic malaise, not the cause. Miliband and Balls may not want to give the Chancellor credit for getting anything right but they also need to look as if they are winning some big arguments. Full-frontal attack is Labour’s default stance towards Osborne. Sometimes faint praise can be more damning.

David Cameron and Ed Miliband look on during the service to celebrate the 60th anniversary of the Coronation of Queen Elizabeth II at Westminster Abbey in London. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

This article first appeared in the 01 July 2013 issue of the New Statesman, Brazil erupts

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.