Rumbles of discontent surround the Chancellor and his sidekick

“They don’t know any normal people. They don’t know anyone who has claimed benefits.”

George Osborne - or is it? Photograph: Getty Images

The Conservatives are suffering from what you might call “Ernst Blofeld syndrome”. Named after James Bond’s arch-enemy, this is the habit of showing off in advance the cunning mechanism for disposing of an adversary and then leaving him enough time to escape. The plush armchair and fluffy white cat are optional.

Tory strategists have let it be known that they intend to torture Ed Miliband to a slow political death with attacks on his personal authority and his party’s alleged addiction to dissolute spending. On the eve of Labour’s annual conference, opinion polls commissioned by the Conservatives were released showing how far Miliband is from seducing voters. Simultaneously, a poster was unveiled depicting Miliband, Ed Balls and Gordon Brown as dopey schoolchildren under the slogan “Labour isn’t learning”, alongside a claim that the opposition wants to ramp up the national debt.

That is a peculiar line of attack when the Chancellor’s moribund fiscal strategy has led to public borrowing bursting out of its intended constraints. And there is a bigger problem with Conservative claims that Labour is in denial about the need for sound budget policies: it isn’t true. Miliband and Balls have said explicitly and repeatedly that the need for long-term spending restraint is uppermost in their minds. Miliband’s “one nation” vision of British renewal was the rousing anthem of his conference but the background music was the sound of trade union teeth grinding at the shadow cabinet’s acknowledgement of straitened circumstances.

Poor loser

The fairer criticism of Miliband is that he doesn’t say in practical terms how Labour would repair Britain’s social fabric and sustain public services without splashing cash. Nor do David Cameron and George Osborne – and they are at a disadvantage because many voters doubt that the Tories care enough even to try.

In that respect, the failure of “big society” rhetoric has harmed Cameron more than is generally recognised. It was meant to rebut the sink-or-swim characterisation of Conservatism as a plot to hack away at the state safety net without sensitivity towards those unable to fend for themselves. Many Tories share Cameron’s instinct that citizens armed with charitable impulses are a more effective social intervention than government agencies but either they couldn’t get their heads around the way their leader was making the point or they didn’t like him enough to help.

The big society is not the only vehicle for compassion in Conservative policy. Welfare reforms developed by Iain Duncan Smith are supposed to be the policy manifestation of a moral epiphany that the former leader had on a visit to a Glasgow housing estate in 2002. Even when senior Labour figures belittle Duncan Smith’s efforts to rescue people from a life on benefits, they accept that his motives are sincere.

But IDS’s generous impulses are being trampled on by Osborne. The Chancellor needs to make more budget cuts to meet his austerity targets and is taking aim at the benefits bill. He is driven by a political calculation, supported by opinion polls, that many voters have an insatiable appetite for assaults on welfare spending. Duncan Smith’s reluctance to surrender his already shrunken budget to the Treasury axe led Osborne to agitate for his removal in the recent reshuffle.

It was a rare setback for the Chancellor when IDS stayed in his post but the battle isn’t over. One point on which Osborne’s friends and enemies agree is that his politics are defined by a consuming hatred of losing (and an attendant scorn for losers). That is a strength when channelled against the opposition and a hazard when deployed in departmental turf wars.

Frustration is growing across the government at Osborne’s imperial reach. One symptom is the growing murmurs of irritation with Rupert Harrison, the Chancellor’s 33-year-old chief economic adviser, who has kept a remarkably low profile given the power he is said to wield. Ministers and business leaders consider a conversation with Harrison equivalent to a chat with the Chancellor. Senior Tories who find their deals with the Prime Minister undone usually blame Osborne and suspect that the sabotage was cooked up with Harrison.

Since the departure last May of Steve Hilton, Cameron’s former director of strategy, Harrison has become easily the most important special adviser in government, accompanying the Chancellor to meetings at the very highest level. “He is more influential than any of the No 10 spads – much more influential,” says a Downing Street insider.

Hilton’s abrasive style created enemies who then briefed vengefully against him; Harrison, a former head boy at Eton, is known for gallant charm that disarms rivals.

Truth and consequences

As the Chancellor’s reputation as a strategist has collapsed, his reliance on a young sidekick to run the Treasury has fuelled charges of arrogance and complacency. They are seen as a double act, obsessed with political machination and uninformed about life on the front line of austerity.

One senior Lib Dem aide is caustic: “They don’t know any normal people. They don’t know anyone who has claimed benefits.”

Liberal Democrats have an obvious reason for presenting Osborne in such callous terms. They hope to fight an election as the guarantors of kind-heartedness in the coalition. However, that ulterior motive doesn’t mean the attack lacks resonance.

Miliband has long known that the biggest obstacles to a Labour election victory are twin doubts about his personal authority and his party’s capacity to look after public money. Those concerns will not be dispelled quickly and the Labour leader’s method for hastening the process is unclear but his willingness to do it is no longer in doubt.

Cameron should go into his annual conference just as determined to address the issue that wrecks Tory election prospects, which is not questions about the Conservatives’ eagerness to balance the books but suspicion that they set about the task without regard for the social consequences. The Prime Minister urgently needs credibility when it comes to tackling the Tories’ compassion deficit. His Chancellor does not look like an ally in that pursuit.