As recently as a year ago, George Osborne warned that borrowing just a few billion more than he planned would trigger a bond market panic that would send Britain to the "brink of bankruptcy". Yet the Chancellor is now expected to borrow no less than £158bn more. With glorious irony, the
national debt is now set to be higher under the coalition (78 per cent of GDP in 2014-2015) than it would have been under Labour (75 per cent).
In spite of this, Osborne is still on track to meet his fiscal mandate - to eliminate the structural deficit (the part of the deficit that remains even after growth has returned to normal) in five years' time and to ensure that the national debt is falling as a percentage of GDP by 2015-2016.
Cleaning up "the mess"
The truth is that the Chancellor's target was always more flexible than most of his critics appreciated. Since Osborne's formal pledge is to eliminate the structural deficit over a rolling five-year period, it doesn't matter if the deficit remains in 2014-2015, so long as he can promise to eliminate it by 2019-2020.
Except, of course, for Osborne, who remains the Tories' chief electoral strategist, it does matter. His initial aim of eliminating the structural deficit in one parliament was based on a political timetable, not an economic one.
By 2015, Osborne envisaged that the Tories would be able to boast that they had cleaned up "the mess" left by Labour - a powerful political narrative - and offer cuts in personal taxation. But this is now a distant dream. Rather than offering voters tax cuts, Osborne will go into the next
election warning of further pain to come. A cuts programme - designed to last for five years - will now last for seven. The Office for Budget Responsibility predicts that 710,000 public-sector jobs will be lost by 2017, 310,000 more than previously forecast. Unemployment is now forecast
to peak at 2.8 million (8.7 per cent).
The political upshot of all this is that the next election will be fought over cuts (again). Osborne's message will be that the government needs more time to clean up Labour's mess. Even after years of pain, it is one the Tories believe will still resonate with voters.