Economic pain, political headache

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.

George Eaton is political editor of the New Statesman.

This article first appeared in the 05 December 2011 issue of the New Statesman, The death spiral

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David Cameron’s speech: a hymn to liberalism from a liberated PM

The Prime Minister spoke with the confidence of a man who finally has a full mandate for his approach. 

At every one of his previous nine Conservative conference speeches, David Cameron has had to confront the doubters. Those Tories who rejected his modernisation of the party from the start. Those who judged it to have failed when he fell short of a majority in 2010. Those, including many in his own party, who doubted that he could improve on this performance in 2015. Today, rather than confronting the doubters, he was able to greet the grateful. As the first majority Conservative prime minister for 18 years, he rightly savoured his moment. "Why did all the pollsters and pundits get it so wrong?" he asked. "Because, fundamentally, they didn't understand the people who make up our country. The vast majority of people aren't obsessives, arguing at the extremes of the debate. Let me put it as simply as I can: Britain and Twitter are not the same thing." Labour should pin that line to its profile. 

With a full mandate for his approach, Cameron went on to deliver his most unashamedly liberal speech to date. Early on in his address, he spoke with pride of how "social justice, equality for gay people, tackling climate change, and helping the world's poorest" were now "at the centre of the Conservative Party's mission". A lengthy section on diversity, lamenting how "people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names", was greeted with a standing ovation. Proof, if needed, of how Cameron has changed his party beyond recognition. The former special adviser to Michael Howard, who avowed that "prison works", told his audience that prison too often did not. "The system is still not working ... We have got to get away from the sterile lock-em-up or let-em-out debate, and get smart about this." From now on, he declared, the system, would "treat their [prisoners'] problems, educate them, put them to work." 

There were, of course, oversights and lacuna. Cameron reaffirmed his commitment to a budget surplus but glossed over the unprecedented, and many believe undeliverable, that will be required to achieve it (and which may fail to do so). He hailed the new "national living wage" with no mention of the tax credit cuts that will leave the same "strivers" worse off. His "affordable" starter homes will be unaffordable for average-earning families in 58 per cent of local areas. But it is a mark of Cameron's political abilities that it was easy to forget much of this as he spoke. Like George Osborne, he deftly appropriated the language of the left ("social justice", "opportunity", "diversity", "equality") to describe the policies of the right. Cameron is on a mission to claim ownership of almost every concept associated with Labour. The opposition should not sleep easily as he does so. 

There was little mention of Labour in the speech, and no mention of Jeremy Corbyn by name. But when the attack came, it was ruthlessly delivered. "Thousands of words have been delivered about the new Labour leader. But you only really need to know one thing: he thinks the death of Osama bin Laden was a 'tragedy'". The description of Corbyn as the "new Labour leader" shows the Tories' ambition to permanently contaminate the party, rather than merely the man.

There are plenty of potential landmines ahead for Cameron. The comically lukewarm applause for his defence of EU membership was a reminder of how divided his party is on this issue. But today, he spoke as a man liberated. Liberated by winning a majority. Liberated by not having to fight an election again. Like a second-term US president, he was able to speak of how he was entering "the second half of my time in this job". Tributes to Osborne (the "Iron Chancellor) and Boris Johnson (greeted with a remarkable standing ovation) alluded to the contest to come. But whoever succeeds him can be confident of assuming a party in good health - and more at ease with the modern world than many ever thought possible. 

George Eaton is political editor of the New Statesman.