Whatever the numbers yesterday, George Osborne couldn't change course. Bringing forward a Plan B would have been to say: "I have been on the wrong track since I took office two and a half years ago". However dim the prospects, he had to press on.
That analysis may be pop psychology, but the Chancellor is helped by the realisation that his austerity programme is by no means the sole explanation of deteriorating growth prospects. Households have been spending less because consumer prices have been rising faster than expected. At the same time, our export performance has been disappointing, partly because of the eurozone crisis but also because of poor competitiveness, a historic weakness.
In the light of these factors, we can turn to the first major question that arises: how safe is the triple A rating that British government debt commands on international markets, and with it our safe-haven status? Which in turn tells us whether we can continue to enjoy very low interest rates. A jump would be very damaging and send us spiralling into deep recession.
I believe the UK will maintain its top rating at least a few months. International investors will be impressed by Mr Osborne's refusal to soften his economy policy. And they will look carefully at the reduced growth forecasts, wondering if lower tax revenues and higher welfare payments would make the budget deficit balloon out again. Probably not is what I guess their reaction is likely to be. The triple A is safe for the time being.
Next I apply the "We're all in this together" test, which I take to mean reducing the dangerously wide gap between haves and have-nots. Among industrialised countries, only the US exceeds us in inequality. This is a serious issue. Substantial inequality has been shown to exacerbate social problems.
The Chancellor announced only one decision that helps the less well off – the cancellation of the planned increase in fuel duty. It doesn't put money into their pockets but it removes a threat to standards of living. Moreover the uprating of welfare benefits for people of working age by just one per cent and the similar treatment of tax bands for those in employment is negative because it is likely to be less than inflation. So closing the gap depends upon the Chancellor's treatment of the rich. And here we find only one change, the reduction of the tax saving on making very large payments into personal pension schemes. And that's it. The gap between the haves and the have-nots is as wide as ever.
Finally, we should remember that Mr Osborne is a politician. He is much more interested in the announcement effect of new policies than in making sure they are carried out. The first requires political skills while the follow through is – well, boring work. So this is where we are. The statement was a progress report, nothing more. There were tweaks to the plans but nothing radical or unexpected. The economy will continue its painfully slow recovery. Events overseas are likely to be more significant than anything the Chancellor does, with the risks all on the downside – a eurozone break-up, US budget policy going unresolved, Chinese economic slowdown turning serious, Israel attacking Iran. Hoping that none of this happens, we muddle on.
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