George Osborne has found a Plan B – it's called the Bank of England

Inside Westminster: Labour risks winning the battle over whether cuts stalled growth but losing the war in 2015

Asked how he felt at the close at the close of play on Budget day on Wednesday, a close aide of George Osborne replied: “A lot better than I did 365 days ago.”

Last year’s Budget was such an omnishambles that the Chancellor is relieved to have avoided another disaster. A pretty low bar for a Budget – which was just as well as Mr Osborne had precious little money to play with. A repeat of last year’s performance would have put the Prime Minister under pressure to take seriously the demands by Conservative MPs who want Mr Osborne out.

Some MPs attack the Chancellor as a way of getting at the Prime Minister. But if this week’s Budget had bombed, Mr Cameron might have had to make a difficult decision about whether to oust his friend and closest political ally.

Instead, after conjuring something out of nothing, Mr Osborne looks safe until the 2015 election. Grabbing some positive headlines about beer, fuel and housing was good politics when the economic picture is so bleak. It wasn’t supposed to be by now. In the minds of senior Coalition figures, the economy would be growing and a “feel-good factor” would last until the 2015 election, by which time the Government could start sharing out the sweeties, a reward for swallowing the nasty medicine of spending cuts.

Instead, the political and economic cycles are now dangerously out of synch. The election will be a mere mid-point in the age of austerity – if we are lucky. Mr Osborne promised in his Budget speech to “level with people”. But I doubt very much that the parties will be totally honest with us when they produce their 2015 manifestos. To be sure, they will all talk a good game on the need to clear the deficit. But they won’t want to produce a manifesto that is a list of cuts.

There will be a debate in 2015 about whether we need more spending cuts or tax rises; the inconvenient truth, with growth so elusive, is that the next government will need more of both. The small print of this week’s Budget maintains the ratio of 80 per cent of the deficit being cleared by cuts and 20 per cent by tax rises.

But it adds that it “would be possible to do more of this further consolidation through tax instead”. This route might appeal to Labour and the Liberal Democrats, who both, for example, favour a mansion tax on homes worth more than £2m.

There would be a danger for Labour in particular in getting into a Dutch auction on cuts. Given a choice between two axe men, voters might prefer the one with a track record. “Fatalism about the economy and cynicism about politics are huge obstacles for us,” one Labour insider admits.

Ed Miliband and Ed Balls clearly have more work to do to achieve the economic credibility needed to get Labour over the winning line in 2015. Labour needs to say more about what it would cut or at least “switch-spend” from Tory plans.

The Coalition’s introduction of five-year fixed-term parliaments, meaning the next election will almost certainly be in May 2015, has allowed Labour to put off the evil day on cuts. It needs to get its skates on; last-minute rabbits out of the hat will not reassure those voters who still hold Labour at least partly responsible for the mess we’re in.

Labour is in danger of winning the battle over whether the cuts since 2010 have stalled growth, but still losing the next war in 2015. “The whole argument about whether we’re cutting too far and too fast – it’s in the past,” Lord Mandelson, Labour’s former Business Secretary, told a CBI dinner on Thursday. “It is predictable party political stuff and it is a bit tiring to the public.” He believes Mr Balls needs to say more about Labour’s past mistakes and to move on to how Labour would re-make the UK economy in the future, as Mr Miliband has done.

Labour wags dubbed Mr Osborne the “mañana Chancellor” after he delayed key pro-growth measures such as a £3bn-a-year boost to capital spending until 2015.

Where does the Chancellor think the elusive growth will come from? One Downing Street insider quipped that Mr Osborne has quietly implemented a “Plan B”, explaining: “It stands for Bank of England.” The review of the remit of the Bank’s Monetary Policy Committee will allow Mark Carney, the Canadian who takes over as Governor in June, to give more priority to growth and less priority to meeting the Bank’s 2 per cent inflation target. Mr Osborne’s words were cautious. He doesn’t want to gain a reputation as the man who let inflation rip, compounding the living standards crisis and hurting savers when interest rates are near zero.

The Chancellor believes privately that Sir Mervyn King, the outgoing Governor, could have done more to secure growth. His aides speak of evolution under Mr Carney but hope he will usher in a quiet revolution. Better late than never? Possibly. But a shame about the past two and a half years.