Andrew Grice: An age of austerity just might benefit the Tories

Inside Westminster

The official, still unpublished Conservative Party inquest into why David Cameron did not win an overall majority last year found that his modernisation project failed to win enough support in three key groups, public-sector workers, the ethnic minorities and voters in Scotland.

So it seems strange that George Osborne apparently declared war on the public sector when he set out his bleak austerity agenda this week. The squeeze on public-sector pay was extended for two more years; 710,000 public-sector jobs will go by 2017 and public-spending cuts will continue for two years after the 2015 general election.

Other elements of the Cameron-Osborne drive to transform the Conservatives from the nasty to the nice party have fallen victim to the age of austerity. Mr Cameron's commitment to the environment, illustrated by hugging huskies in the Arctic, has been downgraded to limit regulatory burdens on energy-intensive industries. The overseas aid budget, another symbol of his "modern compassionate Conservatism", will be £1bn smaller than planned. In opposition, Mr Cameron flirted with the anti-poverty lobby. But his pledge to end child poverty has given way to a Treasury forecast that it will rise by 100,000, and hints the Government will change the way poverty is measured.

On the face of it, the "progressive" bit of Mr Osborne's "progressive austerity" vanished in his Autumn Statement. But despite his gloomy economic weather forecast, the mood in 10 and 11 Downing Street is brighter than you would imagine.

The Prime Minister and Chancellor acknowledge the dangers of Labour's claims that they are the "same old Tories". But after intensive private polling by the Conservatives in the past two weeks, they are convinced the people are is in a very different place to where they were before last year's election. Eight out of 10 people accept that Britain's problem is a debt crisis and that the way out of it is not to borrow even more. That is why the Tories repeatedly attack Labour for believing just that.

Consumer confidence was low before Tuesday's statement and so an already pessimistic public may have been less shocked than the media expected. The Tory polling suggests the Government might even get some brownie points for being candid enough to admit that things can only get worse, the very opposite of Labour's optimistic anthem in 1997.

Today the public mood seems to be: "We are in for years of pain and cuts. It's difficult and horrible– but not as scary as Greece." When asked who they blame for Britain's problems, the Tory research found, people rank the present Government fourth behind the banks, the previous Labour administration and the eurozone crisis.

Labour urgently needs an answer to the Cameron-Osborne criticism that it would "solve a borrowing crisis by borrowing more". There is an economic one in its Keynesian approach, "You don't cut your way out of a growth crisis". In other words, Mr Osborne risks a downward spiral because he is not fully exploiting the Government's power to keep the economic wheels turning. But this is unlikely to resonate with voters as much as the Tories' household economics.

Ed Miliband accepts he cannot promise in 2015 to deliver social justice from higher public spending. But I am not sure the pennies – or lack of them – have dropped for some senior Labour figures. There was plenty of evidence this week that Mr Osborne's economic strategy is failing, but until the people are persuaded, Labour will not get much of a hearing. Unless Labour regains economic credibility, the more potent threat to Mr Cameron's new project might come from his Coalition partners. Nick Clegg is positioning his party as forcing those nasty Tories to put fairness into the Coalition mix. The Liberal Democrats claimed the credit this week for higher spending on building projects; the 5.2 per cent rise in state benefits; more child-care help and the scheme to tackle youth unemployment.

Having worked so hard to detoxify the Tory brand, Mr Cameron must not allow it to be retoxified by the austerity measures. So he must be must be seen to be "fair" in the way the unpalatable medicine is administered. He is also embracing as many progressive causes as he can that don't involve spending much money, such as easier adoption, gay marriage, and a crackdown on forced marriages.

The inevitability of an "austerity election" in 2015 means Mr Cameron no longer fears his nightmare "1945 scenario", that the Tories would clear the deficit and win the economic war, just as Winston Churchill won the real one, but would get no thanks and hand over a land fit for more social spending to Labour.

Funny world, politics. The people appear to support the new, harsher Cameron-Osborne project more than they did the softer pre-2010 model. Perhaps because, for now, it is the only project in town. Austerity is not good for Britain. But by accident rather than design, it might be good for the Tories.

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