Andrew Grice: The Chancellor's pain will see only a few gain

Inside Westminster: Next week's forecasts will tell us that the election will be fought in an age of austerity.

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The Independent Online

George Osborne did not want his Autumn Statement next Tuesday to be a big deal.

Unlike Gordon Brown, he does not regard the Chancellor's November or December report on the state of the nation's economic health as a mini-Budget, believing that tax and spending changes should be announced in the spring Budget instead.

But whether Mr Osborne likes it or not, Tuesday will be a very big moment indeed – for himself, David Cameron, the Coalition and British politics. Measures to boost housing and tackle youth unemployment have been announced ahead of his statement because any goodies he hands out are likely to be eclipsed by a dark cloud that will hover over him – the economic weather forecast.

Mr Brown could tweak Treasury forecasts to the optimistic end of the market but Mr Osborne, to his credit, has denied himself that temptation by handing the task to the independent Office for Budget Responsibility (OBR). Its economic and fiscal outlook on Tuesday is bound to be very bad news for the Chancellor. It is expected to downgrade its previous forecasts for growth and private-sector job creation while raising its numbers on public borrowing. Crucially, the OBR may say Mr Osborne is on course to miss his goal of eliminating the structural deficit – the part not caused by temporary factors in the downturn – by 2014-15 or even the following year.

Normally, such a verdict would be a humiliation for a Chancellor. It would seem an open goal for Labour, strengthening its claim that the spending cuts have been "too far, too fast".

Ed Balls, the shadow Chancellor, can write his script now. If the deficit-reduction strategy, the rock on which the Coalition is built, has led to even higher borrowing, then what has the pain of the spending cuts been for? If Mr Balls doesn't use the phrase "it's hurting, but it's not working," I will eat my Spurs hat.

And yet appearances can be deceptive. While Labour will see vindication in the OBR's black cloud, in hard times the normal rules of politics do not always apply. The focus groups and opinion polls are telling all the parties the same thing: voters are anxious and want "reassurance", the new buzzword among political strategists.

So while Labour's economic argument may gain strength next week, there is no guarantee they will reap a political benefit. Voters are not listening to Labour: many believe the previous Government is largely responsible for the state we're in. Ed Miliband's internal critics grumble that he is spending too much time debating the future of capitalism and not enough on regaining Labour's economic credibility. The public, while not liking many specific cuts, accepts that the Coalition's core purpose of tackling the deficit is right.

Labour needs to tread carefully. That is why Mr Miliband is resisting the temptation to scream "we told you so" over the OBR figures, which wouldn't impress anyone in the real world. He tried a more subtle approach in a speech on Thursday, recognising why many had supported the Coalition's deficit-reduction plan last year but asking them to take a fresh look at it now.

The Labour leader is also aware that the state of the economy is not going to improve for years. It is not just Mr Osborne's economic strategy that will be blown out of the water by the OBR forecasts. His political strategy, as the man charged with winning the 2015 general election, will also be detonated. By then, his plan was for the pain to have been replaced by the sunny uplands. Next week's forecasts will tell us that the election will be fought in an age of austerity.

This has enormous implications for all parties. Mr Miliband grasps that Labour will need a plan to clear the remaining deficit, not to spend more on schools and hospitals. Some of Labour's wiser heads realise that voters might be tempted to "hold on to nurse" for fear of something worse under Labour, and allow Cameron-Osborne to "finish the job".

In the short term, the pressure will be on Mr Osborne. Both the International Monetary Fund and the Organisation for Economic Co-operation and Development, while backing the Chancellor's approach, have hinted previously that he has room to slow his cuts programme to secure growth. Their next musings will be interesting, and may well amount to a call for a Plan B.

No doubt Mr Osborne would ignore such advice. If he introduced 25 changes of policy, he would still be calling it Plan A rather than Plan Z in order to keep the financial markets sweet. On top of the housing and young jobless measures, Tuesday will bring more steps towards Plan B, such as the state lending money to firms and higher spending on infrastructure projects. "Plan A-plus sounds better to me than Plan A," one Cameron aide smiled.

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