Steve Richards: Plenty of politics, but where was the economics in Osborne's speech?

Boris Johnson delivered a deftly crafted speech in which he put the case for public spending
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The Independent Online

For a government wary of targets George Osborne has set the toughest centrally agreed objective of any administration in recent decades. The Chancellor has stated that his target is to wipe out the deficit in a single parliament. Much of his speech yesterday was to establish the political framework before he sets out on his hazardous journey.

Before we examine his case it is worth pausing a moment to ask why such a precise objective has been set. Why does he seek to remove the deficit in its entirety? Why does he aim to do this in four or five years and not, say, six or seven? The answers to this are more political than economic and Labour is partly to blame. In a desperate bid to prove its economic credibility, the last government brought forward a silly Bill compelling it to halve the deficit in this parliament. No one explained what would have happened if Labour ministers had failed in their objective. Would the Chancellor have been arrested for failing to meet the legislative obligation? But the move, a product of extreme insecurity, established the trend.

In explaining their goal, senior ministers point out that they had to go further than Labour. After all the huffing and puffing about the deficit, they could not come along and pledge to reduce it by the same amount as Labour had intended. They admit also that a political timetable is imposed on the economic circumstances. They need to act and to be seen to act in this Parliament. So it is partly gesture politics that sets the framework: they need to act quickly to be "tougher" than Labour and in the hope that by the next election the issue is purged.

Mr Osborne put the case differently and in doing so made the arguments that will be repeated throughout the week and in different ways up until the election. Ignoring the overwhelming global dimension to the crisis, he argued that it was Labour's fault alone that he has to clear up the mess. Cheekily, he claimed that his position was shared by virtually everyone except Ed Miliband and a few trade union leaders. He even co-opted David Miliband to his big tent, although Labour's defeated candidate describes Osborne's approach as "masochistic economics".

Still, the Chancellor's strategy could not be clearer. He is in the mainstream, a one-nation politician pursuing the only course available. Red Ed and a few loonies are alone in their extreme opposition.

Whether his political strategy works will depend partly on how Labour responds. Although his overall objective, or target, is extreme, Osborne put forward some sensible specific policies that governments should consider whether or not there is a deficit. The targeting of child benefit is fair and was considered in a different form by Gordon Brown when he was shadow chancellor. Brown proposed briefly to remove benefits for older teenagers to invest in training initiatives. He could not convince the Shadow Cabinet. There will be anomalies now but it has always been a strange contortion for Labour to defend spending cash on well-off families who do not need the money. Similarly, the wider welfare reform is informed by sharp ministerial recognition that complexity leads to abuse of the system. Simplicity is a form of accountability. The coalition is alert to the value of accountability, whether it is in terms of making spending decisions available on the internet or in disentangling a benefits system that is multi-layered to the point of incomprehensibility. Last week, Ed Miliband hinted that he might support some of the welfare reforms. He should do so.

The problem for Osborne will arise when ministers and others put the case for more productive spending. He has stated himself that he supports capital spending and admits that the Tory government in the early 1990s was mistaken in wielding the axe on projects aimed at reviving the country's fragile infrastructure.

Yet shortly before Osborne spoke, the Mayor of London, Boris Johnson, delivered a deftly crafted speech in which, in effect, he put the case for public spending, arguing with precise examples that many other parts of the country benefited directly from big projects in London. The fact that he needed to put the case so explicitly suggests he has not yet convinced the Treasury.

The third and final party conference is as subdued as the previous two. The Conservatives have much less cause for introspective reflection. They hold most of the cards in British politics without having won an election. They decide the course of economic policy-making and the direction should delight the right of David Cameron's party. With the protective shield of the Liberal Democrats in front of them they plan for cuts in spending that Margaret Thatcher would not have dared to contemplate. They are in power after a long period in which a few wondered whether they would ever rule again. They should be raising a glass or two in Birmingham for several reasons.

Consumption of alcohol will take place more discreetly because ministers do not want to be seen enjoying themselves on the eve of the comprehensive spending review. Obviously to do so would be insensitive. But I do not believe that it is the reason why this is the third successive conference in which there is slight bewilderment in the air.

Another also relates to the spending review. In theory, ministers are committed to George Osborne's determined austerity. Yet when individual ministers in their departments face directly the consequences of cuts, they change their tune. Boris is not alone. At the Ministry of Defence, Liam Fox stirs. Iain Duncan Smith recognises that effective reform can cost money in the short term. Vince Cable suggests, like Boris, that his department also focuses on growth and should not face sweeping cuts.

Osborne's crusade is much easier to support as a generalised assertion. The problem goes back to targets. In such a fluid economic situation why have such a precise objective for public spending? The answer is related to politics and not economics.