Between the double-dip recession and the string of U-turns that followed his March Budget, the Chancellor had already had a difficult year. With growth now stagnant, too many indicators still pointing the wrong way, and the Coalition's central economic strategy in jeopardy, today's Autumn Statement looked set to make it even worse. In the event, George Osborne scraped through – saved by the forecasters at the Office for Budget Responsibility.
As expected, the Chancellor was forced to concede that Britain's stock of debt will not be coming down by 2015, as planned; 2016 is now pencilled in instead. The target was always an arbitrary one, but the admission of failure is no less embarrassing for all that. The good news for Mr Osborne is that the OBR has given him a reprieve on his other, far more important, goal. Not only do the latest, conspicuously independent figures allow Mr Osborne to claim – as he did with considerable gusto yesterday – that he is successfully getting a grip on out-of-control Government borrowing; they also judge him to be "on course" to close the yawning gap between the Government's income and its outgoings. Never mind that economic forecasts (from the OBR or otherwise) rarely prove to be accurate. They provide the Chancellor with much-needed cover, nonetheless.
No less significant is the assessment of Britain's broader economic performance. Crucially for Mr Osborne, the OBR says that neither this year's slump nor the weak outlook have been caused by Government cuts; rather, they reflect factors beyond the Treasury's control – inflation, the problems in the eurozone, the ongoing hangover from the financial crisis. Without such assistance, Ed Balls's fulminations about the demonstrable dangers of cutting "too far, too fast" would be tricky to rebut. For now, with the OBR's support, Mr Osborne can continue to shrug them off.
A small sigh of relief for the Chancellor, then. Out in the real world, however, there is nothing to be cheerful about. The growth forecasts for the next four years have all been revised sharply downwards and, as a result, the fiscal consolidation – spending cuts and tax rises – needed to reduce the deficit must continue even longer. When the Coalition came to office in 2010, austerity was to be over by 2015; now it will continue until 2018.
So much for the big picture; what of the specifics? The Chancellor did manage to find a few sweeteners yesterday – cancelling the rise in fuel duty due in January, tweaking the income tax threshold slightly higher, and boosting the limit on tax-free savings. But any giveaways were more than offset by measures to reduce pension tax relief, squeeze working age benefits and limit a suite of tax exemptions.
The principal challenge, of course, is to stimulate growth in the private sector, to take up the slack left by the retrenchment of the state. Business taxes are, therefore, to fall, and the incentives for companies to invest in buildings and equipment will rise. Meanwhile, the Chancellor is paring back Whitehall departments' day-to-day running costs and channelling the proceeds into £5bn worth of capital projects, including school-building programmes and transport links.
There are some good ideas here. Even taken together, though, they are of only marginal economic impact. The unavoidable reality is that, until the debts of the boom years are paid off, the Chancellor has little room to manoeuvre. The Autumn Statement was, then, not much about economics at all. It was about politics.
Mr Osborne needed to salvage his reputation for competence after the fiascos of the Budget. And he needed to restore some credibility to his oft-repeated – and much derided – claim that "we are all in it together". How far he succeeded in either case remains to be seen. But by bearing down on the better off at one end of the scale, and the unemployed at the other, he hopes to reinforce his claim to be the champion of the hard-working majority in the middle – the "strivers" – without whose support he is lost.
Ultimately, all depends on the Chancellor's ability to convince the public that his strategy is working. His refrain yesterday was: "The road is hard but we are making progress." Thanks to the OBR, his claim is still just about plausible. The question now is: for how long? The economy is expected to contract again in the fourth quarter of this year; there are ructions to come over Whitehall job cuts and the squeeze on pensions; and the prospect of Britain losing its triple-A credit rating has far from receded. And that is only the immediate future. Mr Osborne clung on yesterday. But only just.Reuse content