We might expect a hint of triumph in the Chancellor’s Autumn Statement. Where his March Budget was delivered with recessionary storm clouds re-forming on the horizon, the skies have since cleared and the economy is growing at a healthy clip at last. Inflation is down, consumer confidence is up, and more of us have jobs than ever before. In short, Britain is buzzing again. The IMF, the Bank of England and the OECD have all rewritten previously pessimistic forecasts. Tomorrow, the all-important Office for Budget Responsibility will follow suit.
Yet, even as George Osborne deserves credit for holding his course, the job is far from done. The Chancellor’s first problem is that while British growth may be the envy of developed-country peers, it is shallow by comparison with the slump that preceded it. Not only is the economy still a sight smaller than it was before the financial crisis, the current expansion is of a kind that is unsustainable.
Let’s not be churlish. Services, manufacturing, and even once-beleaguered construction are – relatively – booming. Such a turnaround can only be welcome. But household spending remains the driving force, with mortgage lending and credit card debt inching upwards again to support it. This is not the export and investment-led recovery that Mr Osborne promised and Britain needs. In fact, despite a sharply lower sterling, the trade deficit remains much as it was; and although investment is improving slightly, the bulk of the spending is on (cyclical) inventory replacement rather than (structural) machinery, say, or buildings. Productivity and pay are also still lagging.
All of which adds up to an economy struggling to break its debt-addiction. Here Mr Osborne’s second problem arises. Labour’s swift change of approach – replacing “too far, too fast” with a cost of living crisis – has left the Coalition scrabbling to catch up. Austerity and public debt merit barely a mention in the blizzard of consumer-friendly pledges on everything from payday lending to energy bills.
The Chancellor cannot hope to outbid Labour, nor is it in the country’s best interests that he try. But Mr Osborne has form. His Help to Buy scheme prioritises electoral gain over the risk of a housing bubble. Meanwhile, the marriage tax break and free school meals announced at the Tory and Liberal Democrat conferences respectively are further testament to the temptation to splash out. And ahead of tomorrow’s mini-Budget any number of extras are in the frame, not least the plan to shave a sliver off ever-rising power costs by re-thinking environmental levies.
There are may be tweaks to be made to ease the burden on the least well-off. But they do not come for free; Peter must still be robbed to pay Paul. Even with the recent slowdown in government borrowing, the public deficit remains the defining challenge. The Chancellor must concentrate less on short-term politics and more on the task in hand. That means pressing ahead with tardy infrastructure spending, doing more to boost exports and encouraging companies to invest. More than anything, it means not giving away the recovery before it has happened.
Mr Osborne has proved he can stick to his plans in the bad times. Now he must prove he can stick to them in the good times, too.