Andrew Grice: Osborne's Olympian task as he runs out of excuses

Things can only get better" worked as a slogan as well as a theme tune for Labour at the 1997 election. "Things could be even worse than they are" is George Osborne's song today. It will never top the charts.

Economically, the Chancellor is right. The feeble growth of 0.2 per cent between April and June announced this week was nothing to celebrate but it was not a disaster. Politically, "we could be as badly off as Greece but we're not" is pretty lame. Luckily for Mr Osborne, his party does not have a general election to fight anytime soon.

Ministers are conducting a holding operation in the hope that things really do feel better in 12 months. "We are looking for the Olympics to generate a feelgood factor," one Cabinet minister told me. I doubt it. People will enjoy the Games but that won't necessarily make them feel good about rocketing energy prices or their pay freeze at a time of relatively high inflation. Politicians underestimate the toxicity of the huge squeeze on living standards. In hard times, they press their default button – our old friend tax cuts. Which to most voters will look odd because there is no money for giveaways. Ed Balls, the shadow Chancellor, renewed his call for a temporary cut in VAT, claiming the rise to 20 per cent in January has proved an own goal. Mr Osborne raised the flag of "cutting business taxes, and doing away with very high tax rates that only damage growth and enterprise".

That was seen as a hint that he will abolish the 50p higher rate of tax on earnings over £150,000 a year. The Chancellor will need ammunition and cover. He hopes to find them from lower than expected tax receipts than the Treasury forecast when Labour announced the higher rate. But the Chancellor may have to wait until he can also offer tax cuts much lower down the income scale – his game plan for the next election. Ed Miliband was quick to grasp the "squeezed middle" issue and Labour's policies will be devised with this key group in mind. However, the Chancellor is more than happy to fight the next election on this terrain. If voters were promised tax cuts by the two biggest parties, he judges, they would instinctively believe the Tories rather than Labour.

Liberal Democrat ministers remain solid on the Government's deficit-reduction plans. They were noticeably less positive about Tuesday's weak figures than the Tories. They would have no credibility if they pulled the rug, risking the very stability that is the Coalition's raison d'etre.

But the Liberal Democrats are becoming impatient. If things really don't get better by the autumn, they may rattle Mr Osborne's cage in public. After blaming the snow, the sun, the Royal Wedding and the Japanese earthquake, Mr Osborne is running out of the wrong type of excuses.