The spirit of the Thirties lends Ed Miliband a withered hand

Labour's fragile lead teeters on one, toxic word, and that may not be enough to put the party into power

Ed Miliband has begun to believe he could be prime minster next May (EPA)

Ed Miliband is hopeful again. He had been down since he messed up his party conference speech, forgetting to mention immigration and the deficit, but one of his strengths is resilience and calmness in public, so he ploughed on, and now, he thinks, he has his reward.

Two things have happened to make him believe again that he will be prime minister in five months' time. One was the failure of the Tories to take the lead in the opinion polls. It looked last month as if the Tories were drawing level but, as in our ComRes poll today, Labour continues to hold a tiny lead as the year ends.

It is, I think, as solid as dewy frost under bright sun, but the leader's entourage mistake longevity for durability. Another problem is the state of Scotland. The Sun welcomed Jim Murphy to the leadership of the Labour Party in Scotland yesterday with a poll that, on a uniform swing, would reduce Labour from 41 to six seats and boost the Scottish National Party from six to 52. If current opinion polls are translated into seats separately in Scotland and England, that makes it touch and go as to whether the Miliband would have a majority with the Liberal Democrats.

The other thing that has cheered up Miliband was the Autumn Statement, in which George Osborne set out the Conservative Party's plan for taxes and spending over the next Parliament. The Chancellor wanted to lay a trap for Labour by setting out deep cuts in public spending. If Ed Balls refused to match his plans, Osborne could portray Labour as the party of tax, spend and borrow. But he turned the dial on the trap-laying machine a nidge too far, and the Office for Budget Responsibility showed its independence by using the incendiary phrase, "lowest level … since the late 1930s".

That reference to the decade of the Depression gave Miliband and Balls their opportunity. They thought they could present the Conservatives as having gone too far, which would at last give them the chance to present themselves as following a middle way of cutting a bit less.

That was the point of Miliband's "look I'm mentioning the deficit" speech last week: no specifics, but a repeated contrast between "sensible" Labour spending "reductions" and "ideological" Tory "cuts".

You can see how it might work. The reason Miliband wasn't particularly damaged by forgetting the deficit is that most people don't really care about it. Many people have only the haziest idea what it is, or about the difference between debt and deficit, and anyway the numbers are too big. The deficit is £90bn. The national debt is £1.5trn. These numbers make as much sense to me as the fact that trillions of neutrinos from the Sun are passing through my body every second.

We ought to care about the deficit. The Government spends so much more than it raises in taxes that it has to borrow £90bn a year. This adds to the national debt, on which we have to pay a lot of interest, even when rates are as low as they are now. Chuka Umunna, the Shadow Business Secretary, is one of the few politicians who makes sense of this. When I interviewed him last week at a Progress event, he said: "There's nothing progressive about paying more in debt interest payments than we spend on housing and transport put together."

As I say, though, we would rather not think about the deficit. In this respect, the next election promises to be like the last one. That was when Gordon Brown was shouted at from all sides, including his own, for refusing to say the "cuts" word. He knew that whoever formed a government would have to cut public spending, but he also thought that it wouldn't be a good idea to tell the voters so.

David Cameron and George Osborne thought that they would get the credit for telling the voters the truth, but came to realise that Brown was right. They stopped talking about austerity and tried to switch back, late in the day, to something more optimistic. That was one reason the Tory lead in the polls shrank as the 2010 election approached.

So Miliband's policy of pretending to care about the deficit but being vague about the implications ought to work – if he and Balls had established their economic credibility by now. But they haven't.

This is more a communications problem than one of substance. Balls has been more right about the economy than Osborne over the past decade. He warned in 2010 that cutting public spending too sharply and raising VAT might choke off growth. We can't know for sure if it did, because it is impossible to know what would have happened if Labour's gentler and slower cuts had been made. All we know is that Osborne failed to meet any of his targets.

Labour's plan for a slightly gentler and slower path of public spending cuts may be the right one again, because it would maintain demand and therefore growth. But it involves a Keynesian paradox, which is that if you cut spending more slowly you might close the deficit more quickly because the economy would grow faster. And Miliband and Balls are their plan's worst salespeople.

Meanwhile, Osborne's original trap is still there. Labour is still going to fall into it. The party is going to go into the election promising – in the short run – to tax, spend and borrow more. Osborne miscalculated, and gave Labour the gift of the "1930s" slogan. But in May Miliband may look back on these pre-Christmas weeks and reflect on the cruelty of hope.

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