Steve Richards: Osborne passed test – for now. His opposite number failed

The Chancellor looked as if he was throwing money around when he was being miserably prudent

Thursday 21 October 2010 00:00 BST

George Osborne has delivered the defining statement of this parliament, one which will decide the fate of the country and the Coalition. With the wave of the conjuror's wand he did so in a manner that defied the advanced hype. MPs crammed into the Commons chamber. The broadcasters cleared their schedules. Voters waited in fearful anticipation. Then Osborne spoke mainly about his plans to spend. A visitor from Mars would have assumed Britain was booming.

The cuts were there, hidden away in the detail. Gordon Brown acquired a reputation for being a stealthy spender. This was a gloriously contorted contradiction in terms, becoming famous for spending in ways voters would not notice. Osborne opted for a third way in his approach to cutting. He proclaimed loudly his intention to cut and then chose not to spell out too precisely how he would go about doing so.

The Chancellor began by echoing Margaret Thatcher's populist and economically illiterate homily that a country was like a household and would only spend what it could afford. But after setting out that meaningless principle he began his relentless focus on what he planned to spend. Universal benefits for pensioners would continue "and not just at election time". Funding for the NHS would rise in real terms, he said. Investment in the Post Office would be "maintained". The science budget would be "protected". Capital spending would be increased. From Tyne and Wear to London, public transport projects were getting the go-ahead. Schools would get a real-terms increase too.

How odd it all is. As Chancellor, Gordon Brown managed to look prudently miserable when he was going on a spending spree; Osborne looked as if he was throwing money around when he was being miserably prudent, perhaps imprudently prudent.

The cuts were included, but highlighted with the broadest of broad brushes. With good cause, Osborne targets the two most fertile areas, administration and welfare. He admitted that 490,000 jobs would be lost over the next four years in the public sector. Given the amount of duplication and inefficiencies in parts of the public sector the losses could take place without any decline in the delivery of services.

The problem, though, is how the cuts are made. Posts will be frozen when they become vacant. But the highest turnover of jobs arises in the most stressful and demanding areas. Those in undemanding non-jobs tend to stay put. Quite possibly the most useful people will leave the public sector and the least productive posts will remain.

But Osborne's main target is welfare. Osborne compared paying out benefits with "productive spending" on public services and the infrastructure. He is right to do so, and Labour did the same in the 1990s. Indeed Gordon Brown's priorities were precisely the same, to make work pay and to target benefits only on those "incapable" of work. This should be of only limited comfort to Osborne. Labour's long search aimed at reducing welfare benefits shows how difficult it is to achieve. The challenge is heightened at a time of economic fragility. I would be surprised if he finds his anticipated savings, not least when at least half a million workers from the public sector will lose their jobs.

Still, Osborne searches in the most fruitful places. To his credit he has also protected capital spending, going further than Labour in recognising its importance as an engine of growth and in improving the quality of public life.

The risks of the entire package are vividly clear in spite of the deceptively upbeat presentation. Osborne gambles on a quick and expansive recovery in the private sector. He calculates that the savings in administration are implemented with a rare forensic ruthlessness rather than in a way that is haphazard and self-interested. He assumes that the Coalition will find welfare savings that have eluded previous administrations similarly desperate to use the cash for other projects.

Politically the risks are more multi-layered. Osborne claimed that fairness was one of his main objectives. Already there are claims that the poor will lose out most, as the Institute for Fiscal Studies declared after the emergency Budget. But "fairness" is a term that is almost as vague as "progressive" and meets a thousand different interpretations.

The biggest political risk for the Coalition is that the economy suffers, and is seen to suffer, by the sudden and speedy withdrawal of government spending. The global economy is fragile and various economic measurements change from day to day. Yet from its formation the Coalition has set an unmoving, unchanging target, which is to wipe out the deficit mainly by spending cuts.

Politically Labour is vulnerable, too. The shadow Chancellor, Alan Johnson, condemned the scale of the cuts. Yet the former chancellor, Alastair Darling, is on the record as stating that Labour would have imposed cuts deeper that Margaret Thatcher's government. Johnson supports Darling's plan to halve the deficit. This places him in a different and more pragmatic position compared with the Coalition, but allows Osborne to claim, as he did yesterday, that they were in the same place. Osborne went further, and with a Gordon Brown-like mischief, claimed that the Coalition was now planning less drastic cuts than Labour.

Yesterday's exchanges confirm that Ed Balls would have been a more formidable opponent to Osborne, not only in the forensic assault that would have accompanied his appointment but also in his capacity to develop a distinctive alternative argument about the origins and significance of the deficit. On the whole Labour MPs were delighted with Johnson's witty response, but the new shadow Chancellor relied on evasive generalities and could not disguise entirely a lack of confidence in his new and daunting brief.

Evidently Osborne has studied Brown's various Budgets and economic statements, as his one yesterday was structured along the same artful lines. In some cases Brown's speeches were hailed in the immediate aftermath as acts of near genius, only for the policies to fall apart a little later. The test for Osborne comes when and in what form the hidden pain starts to hurt.

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