Inside Westminster: Recession may be over, but no one is making capital

As the five-year parliament reaches its halfway mark, the Coalition’s key decision-making “quad” – David Cameron, George Osborne, Nick Clegg and Danny Alexander – has been expanded to include David Laws, the Liberal Democrat who returned to the Government last month, and Oliver Letwin, the Conservatives’ policy chief. “It’s still known as the quad,” one insider explained. “We can’t call it the sextet.”

In the next five weeks, this group will take the crucial decisions about two major statements that will shape the two-and-a-half years to the 2015 election. The Chancellor’s Autumn Statement on 5 December will reveal whether the two parties can trade Tory welfare cuts for Liberal Democrat higher taxes on the wealthy. The Coalition’s mid-term review, published around the same time, will tell us how ambitious it will be on issues such as social care.

The backdrop to the group’s discussion is different after Thursday’s official figures showing that the recession is over. Economically, not much has changed. Mr Cameron and Mr Osborne were wise not to get too carried away, knowing the economic statistics will be patchy for a long time. Tory ministers hope the elusive business and consumer confidence will materialise but admit privately the falling unemployment figures are not as good as they look, since many of the new jobs are low wage, part-time ones for women in the South-east.

Politically, however, the GDP figures are very significant. They offer a glimpse of a different landscape in 2015, in which the Tories go to the country with the message: let us finish the job of clearing the deficit, and don’t let Labour ruin it. The first line of their election slogan, “Britain is on the right track”, was in the Cameron-Osborne script this week.

Yet there is a problem. The limited good news on the economy is being buried by bad news of the Tories’ own making. The disastrous Budget in March, the West Coast rail line franchise fiasco, the Andrew Mitchell “plebgate” affair and Mr Cameron’s botched announcement on energy bills paint a damaging picture of an out-of-touch and incompetent government. “When the smoke clears and the bad headlines stop, we can see some encouraging figures on the economy, health and crime,” one Tory aide said. The trouble is that, in the last six months, there has been too much smoke, and that’s probably all the public see.

No wonder the Liberal Democrats feel frustrated. Most of the unforced errors have been made by Tory ministers, not theirs. In the Coalition’s first year, the Liberal Democrats paid a heavy price in the opinion polls for the Government’s unpopular cuts, while the Tories somehow avoided taking a hit. Yet in the second year marked by the Toryshambles, the Tories lost support and the Liberal Democrats appeared to suffer collateral damage.

As well as swallowing some bitter Tory pills in the national interest, Liberal Democrat ministers have, in many cases, performed better than their Tory counterparts. When they had to resign (Mr Laws, Chris Huhne), they went quickly, without clinging on and prolonging the damage like the ousted Tories (Mr Mitchell, Liam Fox). When the Liberal Democrats make a mistake on policy, they know it often makes sense to put your hand up and admit it. If Mr Clegg had promised all energy consumers the lowest tariff, I have a feeling he might have admitted his cock-up. In contrast, Mr Cameron’s instinct is to plough on and cobble together a policy to fit his premature promise.

Perhaps the biggest impact of Britain’s emergence from recession will fall on Labour. Some senior Labour figures insist “the fundamentals have not changed” because of a one-off Olympic bounce. They may be right economically, but they are wrong politically.

The return to growth, however fragile it proves, should strengthen Ed Miliband’s hand as he tries to make his One Nation Labour the vehicle for his own radicalism, in a series of speeches starting on Monday. He will face plenty of internal battles, not least with more cautious colleagues who will argue that, with the Government making so many mistakes, Labour should not take risks but let the Tories continue to shoot themselves in both feet.

However, there is no guarantee the Tories’ self-inflicted wounds will continue, or even that voters will remember the omnishambles. In the election race, the last lap –the last year – will matter most. That’s when the crowd will be watching. Labour needs to put on a spurt now, so it has a bigger poll lead when the last lap begins.

Other Labour folk hope Mr Miliband will trust his own instincts. Ed Balls, the shadow Chancellor, may have been proved right about the cuts being “too far, too fast” when Britain slid into double-dip recession, but Labour can’t expect plaudits from the public and now needs its own economic tune. Voters won’t be interested in a sterile debate about economic statistics and who was right: it’s the forward offer that matters.

“We can’t go into the next election promising to implement George Osborne’s plan for the next five years,” said one Labour adviser. “To win, we have to be credible and offer real change.”