From rescue to recovery? It’s not as simple as that, George

Labour’s position in relation to spending is more astute than the Chancellor suggests

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George Osborne always manages to sound upbeat when he announces spending cuts, like Santa Claus coming down a chimney to wish everyone a Merry Christmas at the same time as taking away the presents. At the opening of his statement yesterday he declared with a flourish that the country was back from the brink of bankruptcy, out of intensive care and moving from rescue to recovery. Gordon Brown always looked miserable when he was announcing big increases in spending during an economic boom. Amidst deep gloom Osborne appears to be enjoying himself.

It has become a cliché in relation to this Chancellor that every time he speaks, the political calculations are paramount. This time, the cliché is unavoidable, because his latest spending review covers the year of the next general election and its aftermath. Quite possibly, the proposals announced yesterday will never be implemented in full. In the summer of 2015, a newly elected government, even a Conservative one, will almost certainly hold an “emergency Budget” and revise parts of the spending review. So more than usual Osborne was being political. He was making policy for a year in which he hopes to win an election. Equally he was unveiling his plans for a period when he might be out of power.

Will Osborne win the argument that he has moved the economy from rescue to recovery? Does Labour’s recently outlined response to his spending plans mean that he has won the argument about austerity in a way that makes an election victory for the Conservatives more likely?

In relation to the first question, Osborne has a minor problem in that his chosen narrative is false. When he became Chancellor in 2010, the economy was growing again. His response on moving to the Treasury was to declare that the UK was as fragile as Greece, and to slash the spending that was fuelling the admittedly precarious growth. The spending round that was conducted with such destructive speed by inexperienced ministers in the summer of 2010 was what took us from the brink of rescue to another recession.

Still, polls suggest that voters partially buy the Osborne story, which is why I suggest that, though the narrative happens to be false, it is a minor problem for him rather than an overwhelming one. The recent past is always a nightmare for an opposition that was removed from power at the previous election, not least when its final years were played out amid a mind-boggling financial crisis. In relation to the economy, we are closer to the tightly fought electoral politics of the early to mid-1970s than the landslide elections of the 1980s and 1990s. Osborne’s economic plan has been so crude, and has so obviously failed – even on its own terms – that he will not be able to claim credit in a way that the more substantial Conservative chancellors did in the 1980s. But voters will be wary of Labour too. David Cameron’s favourite soundbite, warning voters not to give back the keys to the drivers that crashed the car, will have an impact.

Mischievously, Osborne suggests that the two Eds can only move on when they have apologised for Labour’s alleged overspending. This is a view also shared by some senior Labour figures, even though it is the Tory Chancellor who is the main figure offering the advice. Miliband and Balls should do the opposite, and defend the recent past more robustly than they do. But only a long passage of time allows political leaders to escape fully from perceptions of the recent past.

The position of the Labour leadership in relation to spending is actually a more astute one than Osborne suggests. The Chancellor claims to be delighted that Miliband and Balls have stated they will stick, at first, with his proposed current spending plans. I bet Osborne would have been more delighted if they had not done so. Miliband and Balls learnt long ago, from Labour’s last attempt to gain power in 1997, that it is impossible for Labour to lead a grown-up debate on spending from opposition. They will stick to Osborne’s overall total for current spending and make some, symbolically important, different allocations. But they still have the space to be distinctive on capital spending, which has become a respectable form of expenditure across the political spectrum – at least in theory.

Beyond his publicly declared commitment, Osborne’s actual plans for capital spending are relatively small, much less than Michael Heseltine recently proposed. Heseltine is the Conservatives’ genuine moderniser. In contrast, the self-proclaimed Conservative modernisers have an odd attitude towards capital spending.

In his autumn statement in 2010, Osborne declared perceptively that previous Conservative governments had been mistaken in cutting capital spending during recessions, and he would not do the same. Close scrutiny of his plans in the same statement, showed big cuts in capital spending too. There was some speculation at Westminster yesterday that the same applies to Osborne’s statement, that when all the figures were taken into account, capital spending would fall. Similarly, even when big ministerial announcements are made in relation to plans for growth, little action follows, as Vince Cable warned more than a year ago. Thankfully, Cable’s budget at the Business Department has survived largely intact. It would have been perverse for a Government supposedly focused on growth and an industrial strategy to massacre the department responsible for both.

Nonetheless, the Treasury tried to do so. Strip away the politics, and the gap between apparent ambition and implementation remains alarmingly wide and confused. Without any great public debate, the Coalition is reshaping the state. Benefits for pensioners are protected while benefits for the low-paid in work are cut. Real spending on schools is preserved, while resources for the supposedly pivotal early years are slashed. Osborne speaks of a strategy for growth and yet Cable had to fight to retain a budget aimed at generating growth.

I would spend a lot of money for a grown-up debate on public spending – on what this country needs in terms of high-quality public services, on how they can be paid for and delivered efficiently, on the benefits and the risks of making such investment. We will not get it this side of the election, and we might not after.