Steve Richards: Listen for what Osborne didn't say

The Chancellor has made his big call on deficit reduction and is not budging, nor is he giving theimpression of doing so

In delivering his speech to the Tory conference yesterday George Osborne had a curiously daunting challenge, one to test the skills of any tactically obsessed politician. How to say anythingof significance when he did not have very much to say – or at least much to say yet?

Osborne has made his big call on deficit reduction and is not budging, nor giving the impression of doing so. Without detailed announcements of any game-changing substance the Chancellor followed the new fashion established by Ed Miliband last week and set out more of an argument, a reiteration of his case made in a thousand newspaper articles and occasional media appearances over the last 12 months. He hinted perhaps of something bigger to come. But for now, the changes were in the nature of his argument, not the policies.

The Chancellor began by acknowledging that the situation was stormy but added: "We must not talk ourselves into something worse." Amidst much talk of steady resolution, the exhortation is a U-turn. It was Osborne and other leading figures in the Coalition who talked us into something worse by claiming immediately after the election that Britain was as vulnerable as Greece. Both Tory and Lib Dem wings of the Coalition needed an explanation for cutting more deeply than they had pledged before the election, so they made the preposterous comparison with the Greek economy repeatedly. Even voters who are not avid followers of politics took note and started to panic.

It remains one of the great modern myths. In the five days after the election the international focus was on Greece, not the UK. In his final act as Chancellor, Alistair Darling sped to Brussels for emergency talks on Greece, not to plead for the British economy. But a political narrative was established: Britain was in the same position as Greece and were it not for spending cuts the same disaster awaited. Osborne now warns that gloom becomes self-fulfilling.

Next in his speech he offered a clearer explanation as to why Britain was still fragile. Until recently senior ministers blamed the last government almost exclusively, as if the economic crisis was unique to the UK. As the crisis continues to deepen under the same senior ministers, the previous government is no longer solely to blame. With a new clarity, Osborne pointed to two additional factors: the banks and the euro. Of course he has always acknowledged that factors applied beyond the alleged overspending of Labour, but needing now his own protective shield, the international dimension and the banks are given star billing along with Gordon Brown and Ed Balls.

His key assertion was a clever one: "You can't borrow your way out of debt." The soundbite is an echo of Jim Callaghan's widely misunderstood argument from the late 1970s that a country cannot spend its way out of recession. Osborne's assertion has an accessible appeal, but the economics are more complex when growth is lower than it was under the previous government and borrowing remains high. His claim about lower interest rates being uniquely connected to his plan is equally contentious. Interest rates were falling like a stone during the fiscal stimulus that he opposed.

After his broad argument, Osborne reiterated that his plan was "flexible enough to meet good and bad times". His emphasis on flexibility could prove to be highly significant – or not very. For politicians the joy of the term "flexibility" is its own indefinable flexibility. Osborne means the Bank of England could print more money. In addition he spoke of easing credit flow, monetary activism combined with fiscal conservatism. We await the detail, but this could prove a big departure, a move of Gordon Brown-like stealth that might involve billions of pounds of public finance without a single penny added to the deficit.

But there were no details on how the scheme would work to get in the way of the politics of the speech. Osborne's attacks on Labour were limited to several jokes about Ed Balls and a reference to the booing of Tony Blair during Ed Miliband's speech. Blair is a hero for Cameron and Osborne. Both regard the boos as a key moment, helpful to them in conjunction with the substance of the Miliband speech that they regarded as a leap to the vote-losing left.

On both they are too excited. The boos were stupid and Miliband's delivery inept, but the dissent does not say very much. Blair has not been a popular figure in Britain for a very long time, since the invasion of Iraq and his attempts to introduce reforms insufficiently thought through.

Cameron and Osborne's excitement is similar to the way both responded to the nationalisation of Northern Rock in 2008. They thought they could trap the government into being seen as old Labour and statist, holding a joint press conference opposing the move, animated by what they regarded as a defining political moment. What actually followed the nationalisation was rather different. Labour went up in the polls. Cameron and Osborne are highly talented politicians, but too many of their judgements assume that politics is still stuck in 1995.

Osborne was on stronger ground when he attempted to address the Miliband argument about responsibility at the top and bottom by echoing it. Like Miliband he linked reforms in welfare to those for banking. His almost casual references to "Conservative priorities", the NHS and schools, were made as if that is now the accepted consensus.

His speech was very much a holding operation. He has a pre-Budget report to deliver later this year, an event that is now a mini-budget. That is incomparably more important and needs to be crammed with substance. Not surprisingly there is a limit to how many announcements a Chancellor can make. At one point during the speech Osborne resorted to the declaration: "Today I am confirming that ...". A confirmation is not even an attempt to pretend a new announcement is being made.

But quite often when a politician does not want to say very much he says quite a lot. In terms of the politics he has a very accessible argument on debt, even if the policy is not working economically. Labour has yet to come remotely near a similarly populist set of arguments to counter it. Osborne will not let Miliband command all the terrain when it comes to banker bashing and the moral arguments that arise from it. He will not spend more or cut taxes in the short term, in spite of the lack of growth, but he will attempt to find new ways to boost small businesses to punctuate the gloom. As the gloom persists, the bankers and the euro join Labour as the three guilty forces.

This was the speech of a Chancellor keeping his fingers crossed. He will have more to say very soon, and at some point possibly more to say than he had ever intended.

s.richards@independent.co.uk