Debt or no debt: With deficit-reduction back on track, the Chancellor turns to the next election

George Osborne did not stint himself in his self-congratulations

What a difference nine months makes. Where once the Chancellor needed to hold firm while his deficit-reduction plan missed targets and lost credibility with equal rapidity, now he must strike a delicate balance between trumpeting Britain’s new-found zip and warning that it is not yet safe to let the other lot in.

Yesterday’s Autumn Statement was chock-full of newly upbeat forecasts from the Office for Budget Responsibility. Not only is the economy now expected to grow twice as fast this year than was predicted in March; this is, George Osborne saluted himself, “the largest improvement … for 14 years”. The rosier outlook also puts the Chancellor’s central mission to repair the public finances back on track. Government borrowing and the deficit are falling again, after a tricky two-year pause, and both will be in surplus – by current calculations – in 2018-19. Even the debt mountain will start to shrink after 2017.

It is as well not to get too carried away, however. The books may now balance a year earlier than Mr Osborne conceded in the Budget, but it will still be two years later than originally planned. For all the recent improvements, both the economy and the state’s finances are still in a woeful condition. Nor is the latest growth spurt sustainable, based as it is on debt-fuelled consumer spending rather than real wealth creation. If sluggish productivity and wages do not pick up soon, Britain will be back in the slow lane.

The Chancellor did not stint himself in his self-congratulations. References to “an economic plan that is working” were peppered liberally throughout his speech. Yet, beyond a few widely trailed, fiscally neutral tweaks on energy bills, fuel duty and the like, there were no headline-chasing giveaways to celebrate our new-found economic ebullience. Instead, there was an emphasis on improvements not to be squandered and a job only half done.

On this, Mr Osborne is absolutely right. But he is also canny. By refusing to rise to the challenge of the “cost of living crisis” with which Labour has dominated recent public debate, focusing instead on “difficult decisions” and “long-term plans”, the Chancellor is setting up the contest for the next election. Indeed, this was the crux of an Autumn Statement that was only nominally about economics.

There was some tinkering at the edges: a sprinkling of measures to help small businesses, particularly on our beleaguered high streets; moves to increase the number of students and improve training for youngsters on benefits; a pre-released infrastructure wish-list. Primarily, though, this was a speech about politics. And at its core was a three-point programme – an MP-endorsed Charter committing future governments to running a surplus, a cap on overall welfare spending, and a pension policy raising the retirement age automatically in line with life expectancy – carefully designed to keep the public debt centre stage and back Labour into a corner in the run-up to 2015.

For Ed Balls, the macroeconomic indicators may be ticking upwards but the average person is worse off than they were. For the Chancellor, it is the trend that counts; so long as voters feel that their situation is improving, he can portray himself as a steady hand in rough seas. Better still if a tax cut, or the promise of one, can be pulled out of the hat in his pre-election Budget, as looks increasingly feasible. With 17 months to go, the lines are drawn but the battle has barely begun. Mr Osborne’s judgement on the economy might also apply to his own chancellorship: moving again, but what a long way to go.