Screen Shot 2015-11-25 at 18.19.30The political cycle starts with tears and ends in cheers – or should do.  Chancellors try to engineer a happy ending by getting the nasty stuff (spending cuts and tax rises) in early to ready the economy for the nice stuff (spending rises and tax cuts) later on – just in time to get their party re-elected.  There are sound economic reasons, too, for George Osborne to act this way. Our economy, for all its growth and jobs relative to our competitors, is haunted by a triple problem.  He aimed to eradicate the deficit during the last Parliament, but it still stands at some £90 billion, down by less than half from £154 billion. He also aspired to get on top of the national debt problem, but this has grown from around £960 billion to over £1600 billion – meaning higher spending on interest payments than on national defence, as Liam Fox pointed out on this site today.  And he wants Britain to export its way to success but, although the current account deficit has recently improved, it reached a record 5.1 per cent of GDP last year.  In 2010, we were living beyond our means.  In 2015, we are still doing so.

The Chancellor therefore had an opportunity to come to the Commons yesterday “discreetly, advisedly [and] soberly”, as the Book of Common Prayer puts it.  (It adds “and in the fear of God”, but this might be expecting a bit much.)  He could have opened his speech by warning of hard times ahead.  He could have acknowledged the risk posed to prosperity by the threat of terror, which has shut down the city at the very heart of the European project.  With no Labour front-bench opposition worth speaking of – and none elsewhere in the Commons worth borthering about – he could have risked a little humility, conceding that his work of rescuing Britain’s economy is not yet complete.  Instead, he suggested that it is over.  “Five years ago,” he began, “when I presented our first spending review…there was no money left…Our job then was to rescue Britain.  Today, as we present this spending review, our job is to rebuild Britain.”  But is it?  With a deficit of £90 billion, isn’t there still “no money left”?  And since this is so, how can he claim that the work of rescue is over?

ConservativeHome has consistently argued that Osborne is on the side of the angels.  As we said earlier this week, his policies have helped to bring the highest growth in the G7 and more jobs than in the rest of the EU put together.  His critics are wrong to claim that he has let public spending rip: as Peter Hoskin has pointed out, he has made some of the biggest departmental spending cuts of modern times.  They are wrong to maintain that he has not rebalanced the economy from the south, finance, consumer spending and personal debt to the Midlands and North, manufacturing, investment and saving – or at least unfair in saying that he should have done, since that is the work of more than five years.  And they are wrong to blame him for failing to end the structural deficit, because borrowing is dependent on factors beyond his control – growth abroad as well as at home, tax receipt levels, the impact of wars and natural disasters.  Above all, perhaps, they are wrong to complain about his passion for winning: would that more senior Tories had shared it over the past 20 years.

But to date, his efforts have been expended for and exercised with the colleague and friend whose leadership election he masterminded – David Cameron.  Now, we are moving into a new era.  Cameron will be gone by 2020.  Osborne wants to replace him.  Perhaps I am mistaken, but the prospect of that forthcoming leadership election seemed to tarnish – even spoil – his statement.  Where once his gambits and traps were prepared for Ed Miliband and Ed Balls, they seem increasingly to be primed for Boris Johnson and Theresa May. (Or should I say set to avoid mistakes that they might exploit?)  Consider his closing flourish – the announcement that “there will be no cuts in the police budget at all”.  In making it, the Chancellor deftly removed a stick with which both would have beaten him, and been joined in so doing by a gallery of Chief Constables and senior policemen.  He may have been planning to make the move anyway, before the horror in Paris.  But it looks more like a hasty retreat.

And if his police plans were a careful step backwards, his tax credits announcement was a helter-skelter U-turn.  Our acknowledgement that they were politically unsustainable was balanced, at the time when they were most under fire, by the argument that his critics on the Right shouldn’t have it both ways – in other words, that it was unfair on the Chancellor to criticise his proposed cut without suggesting a replacement (at least, if their commitment to spending control was more than lip service).  But in abandoning his proposal, Osborne pulled not so much a white as a Technicolor rabbit out of his Spending Review hat.  Roll up, roll up!  See my next trick!  Surplus target hit!  Welfare savings made!  Protected departments safeguarded! (The Foreign Office is the latest to join this happy band.)  Where John McDonnell relies on a magic money tree – sorry, Maoist money tree – Osborne waves the magic wand of OBR forecasts.  Growth revised up! Debt will be lower!  And there will be “a £27 billion improvement in our public finances over the forecast period, compared with where we were at the Budget”.  No need, then, to scale back Gordon Brown’s tax credits cats-cradle after all!

The exclamation marks and heavy irony may be out of place.  The tax receipts and growth and lower borrowing could well come.  But if they don’t, the Chancellor will be perilously exposed at exactly the wrong point in the political cycle – with the deficit rising again both in absolute terms and as a proportion of GDP.  Britain has been a safe haven for investment partly because the alternatives looked worse.  What would happen were this no longer so, and the current account deficit to widen?  Osborne might reply by pointing out that he has passed the Surplus Test set by this site yesterday – so what more can reasonably be asked of him? To which the answer is: since Governments tend to borrow more than they expect – see Peter Hoskin again – it would have been prudent for him to hit his surplus target earlier, rather than relax his spending constraints (see the graph above).  However, that would have risked an even bigger consolidation.  And constraining spending means problems with Conservative backbenchers: if the Chancellor didn’t know that before the tax credits imbroglio, he certainly does now.

Parts of the Osborne plan reflect his long-term preoccupations: protecting pensioners, the NHS, science, capital spending (a more recent cause), the Northern Powerhouse and local devolution, plus – a heartening new addition, this – mental health.  Other bits look flung more hastily together: the police announcement, tampon tax funds for women’s charities, and “London Help to Buy”.  (Is there an election coming up?)  Business will stump up for apprenticeships and second home buyers will pay more stamp duty.  The new national funding formula for schools wowed Conservative MPs.  Getting that result appears to have been one of Osborne’s main aims.  He succeeded: they cheered him heartily.  But this only takes us back to where we started.  Starting with cheers risks ending in tears – despite the absence of coherent opposition today not only from Labour’s front bench but from its Blairite heavyweights-in-exile.  Talking of New Labour, Osborne’s mix today of aggression, patronage, wrong-footing of the opposition, Prime Ministerial sweep and, above all, reliance on sheer good luck reminded me for the very first time of the man he once shadowed – Gordon Brown.  We know how that story ended.