Autumn statement 2012: No room for manoeuvre, but Osborne's still wriggling

George Osborne, trying to distract you with his silly hard hat and hi-vis jacket
George Osborne, trying to distract you with his silly hard hat and hi-vis jacket
Alex Stevenson By

George Osborne's autumn statement announcements are grabbing all the headlines today. The talk is of education investment, welfare cuts and more austerity. Don't be fooled: the chancellor is doing all he can to make the most of a Westminster political machine which expects him to make sweeping changes and bold announcements. Sometimes, though, these big moves are a smokescreen for a much grimmer reality. Today even Osborne, that master political operator, is only partially able to conceal the true extent of the fix he – and, as a direct result, you – are in.

The fundamentally bad news is that the economy has grown less rapidly than expected in 2012. Osborne will remind MPs in the Commons that it registered a return to growth in the third quarter, up one per cent. But put that point to Ed Balls and he has a very different response.  What the figures from the Office for National Statistics show is that the economy contracted by 0.1% in the last 12 months. "The economy's barely grown in two years. That's why the deficit's up, not down," he says. "You've got to get jobs and growth moving if you're going to make people better off and get the deficit down."

Balls' basic criticism is echoed by left-wing economists. Less economic growth means the government's borrowing requirement is higher than expected, so the Treasury's coffers face a much tighter squeeze than the chancellor had hoped for. This is exactly what was feared by those who warned that cutting the deficit too fast would weaken growth and end up being counter-productive.

Within this bleak context, Osborne's options are limited. Yes, growth has returned. But Andrew Lilico of Europe Economics says that inflation has tended to jump up to five per cent whenever the economy has been growing in the last four years. "When the Bank of England tries to take some action against that it will have no credibility in doing so," he says. "That will lead to high unemployment, because people will call for large real wage rises."

That's not what Osborne wants to hear. But he remains in power for now, and so must do something – anything – to try to keep the ship moving. Deviating from Plan A is simply not going to happen. It's just not an option.

"The politically feasible options are to do absolutely nothing more, or to give up," Lilico says. "He could give up, it would bring down the government and mean his own resignation. It doesn't sound very politically attractive." Not much of a choice, you might say. "I think realistically, he has no room for manoeuvre at all. All he can do is hope to carry on with the stuff he's promised for as long as the politics allows him. It's becoming increasingly unlikely that he will manage to get through to the end of his programme."

Tony Dolphin, chief economist at the Institute for Public Policy Research think-tank, agrees that politically speaking, Osborne will keep going because he doesn't believe he has any other choice. "As an economist, I think he could relax policy, but he clearly doesn't believe that. He thinks the risks of doing so are too great in terms of losing confidence of the markets," he says. So what we're getting today are what Dolphin dismisses as "a number of micro-announcements of small policy changes that don't cost much money".

Now we've arrived at autumn statement day, we know what a lot of these little tinkerings are. An extra £5 billion on infrastructure spending, to give a shot in the arm to the construction industry.  Education secretary Michael Gove gets rewarded with £2 billion of funding for new academies. Then there's £2 billion of UK aid to help the third world shift towards renewable energy, the Telegraph reports.

These don't sound much like "micro-announcements", surely? It's true that Osborne is pulling more out of the hat than seems feasible. But that is only possible because he is entrenching more austerity on other parts of government spending. The overall package is fiscally neutral, meaning every penny of 'new' spending has to be offset by some sort of spending cut or tax rise elsewhere.

Austerity is not only being deepened. It is being extended, too. Osborne will blame the extension of the spending cut drive to 2018 on the travails of the world economy, not his own decisions. And while that might seem spurious to some observers, the general public remain broadly on his side. Labour continues to receive the most blame for the spending cuts, Joe Twyman of pollsters YouGov says. This gap has shrunk since the last general election, but it's still there. "The rate at which the two parties are coming together is slowing," he says. "If I were a Labour party strategist, that would concern me."

This is why the autumn statement really matters: it is one of those rare opportunities for a politician to achieve genuine cut-through to the man on the street. Big setpiece events like this and the Budget make a difference to the way voters see the government in a way that other government changes – a consultation here or a draft bill there – simply don't. It's why the Conservative s have slipped  back in the polls this year; it was the 'omnishambles' Budget with its U-turns on caravans, churches, pasties, skips and charities which made a serious dent in views of the government's overall competence. The autumn statement is a chance for Osborne to restore his credibility, not just in Westminster but in people's living rooms, too.

That opportunity involves being tough on welfare spending, and sticking to the course regardless of the difficulties. It involves making the most of new policy announcements, playing up their importance and playing down the critical situation now facing Britain's economy. These are the messages Osborne will be hoping to transmit today. He won't be talking about looming high inflation squeezing those same households' spending power. Or the energy and gas price rises of six to eight per cent in the offing. Or the threat that unemployment could jump upwards - not yet materialised but still a real danger.

The autumn statement is politics at its rawest: a chancellor compromised by the difficult decisions he has already taken, committed to his path and making the most of it, trying to convince voters they're still doing the right thing. Together, the public handed the Conservatives and Liberal Democrats an overall majority which they are using to press ahead with their austerity drive. We might not like it, but we're all in this together. Osborne's unchanged course affects us all.


Load in comments
Politics @ Lunch

Friday lunchtime. Your Inbox. It's a date.