The chancellor’s Autumn Statement was about mood music and positioning. He took full credit for the better economic news while making some headline grabbing announcements. More interesting was how he really sees the economy and battle lines for the election now only eighteen months away.
The libretto was bullishly upbeat set to the best economic figures since 2010. The economy is “moving again” and “heading in the right direction” in vindication of George Osbourne’s policies.
Growth is stronger than expected and across all sectors. Headline employment is positive and real earnings increasing again. And public borrowing is lower than envisaged, with the chancellor claiming success in reducing the deficit.
But the counter-point was determined restraint. Osbourne believes events are proving him right but well aware recovery is as yet thin and uneven. It has been slow in coming and a lot of ground lost. Despite publicly claiming the opposite, large tax giveaways for companies and well off have so far failed to deliver the hoped for resurgence in investment and new business. Instead expansion is being driven by cheap money, property inflation and debt fuelled consumer spending.
Rebalancing the economy is badly adrift. Exports, which were meant to lead recovery, have flat-lined for five years despite 20-25 per cent currency depreciation and the world economy a fifth larger. Productivity has fallen (while competitors moved further ahead); manufacturing and construction are still 10-15 per cent below pre-recession levels; and, critically, investment is abysmal.
The chancellor stressed the need to “finish the job”; simultaneously turning any shortcomings into a badge of resolve while pitching for the necessity of another term in office. He will “secure the economy” by continuing support business, competitive taxes and enhancing skills.
Employer’s national insurance for unde-21s is to be abolished. Next year’s business rate increase will be capped, with rebates for small companies and shops. There is extra money for science and investment in infrastructure. And 20,000 more apprenticeships; a bit more student loan funding; and remedial education for the young unemployed (under threat of benefit withdrawal). A drive against tax avoidance will pay for all this.
There was also talk of trade but problems in Europe, with a large increase in export finance. Between the lines, Sterling is to be allowed to depreciate further in the hope of driving exports.
En route the chancellor firmly claimed economic recovery and competence for the Conservatives ahead of the election. Here success is the direct result of their “nerve” and “hard choices” in the face of adversity. Labour back in charge would simply “squander” the hard-won gains. This is to be the commanding high ground.
But Osbourne is rattled by Labour’s success hammering at the cost of living. While voters trust the Conservatives more with the economy, this might not be unassailable. It merges with concerns over being seen as the ‘nasty party’ and only serving privileged interests.
He therefore stressed being on the side of “hard working people“, while maintaining the squeeze on social spending. Next year’s fuel duty increase is scrapped and energy bills cut by reducing the green levies. There are to be free early-years primary school meals. And, as the big rabbit-out-of-the-hat, a transferable married tax allowance. Meantime, the pension age will go up, initially to 68, and spending will be cut by £3bn.
Yet, while the economy is to be the trump card, the chancellor is also hemmed in. Any fiscal headroom is to first go to reducing the deficit rather than tax cuts. Caught between appeasing the right and staying firmly on the centre, there is also little to offer in the future but more of the same. Meanwhile he runs the risk underlying substantive economic weaknesses start to show through and/or voters simply don’t see it his way.
But Osborne is adept. He laid several traps for the future, including legislation to lock-in both deficit reduction and capping welfare expenditure. His instincts are also likely to be telling him he needs some bolder, more emblematic touches nearer the election itself. While entirely speculative, radically reforming national insurance is one possibility. Whatever, it’s clear he’s not about to concede the initiative.
In response, shadow chancellor Ed Balls said there was “complete denial … of three years of economic failure” and then battered relentlessly at the “cost of living crisis”. But there was little else; no alternative economic narrative to challenge the chancellor’s; and nothing to signal how Labour would do better.
The danger is Labour’s cost of living attacks lose traction as the economy improves. Meanwhile the Conservatives are given increasing credit for economic success while Labour is left with little to counter the lack of confidence and trust in its economic competence. This is certainly where the Conservatives are already concentrating their fire.
Without its own clear economic story, Labour remains on the back foot. It might well win the election nonetheless, but can it gather the impetus to meaningfully address the economy’s all too real problems?