Life does not get much better than this for the opposition. After years of
seeing his predecessors baited and beaten by Gordon Brown, George Osborne is
in the position of doing the goading. The job of shadow chancellor, long a
poisoned chalice, has become a sparkling glass of champagne.
Brown knows what this is like. He took over as shadow chancellor after
Labour’s demoralising election defeat in April 1992. Many in the party
thought if they could not win in those circumstances of painful recession
they could never win at all.
But Brown saw the Tories’ economic reputation shattered by Britain’s forced
exit from the European exchange-rate mechanism (ERM) on “Black Wednesday”,
by tax rises and by a squeeze on public spending.
The more economic misery has piled up in the past 12 months, the more the
Tories have made hay. On the key opinion-poll question of “economic
competence” — which party is trusted to raise living standards? — Brown and
Alistair Darling enjoyed a seven-point lead over Osborne and David Cameron a
year ago, according to YouGov, The Sunday Times’s pollsters.
Labour’s Black Wednesday moment came with the prime minister’s shenanigans
last autumn over whether to call an early election. That forced Darling into
a shamelessly political and hastily assembled pre-budget report, including
copycat announcements on inheritance tax and non-doms, which voters saw
through.
Osborne and Cameron moved into the lead on economic competence, a lead that
has grown in recent months and at present is a two-to-one advantage. It
recalls the kind of lead the Conservatives enjoyed over Labour on this
question in the 1980s.
The chapter of accidents has got longer, whether the botched nationalisation
of Northern Rock, the damage of the abolition of the 10p income-tax band and
changes to capital-gains tax, or the further damage of retrospective
road-tax rises.
Osborne and his team acknowledge that they are beneficiaries of an economy
slowing towards at best stagnation, a chronically weak housing market and a
sharp squeeze on household finances. But they think the shift goes a lot
further than that.
At the beginning of the year Brown and Darling stood shoulder to shoulder at
Downing Street press conferences, the aim being to demonstrate that compared
with their lightweight opponents, these were the men you could trust to
steer the economy towards better times. As a strategy it has flopped, so far
at least.
So has the idea that you should grab hold of nurse for fear of something
worse. Voters may not yet know enough about how well or badly a Tory
government would run the economy, but they show no sign of returning to
Labour’s clutches.
So Labour is trying a new tack. Last week Yvette Cooper, the Treasury chief
secretary, launched an attack on what she called “Cameronomics”, which she
claimed was full of “risks and contradictions”, including £11 billion of
unfunded tax promises. I hope she ditches the expression Cameronomics and
has some better arguments. For her to accuse the opposition of unfunded
promises after a £2.7 billion unfunded tax “giveaway” to buy off backbench
opposition to the 10p cock-up is just silly.
The next few months will be crucial. Eric Pickles, the Conservatives’ local-government
spokesman, said last week Labour could not win the next election (though he
added that the Tories could still lose it), but the position is more fluid
than when Brown was confidently preparing himself for office more than a
decade ago.
The scenario sketched out by Bank of England governor Mervyn King this month,
in which a difficult economic adjustment would play out for the next 12
months, followed by a return to a “not so bad” economy, could just play into
Labour’s hands in time for a May 2010 election — though it would be too
close for comfort.
There is no truth in the suggestion that the Tories are getting cold feet
about winning because of the state of the economy. The ideal time for an
opposition to take over is when the government is seen by voters to have
messed up the economy.
Labour’s position is not irrecoverable but it requires just about everything
to go right. Weak energy and commodity prices will be needed to ease the
pressure on household finances. The rise in unemployment will need to be
modest.
The government’s decisions in the wake of the twin shocks to the economy,
including this autumn’s proposed Brown-Darling economic rescue package aimed
at housing and downtrodden families, will need to look better than seems
likely now. An option floated here, that councils should become mortgage
providers again to fill the gap left by funding-constrained lenders, was
pushed by local-authority leaders in a letter to The Times last week.
The government, though, also needs to show it is in control of its finances.
Official figures showed public-sector net borrowing of £19.1 billion in the
first four months of this fiscal year, up from £8.4 billion in the
corresponding period of last year.
Economist John Hawksworth thinks the Treasury is on track for £50 billion of
borrowing this year, even without any additional measures. In cash terms,
the record £51 billion of 1993-94 is in sight.
Last week, Osborne opened up a new front, criticising Labour for burdening
future generations with the consequences of its economic mistakes. The
government was “willing to mortgage the country for its own short-term
survival”, he said. The Tories will attack any autumn giveaway on this
basis. They, to recall one of Margaret Thatcher’s famous lines, are enjoying
this. The question for them is when to lift the veil on the detail of their
economic plans, without giving too many hostages to fortune or ideas for the
government to pinch.
In the recent past, the Tories have suffered from providing too much detail,
as did Labour in 1992. And so far the plans that Osborne has put up for the
government to steal, notably his proposed tax clampdown on non-doms, turned
out to be elephant traps for the Treasury.
The economic battle between the parties is about to enter its most intense
phase. Labour have to put the errors and confusion of the past 12 months
behind them. The Tories’ aim has to be to not let them.
PS: All good things come to an end and, according to the Office for National
Statistics, Britain’s record expansion finished in the second quarter,
growth being revised down from 0.2% to zero. So the record was 63
consecutive quarters of growth, not 64, and the economy will require
Houdini-like properties to avoid a quarter or two of declining GDP, with
most economists picking the current three-month period as being the one
likely to show the first negative number.
Everything was weak in the second quarter. On the output side, manufacturing
and construction fell, while services grew only modestly. As for
expenditure, household spending slipped marginally but investment was
sharply lower.
I would make more of the end of the great expansion were it not for the fact
that we are due a big so-called Blue Book revision of the national accounts
figures on September 30. That may give us a different picture of the
economy’s recent performance, though it will not change the fact that we are
in a sharp slowdown.
david.smith@sunday-times.co.uk
