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So what happened to the long-term plan, George?

November 28th, 2015

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Labour’s current travails have hidden the Chancellor’s own problems

George Osborne is fond of saying that he’s fixing the roof while the sun is shining. Well, this week he decided to knock off early and catch some rays. After all, what’s the rush? It’s not going to rain overnight. Mañana.

Nor will it rain economically tomorrow, next week, next month and in all probability, next year. The economy is growing healthily, employment and wages are rising, inflation remains subdued, consumer borrowing is modest by historic standards and while there’s a house price boom in London, that’s largely down to local factors. There doesn’t seem much risk of either imminent overheating or a credit crunch.

Which is probably why when the OBR found £23bn down the back of George Osborne’s sofa, the Chancellor decided to spend pretty much all of it rather reduce the deficit faster. That spending – on tax credits amongst other things – has bought off plenty of political opposition, though at the cost of conceding the point.

All this is now easily forgotten. To be fair, it did happen nearly half a week ago and much has taken place since then. Above all, Labour has once again indulged in directing their fire at their own feet; something they’ve done so frequently since May that their lower extremities probably resemble Swiss cheese.

However, neither Osborne nor the wider government can assume that Labour will continue to be so self-absorbed and fractious for the whole of the parliament – or that if they are, some other party won’t find themselves capable of providing a decent opposition. Had one such existed now, Osborne would be under a fair bit of pressure and not only because of his U-turn.

Recessions do not run to timetables. We cannot predict the next one simply on the basis of when the last was; events play too large a role. Some of these events we can predict with a degree of accuracy: it’s possible to model for labour market tightness, private sector borrowing, house prices and so on. Other events, particularly those from overseas, can come out of the blue. Which is a problem for forecasters and tends to result in forecasts being projections rather than predictions (not least because even if you know that a bubble is going to burst, it’s almost impossible to work out when: in October 2007, just after Northern Rock had gone bust, the government was still predicting steady annual growth of around 2.5% and borrowing of about £40bn a year for the next three years).

And against that uncertainty, Osborne has kicked the can a little further down the road at a time when Britain’s deficit is still worse than it was before the last recession, public debt is vastly worse and interest rates remain at ‘emergency’ lows. In the big scheme of things the £23bn doesn’t matter much: over the parliament, it’s less than a penny per pound of expenditure. What’s more significant is the signal it gives as well as reducing future options.

Labour’s vacation of the centre ground (and indeed, the centre-left), combined with the Lib Dems’ near-annihilation has provided Osborne with an historic political opportunity to enable the Tories to dominate for years, as New Labour did and in like manner. The danger, as with Blair and Brown, is that the dominance in the centre comes at the cost of office-holding for its own sake which not only has a tendency to develop unhealthy relationships with client voting groups but also leaves a party lacking in ideological direction. Playing against sub-par opposition also allows laziness to creep into your own game.

The Conservatives have few excuses now: they’ll have run the economy for ten years by the next election, for five years by themselves. With Labour wracked by division, dissent and all-round incompetence, now should be the moment for Osborne to take the tough but necessary action to bear down further on the deficit. It won’t last forever.

David Herdson