2015 election campaign starts here with Autumn Statement
With growth forecasts revised up and room for tax cuts in 2015, George Osborne starts electioneering
GEORGE OSBORNE announced higher growth than expected, lower borrowing forecasts, and even carved out room for pre-election tax cuts in an Autumn Statement nakedly aimed at giving the Conservatives a better chance of winning the 2015 general election.
The Chancellor set out the Conservative election strategy with the slogan ‘We are heading in the right direction – Britain is moving again – let’s keep it going’. The key message to the voters was ‘Don’t let Labour spoil it’.
Labour hit back by producing the ‘bombshell’ that average families are £1,600 worse off because of the rising cost of living since the 2010 election. Shadow Chancellor Ed Balls said: "For all his boasts and breath-taking complacency, the Chancellor is in complete denial."
Balls claimed that the revised forecasts from the Office of Budget Responsibility, which formed the backbone of the Chancellor's statement today, showed Britain will still be borrowing £79bn at the 2015 election – less than feared at last year’s Autumn Statement, but proof that Osborne has failed meet his original target of eliminating borrowing by 2015.
But Balls's red-faced and blustering performance – which appeared to dismay some of his own side - could not disguise the fact that, if the OBR has got its sums right, the overall picture is incomparably better than forecast a year ago, with the best growth figures for 14 years and the promise of Britain actually moving into a budget surplus in 2018/19.
It explained why the Treasury had leaked so much of the Autumn Statement in advance – Osborne wanted commentators to concentrate today on the positive news from the OBR.
“The economic plan is working but the job is not done," he told the Commons. "We need to secure the economy for the long term. The biggest risk to that comes from those who would abandon the plan.”
The Tories will be watching the opinion polls closely to see whether the voters are more convinced by Osborne than Balls.
Given the bullish OBR figures - it predicts, for instance, that 400,000 new jobs will have been created this year and it upgraded its UK growth forecast for this year from 0.6 per cent to 1.4 per cent, making growth faster in the UK than in France, Germany and the US - some Tories may be rueing the fact that they cannot go for a snap election next year because of David Cameron’s decision to introduce a fixed five–year term.
Osborne’s strategy, however, is based on boosting small businesses, especially high street retailers, and convincing the voters that they will be better off in the long term if they stick with the Tories in 2015. Nick Robinson, the BBC's political editor, noted that the Chancellor's 50-minute statement included six “long term” references, ten “difficult decisions”, and three “responsible recoveries".
There could also be a pre-election sweetener hidden in today’s figures. Robert Peston, the BBC's economics editor, said Osborne had left himself room for tax cuts in election year. "These forecasts will allow that," said Peston. "It will be astonishing if he doesn’t do that."
Osborne is also following an ideological target that was never achieved even under Margaret Thatcher: he is planning to reduce government consumption – the cost of its services as a share of national income – to its lowest level since 1948. A full 80 per cent of the reduction in planned borrowing over the next five years is accounted for by lower public spending.
As well as revising its growth forecast for this year upwards to 1.4 per cent, the OBR predicts 2.2 per cent growth in 2014, a slight drop to 2.2 in 2015, then 2.6 in 2016, and 2.7 in both of the following years.
This should promote a feel-good factor in time for the next election.
However, Osborne did little to counter Labour's argument that most working families cannot actually feel the benefits of economic recovery – though he stopped the fuel duty escalator for another year, avoiding a 2p per litre rise at the pumps - and he continually stressed that "difficult decisions" still had to be taken.
Chief among these are the raising of the state retirement age to 68 in the 2030s and then 69 in the following decade, curbs on benefits for young people not in work or training and an annual cap on the total welfare bill starting next year – though state pensions will be excluded.
On the welfare cap, Labour’s opposition is likely to be muted – Labour leader Ed Miliband has found it difficult to oppose the cuts in welfare because most voters of all parties support curbs on "benefit scroungers".
The OBR, however, highlighted concerns among economists that Osborne is building the recovery on a consumer boom, leading most households to increase their already record debt levels, rather than by raising industrial production.
This means that if interest rates go up and households are froced to retrench, the recovery could be wrecked – and with it the Tories’ election hopes. ·