Director, Centreground Political Communications
The Chancellor of the Exchequer, George Osborne MP, delivered yesterday’s much-leaked Autumn Statement against the backdrop of a eurozone crisis and deteriorating economic figures in the UK. Media commentators will often claim that a particular week in politics is “defining”. Although the terms of the next election will not be wholly determined by the events of this week, the positions taken by the Government and Opposition in relation to both the economy and today’s strikes over public sector pensions will go some way towards framing the political argument not just for the next few months, but beyond.
It wasn’t meant to be this way. Always the political strategist, George Osborne wanted the key political and economic event of the Parliament to be the 2010 Budget, setting a course for deficit reduction that would, as we approached the next election, see private sector investment rise, unemployment fall and growth increase. His deficit reduction plans were designed to bring the political and economic cycles into alignment. This, the Chancellor must have hoped, would enable him to deliver a voter-friendly pre-election budget. In this rosy scenario, the Conservatives would be able to go to the country with the deficit tackled and a forward offer for a second term.
Yet as the public finances have deteriorated and growth has stalled, we have seen something of a change in the government’s tone . Although the Chancellor continues to trumpet the language of deficit reduction, “we will do whatever it takes to protect Britain from this debt storm” and argues that Labour’s policies would have resulted in the UK being embroiled in a sovereign debt crisis, this is tempered with an acknowledgement of the importance of investment in infrastructure and a series of micro-measures designed to promote growth. In so-doing, the Government hopes to be seen to take a more balanced approach, avoiding accusations that faced with the economic hardship of many, the Conservatives remain the “nasty party”.
The downgraded growth figures and spiralling borrowing figures of the autumn statement certainly provides Labour with much political ammunition. The Shadow Chancellor, Ed Balls MP, argued that the Government’s plan had failed and that it should change course or risk economic stagnation. The decision taken to rapidly cut public spending had made the economic situation worse. Although this is potentially fertile territory, Labour must be careful. Elections are won from the centre ground and Labour must avoid falling into the trap set by its opponents by ensuring that it continues to give equal importance to reducing the deficit and reforming public services, an instinct not all in the party share.
Today’s statement will only deepen tensions between the Government and public sector workers. A dispute over pensions looks likely to be extended to pay and jobs with the news that a two year pay freeze will be followed by a two year cap of 1% on wages and a forecast from the Office for Budget Responsibility (OBR) that a further 300,000 public sector jobs
will be lost. The struggle for public opinion on this issue, as passions increase and positions on both sides become entrenched, could expose tensions within the coalition and contains traps for both government and opposition.
Developments in the eurozone in recent weeks have demonstrated the folly of making economic or political predictions in this volatile situation. What we do know is that the British public will face a squeeze on living standards for the foreseeable future. Even if the forecasts are correct (and those made by the OBR for the years following 2013 look distinctly optimistic) the next election will be fought in what will still be difficult economic circumstances. Labour will argue that the Government has made the situation worse by cutting too far, too fast and failing to develop a growth strategy until it was too late. They will say that the Government has failed in its key objective of eliminating the deficit. The Conservatives and Liberal Democrats will continue to pin the blame for the economic situation on the last Labour government, arguing that it was left to them to clean up the mess.
But although past records inform the debate in any election, it the future that determines their outcome. Today changed the terms of the next election campaign. The Chancellor has indicated that public spending cuts and tax rises will need to continue into the next Parliament. The situation will provide Labour with the classic challenge that opposition parties are often faced with. Will Labour, as they did in 1997, stick to the government’s plans or will they chart a different course? And more fundamentally, will the parties go to the country offering a return to the growth and spending of the pre-financial crisis years once the deficit has been tackled or will they argue that what we have seen is a permanent change in the UK economy that will require a fundamental re-assessment of how and what government does? What will be the forward offer to future generations?
The terms of the debate have been set for now, but a worsening situation in the eurozone would have dramatic consequences for the UK. In such a situation all bets would be off.
- Autumn statement: George Osborne warns unions of further pay restraints (guardian.co.uk)
- The autumn statement: cuts as far as the eye can see | Editorial (guardian.co.uk)