A large slice of humble pie for Osborne - but was it really a game changer?

An extra £111bn of borrowing over the next five years. A fresh squeeze on public spending. No prospect of any tax cuts before the next general election.

It is easy to see why many commentators have described Tuesday’s Autumn Statement by Chancellor George Osborne as a ‘game changer’ in British politics.

Here we have a government that was elected in order to sort out the nation’s finances and eliminate the budget deficit by 2015 admitting that it will fail in that central objective.

Far from the being able to fight the next election on the sunlit uplands of fresh economic growth following the hard years of austerity, it will now have to do so against a continuing backdrop of cuts.

As the BBC’s James Landale put it on Tuesday evening: “Just as the facts have changed, so must the politics.”

“Until this morning, the assumption had been that the election would be about which party was best placed to use the proceeds of an incipient recovery – what taxes would they cut and what spending would they increase. That debate is now for the birds.”

And yet, and yet…I wonder if the Chancellor’s statement really has altered the terms of the underlying political debate about the country’s economic prospects all that much.

Despite all the economic doom and gloom, and the large slice of humble pie that the Chancellor has been forced to swallow this week, nothing has yet happened to demonstrate beyond doubt either that the government’s prescription is mistaken, or that a better alternative exists.

On the face of it, Labour’s narrative ought to be a compelling one. It is that an incipient recovery that was already under way by the time of the last election was then choked-off by a combination of spending cutbacks and “austerity rhetoric.”

But the public remains to be convinced that Labour’s more limited ambition to halve rather than eliminate the deficit in four years would not have landed us with a different set of problems.

There is also, still, a powerful residual feeling that Labour is really to blame for the country’s economic plight, even though history will surely show that Gordon Brown’s actions at the height of the banking crisis in 2008 saved us from a far worse fate.

This is a large part of the reason why, for all Mr Osborne’s difficulties, the opinion polls continue to show that Ed Miliband and Ed Balls are still less trusted on the economy than their Conservative counterparts.

A real political game changer is the kind of event which transforms the fortunes of the key players involved almost overnight.

Sadly for Mr Brown, his decision not to hold an election in the autumn of 2007 was one such example. After that self—inflicted humiliation, the public never saw him in the same light again and nothing he did was able to reverse that negative perception.

For the Tories, the ejection of the UK from the Exchange Rate Mechanism in 1992 is the one that sticks in the mind, destroying in one fell swoop the party’s hitherto prized reputation for economic competence.

I’m no apologist for George Osborne, but I don’t think being forced to downgrade the growth forecast for 2012 from 2.5pc to 0.7pc or even up the public sector borrowing requirement by £111bn quite falls into the same category.

For all the talk of game changers and transformed political landscapes, I actually find myself wondering whether this week’s events might not help the Conservatives in the longer-run.

If history is any guide, it suggests the answer might be yes. While voters appear to have a habit of ditching Labour governments at times of economic difficulty (1979, 2010) they seem more inclined to stick with Conservative ones (1983, 1992).

The Tories will of course hope that some of the pro-growth measures announced this week – for instance bringing forward £5bn of spending on infrastructure improvements – will have made at least some impact by the time we come to go to the polls again, even if few in this part of the world will have been fooled by the reannouncement of some old money for the Tyne and Wear Metro.

But if not, they could find that their most potent message come 2015 could well be that familiar old refrain: “Keep hold of nurse for fear of something worse.”

Osborne's date with political destiny

‘Make or break’ is doubtless an overused term in politics. Many are the times when it is said that a politician needs to make the “speech of his life” on such and such a day, only for the same old cliché to be trotted out again the next time he makes one.

Yet for Chancellor George Osborne, this Tuesday’s autumn statement on the economy is genuinely shaping up to be one of those dates with political destiny.

For years, Mr Osborne has been the man with the plan as far as the Tory Party is concerned, and his plan on taking over at No 11 Downing Street in May last year was straightforward and simple.

It was: sort out the deficit in the first couple of years, wait for economic growth to start kicking in again, sprinkle some carefully-targeted tax cuts around, and then win the next election hands down.

But it’s all gone horribly wrong. Far from providing a platform for new growth, 18 months of austerity measures have pitchforked the economy back towards the ultimate horror of a double-dip recession.

As such Mr Osborne’s masterplan for economic recovery – and outright Tory victory in 2015 – now looks hopelessly optimistic.

And of course, it is not just the fate of the economy and the government that is at stake here, but Mr Osborne’s own chances of succeeding David Cameron as Tory leader.

If recovery comes and the Tories win an overall majority next time, there will be nothing to stand between him and No 10. But if they lose – or are forced into another five years of coalition - it will be Mr Osborne who gets the blame.

All of which make Tuesday’s statement if not quite the “speech of his life” then certainly the most important he has made since that Tory conference address of 2007 which frightened Gordon Brown off from holding an election.

To succeed, he must somehow manage to reconcile two seemingly contradictory goals.

Firstly – and this almost goes without saying - he must manage to reassure the markets that the government remains serious about tackling the deficit.

But equally, he now needs to reassure an increasingly sceptical public that the government has a plan for growth – if not a ‘Plan B’ as Labour still insists on calling it, then at least a Plan A-Plus.

It is already clear from several strategically-placed leaks that switching more spending into capital investment in infrastructure is going to be central to Mr Osborne’s plans.

It all seems a far cry from the days when Margaret Thatcher commented sniffily: “You and I come by road or rail, economists travel on infrastructure” – but no matter.

Chief Secretary to the Treasury Danny Alexander gave an insight into the government’s thinking in a speech to the National Association of Housebuilders on Wednesday.

"We are shaking the Whitehall tree to make sure no-one is stockpiling capital that can be put to good use today. That's why next week's announcement will switch funds to capital spending plans,” he said.

This is all of a piece with Mr Cameron’s speech on Monday setting out measures to boost the housing market, both by encouraging the construction of more homes and by helping first-time buyers obtain mortgages.

And yesterday Deputy Prime Minister Nick Clegg got in on the act by pre-announcing a £1bn scheme to help the young unemployed, apparently to be paid for by further savings in other areas.

The risk for the government is that it will all be too little, too late to counteract the chilling effects of 18 months of what Labour leader Ed Miliband this week called “austerity rhetoric.”

But if he can use Tuesday’s statement to get the economy moving again at last, then it may yet all come right – for the coalition, for Mr Osborne, and most importantly for the long-suffering British public.

Lost North jobs still seen as a 'price worth paying'

Youth unemployment topping 1m. An additional 129,000 people out of work in the past month. The overall number of jobless at its highest level since 1994. This week’s unemployment figures told their own story.

If people were not already sufficiently well-appraised of the dire state of the British economy, Wednesday’s figures, coupled with more downbeat forecasts from the governor of the Bank of England, will surely have removed any lingering doubts.

Yet in the North-East, as is customarily the case when the economy as a whole is struggling, the picture is even bleaker still.

As The Journal reported on its front page the Monday before last, this region has seen a staggering 32,000 public sector jobs lost in the past year, while, public spending cuts notwithstanding, the number in London and the South East has actually risen by the same amount.

It is now more than a decade since the launch of The Journal’s original Case for the North campaign aimed at closing the economic divide with the South.

At the time, it was estimated that if economic growth continued at the same rate, it would take around 30 years to bridge the gap – a state of affairs which many of the region’s MPs and other political leaders regarded as intolerable.

I have to confess I don’t know whether any subsequent analysis has been carried out as to how long it would now take, but I don’t find it easy to hazard a guess as to how many more decades might have been added to that figure.

Back then, I wrote that the North-East cannot be expected to tolerate as a matter of course systemic imbalances in economic growth between regions, but in fact that has since become the unspoken policy of the British Government under both Labour and Tory administrations.

All of which makes the continuing debate over the direction of the economy perhaps more pertinent in this region than in any other.

For months, this debate has been stuck in a kind of stasis in which Labour endlessly and increasingly fatuously calls on the Government to adopt a ‘Plan B’ while the Government equally stubbornly insists it must stick to its course.

But this is now becoming more than just an arid intellectual battle between rival economic theories. People’s jobs, businesses and livelihoods are at stake.

The plaintive tone of Labour leader Ed Miliband’s speech to the Social Market Foundation on Thursday certainly conveyed the sense that a crisis point has been reached.

"Austerity at home, collective austerity abroad is no solution to the problems of jobs, growth or the deficit,” he said.

“Don't believe those who will tell you that any change in course will make us like Greece. The markets are as worried about the lack of growth in the economy as they are about debt levels.

"Knowing what we know now, about our economy, about growth prospects, about unemployment, about higher than expected borrowing, it would be the height of irresponsibility for the government to carry on regardless.

"I urge David Cameron: change course now, change course for the sake of our young people, change course for the sake of the country."

As it is, Mr Miliband is pushing at a partially open door in seeking a shift in the Government’s emphasis from deficit reduction to growth.

Chancellor George Osborne is understood to be working on a package of pro-growth measures to be unveiled in the autumn statement later this month.

They are likely to include a new job-creation initiative for the young unemployed, incentives for private companies to invest in big infrastructure projects, and a scheme to under-write mortgages for first-time buyers.

There may also be a rebate for high-energy using industries to alleviate the impact of green taxes, blamed by RTZ Alcan for Thursday’s decision to close its plant in Northumberland.

Some of that will doubtless help the North-East, as will Thursday’s announcement that Virgin Money, newly-enlarged with the acquisition of Northern Rock, will have its headquarters in Newcastle.

But it scarcely amounts to a regional economic policy, still less a strategy for tackling the enduring North-South divide.

Thirteen years ago, lost North-East jobs were seen by the then governor of the Bank of England as an “acceptable” price to pay for preventing the South-East economy from overheating.

Now it seems they are once again being viewed as a price worth paying.

Theresa May faces long-drawn-out demise

To kick off this week’s column, here are a couple of questions for political anoraks with long memories or people who were paying attention in school history lessons.

Number One: Who was the last British politician to move directly from the office of Secretary of State for the Home Department to that of First Lord of Treasury and Prime Minister?

Number Two: What do Reginald Maudling, Kenneth Baker, Charles Clarke and Jacqui Smith all have in common?

The answer to the first question is Viscount Palmerston in 1855. The answer to the second is that all four found that the job of Home Secretary proved to be their political graveyard, the exit route out of government from once-promising careers.

Before they came to grief, at least three of the above named had previously been mentioned as potential leaders of their parties - as indeed was the current incumbent, Theresa May, when David Cameron got into difficulties over his relationship with Rupert Murdoch’s media empire earlier this summer.

But such is the extent to which the Home Office is subject to sudden
political storms which seemingly blow up out of nowhere that it is scarcely surprising that Lord Palmerston’s 156-year-old record remains intact.

Ms Smith put it well in an article this week which simultaneously expressed sisterly sympathy for Mrs May while also gently managing to twist the knife.

"What is it about the Home Office that means we’re unsurprised to see the headlines explode in a frenzy of finger pointing, accusations, leaks and denials? More than any other British political institution, it has been the mirror that reflects back to people the things they worry about most – crime and punishment, equality and injustice, homegrown terrorists, noisy neighbours."

On the face of it, the similarities between the difficulties now facing Mrs May and those that brought down Mr Clarke in 2006 are striking.

Mr Clarke had to go after the Home Office took its eye off the ball over border checks and ended up letting a small number of individuals into the country who had been convicted of crimes overseas.

Granted, we don’t yet know whether any foreign criminals have been allowed into the UK as a result of the latest relaxation of border controls that occurred on Mrs May’s watch this summer.

But since we have no idea at all who actually was allowed in, this is surely just a matter of time and chance.

The key point at issue appears to be what degree of personal responsibility Mrs May exercised over the decision to relax border checks and whether operational staff went beyond what she actually asked for.

Brodie Clarke has quit as head of the UK Border Force after being accused by the Home Secretary of doing precisely that, although he vigorously denies acting improperly.

The argument has distinct echoes of another past Home Office debacle – the sacking of Derek Lewis as head of the prison service by Michael Howard in the mid-1990s.

On that occasion Mr Howard said Mr Lewis had had full operational responsibility for deciding whether to suspend the governor of Parkhurst Prison. Mr Lewis claimed that Mr Howard had overruled him.

So where does this current story go from here? Well, unlike many Home Office firestorms, this one could prove to be a slow burner.

Mr Clark will put his side of the story in an appearance before the Home Affairs Select Committee next week that is certain to make uncomfortable listening for Mrs May.

Even more ominously for the Home Secretary, he is threatening to lodge a claim for constructive dismissal - a case which Mrs May’s Labour predecessor Alan Johnson believes he stands a good chance of winning.

My own view for what it’s worth is that Mrs May has committed two cardinal political errors which may well ultimately cost her her job.

She has attempted to blame officials rather than accept that as a minister, the buck stops with her, and has thereby admitted that she is not actually in control of her department.

As Ms Smith put it: "In British politics, it has never proven a robust defence to admit that you don’t know the numbers on immigration, or to give any impression other than that you’re in control and becoming more controlling."

The story probably still has a fair way to run, but I suspect this may ultimately prove to be the decisive word on the matter.

Cameron could lose big as Balls makes mischief

The week before last, 81 Conservative MPs ignored the blandishments of the party whips, and the pleas of Prime Minister David Cameron, to demand a referendum on EU membership.

It was the biggest rebellion of Mr Cameron's six years as party leader, but with Labour also supporting the government, it was far from being the tightest parliamentary vote since the Coalition took power.

For that, you would have to go back to July, and the vote on whether the government should contribute an additional £9bn to the International Monetary Fund to help prop up other countries’ ailing, debt-ridden economies.

On that occasion, the Coalition's majority was reduced to just 28 votes, with 32 Tories joining Labour in the lobbies to oppose the bailout plan.

At the time, Chancellor George Osborne hoped that would be the end of it, and that the international debt crisis would be making no further claims on the generosity of British taxpayers.

But in the wake of the Eurozone crisis, and specifically the Greek bailout, it seems that yet more billions will be required after all.

Mr Cameron was at great pains to stress yesterday that increasing Britain’s contributions to the IMF does not mean UK taxpayers are propping up the Euro.

“Britain will not invest in the IMF so the IMF can invest in a Eurozone bailout fund. That is not going to happen,” he said.

But nevertheless, there is a certain amount of hair-splitting, if not to say outright disingenuousness, going on here.

The role of the IMF is after all to help countries in economic distress all round the world – and there seems no reason why that could not include countries in the Eurozone.

Shadow Chancellor Ed Balls has called on the government to make clear that “directly or indirectly this money will not end up supplanting the European Central Bank and putting liquidity support in for Spain and Italy. “

As the mischievous Mr Balls knows perfectly well, there are plenty of Tory backbenchers who privately suspect this is exactly what is going to happen to the additional IMF cash.

So why is this such a potentially difficult issue for Mr Cameron? Well, do the maths.

If there was a rebellion on the latest IMF handout, only this time on the scale of the EU referendum revolt, the government would not only lose – but lose big.

It is clear that Downing Street has already wised-up to this danger and is trying to argue that a second Commons vote would be unnecessary.

Asked about it yesterday, Mr Cameron said the July vote had "allowed for some extra headroom and what we would anticipate doing would be within that headroom.”

And there is, of course, another reason why the government is keen to avoid such a vote – namely that it would further highlight the divisions in the Coalition between his party and the Liberal Democrats.

The Coalition’s inherent instability derives from the fact that it is a marriage of convenience between two parties with wildly differing worldviews, and on no single issue is this more clearly exemplified than on that of Europe.

The Lib Dems, at some cost in terms of their own popularity, have consistently advocated the concepts of European integration and “ever closer union” for most of the past 30 years.

By contrast, the Tories have been drifting steadily in the opposite direction – to the point where Mr Cameron – our most Eurosceptic premier since we joined the EU – is seen by some on the right of his party as a creature of Brussels.

Going into this year, it seemed likely that electoral reform would be the rock on which this fragile Coalition ultimately foundered, but already that seems a very distant memory.

While the debacle that was the AV referendum in May has effectively buried that issue for a decade, the issue of Europe has risen phoenix-like from the flames.

Mr Cameron spent a good part of his leadership in the early years telling his MPs to stop ‘banging on’ about Europe, doubtless conscious of the fact that the issue had destroyed the last two Conservative governments.

Now that it is back on the agenda, I suspect they won’t stop banging on about it until it has broken this one too.

Victory strengthens Cameron's hand against rebellious party

Of all the many factors that determine political success and failure, there can be no doubt that luck features pretty high on the list.

David Cameron has always been a lucky politician. He had the good luck to be elected to the Tory leadership at just the point when people were starting to tire of New Labour, and the good luck to be battling for power against Gordon Brown rather than Tony Blair.

This week his luck held out again, just at the point when it looked as though it might be finally running out.

Amid continuing fallout from Liam Fox's resignation and a looming Tory backbench rebellion over Europe - remember those? - news came through of the death of Colonel Gadaffi - another enemy in whom Mr Cameron has been fortunate.

When Britain first entered the Libyan conflict on the side of the anti-Gadaffi rebels earlier this year, I have to confess that my first reaction was: "Oh, no, here we go again."

At best, I feared another misguided crusade to foist Western-style political values on an Islamic country with no tradition of democracy, and at worst, a lengthy civil war costing hundreds of British lives.

As it turned out, though, my fears proved groundless. Mr Cameron promised that Britain's role would be limited to aerial bombing rather than boots on the ground - and he was as good as his word.

He also repeatedly stressed the importance of Britain's national interest in the removal of Gadaffi, rather than making the case for Britain's involvement on moral interventionist grounds as Mr Blair might have done.

The involvement of the former Libyan regime in the shooting of WPC Yvonne Fletcher in 1984 and the Lockerbie bombing in 1988 was of course well-documented, even if only one person has ever been convicted of either crime.

What was less well-known until the start of this conflict, was Gadaffi's involvement in arming the IRA and thereby prolonging the bitter conflict that blighted these shores from the late 1960s to the mid-1990s.

In this respect, Mr Cameron was merely following in a much older tradition of British foreign policy - the one first established by Lord Palmerston in the middle of the 19th century.

"We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow." he said in 1848.

The danger for Mr Cameron, as the BBC's Nick Robinson has pointed out, is that having succeeded in Libya he develops something of a taste for military conflict.

In this context it is worth remembering that Mr Blair's first war was the successful intervention in Kosovo, not the later much more problematic entanglements in Afghanistan and Iraq.

Some credit, too, should go to Dr Fox who, whatever his other shortcomings, left the Ministry of Defence with a reputation more formidable by far than any of his short-lived Labour predecessors.

Having faced down Chancellor George Osborne over the spending review last autumn, securing proper ongoing funding for our armed forces may well prove his most important legacy.

Victory over Gadaffi does not, by any stretch of the imagination, remove Mr Cameron's wider problems within his own party.

His enemies on the right are not in the least pleased by the substitution in the Cabinet of the right-wing traditionalist Dr Fox for the socially-liberal Justine Greening, who came in as transport secretary in last Friday’s enforced reshuffle.

They are said to be even more incensed by the elevation of a Cameron 'favourite,' Chloe Smith, to a middle-ranking Treasury job, ahead of what they see as more talented, but also more right-wing, rivals.

And above all, they are up in arms over the imposition of a three-line whip against plans to hold a referendum on EU membership in 2013, due to be debated in the Commons next week.

With mounting concern over the implications of the Eurozone bailout, this last issue has the potential to be as toxic for Mr Cameron as it was in the 1990s for his predecessor-but-three, John Major.

Unless the three-line whip is modified, there may well be resignations in the government’s junior ranks.

But in his calm and authoritative handling of the Libyan conflict, Mr Cameron has once again demonstrated why he is vastly more popular than his party.

And so long as that remains the case, they won’t dare push him too far.