The chancellor’s Autumn Statement demonstrated his economic credibility has fallen even lower. Yet it also demonstrated a political reality, which we need to appreciate fast. That is that so far at least he has got away with it. It is not enough for Labour to shout that George Osborne has failed on his own measures. What matters too is the perception of why he failed and what we would do differently. What is the ‘One Nation response?

Conservative and Liberal Democrat economic plans have been ripped up further. The chancellor had two fiscal rules. The Office for Budget Responsibility has declared that debt will not be falling at the end of this parliament. His main rule, that the structural current deficit will be in surplus over a rolling five year period is apparently still on target to be met. Osborne has been helped in a number of ways with his figures. The OBR accepted that the auction of 4G mobile phone frequency licences will raise £3.5bn. Assumptions have been made about measures to reduce tax avoidance. The chancellor also decided to take the surplus interest from the Bank of England’s quantitative easing programme, a move which may be fiscally neutral over time (and is equivalent to a monetary stimulus) but means higher borrowing in future years to offset lower borrowing now: the OBR treats this as a current budget item, which helps the chancellor, but if the Office for National Statistics takes a different view the fiscal target may not be reached. The OBR has assumed the lower growth than it expected in March is largely cyclical, with favourable consequences for its structural deficit forecast.

Osborne gave a nod towards growth by measures to encourage businesses, including cutting corporation tax to 21 per cent in 2014 and increasing funding for infrastructure. Measures to pay for this included limiting welfare benefit increases to one per cent, cutting department spending limits by one per cent in 2013-4 and 2014-5, reducing pension tax relief for higher earners, and increasing the bank levy. The welfare cuts are not welcome, but if we believe we should boost capital spending without increasing the deficit (debateable) we need to find current spending from somewhere to cut. This is where politics matters.

The Coalition economic plan in 2010 was based on a desire to cut spending combined with a fear (real or imagined) that markets would punish the UK unless there was a clear commitment to reduce annual deficits. Labour’s plans were harsh but Osborne went further. There was certainly a need to demonstrate that the UK government meant business; that’s why Labour would probably have had to publish a budget statement in June 2010 if it had won the election. Osborne’s plan received adulation but the economy has refused to grow. Business and consumer confidence remain low.

The further revisions by the OBR to its forecasts show how it is best not to spend too much time debating the detailed figures. The OBR forecasts are its best guesses about what might happen in the future. Even the actual economic data is subject to change. We now know that the recession was deeper than we thought at the time but was shorter too. One current debate centres on how to increase business investment. The OBR’s forecasts do rely on a jump in investment growth but its latest report also shows that business investment is rising in line with the recovery from the 1990s recession. Moreover, it is not clear if the business sector is really carrying large amounts of net cash on its balance sheet; the figures may be distorted to some extent. We do know smaller businesses are under pressure and the Funding for Lending Scheme has yet to make a big impact.

The real austerity is yet to get fully under way yet government unpopularity at present appears limited. This is probably because most people appreciate that there are big economic problems around the world. While their faith in leaders to deliver economic growth is low, they probably believe too that government borrowed too much in the boom times, for which they still blame Labour. Labour has still to rebuild its economic credibility.

If the UK had followed Ed Balls’ advice in 2010 and focused on further stimulus our economy might now be in better shape. There was a moment, as economies struggled out of deep recessions, when further bold action was necessary. The problem is that that moment has passed and it will be harder to boost growth. A Japan scenario beckons, of years of high debt and periodic government growth plans. Labour’s answer should be a decade of investment, spread around the economy and including investing in education and skills. This would be truly a ‘One Nation’ growth plan that involved everyone in the economy.

This article was first published by Progress on December 2012.