Sum of Brown's success still adds up

The Chancellor, that great political strategist, has done it again. Never mind the slight embarrassment of the slowdown in economic growth and the red crosses on his forecasts: what a stroke of genius it was to unveil the pre-Budget report on the eve of the latest revival of the Conservative Party. And how accommodating of the leader of the opposition to concentrate his fire on the Prime Minister, with not a reference to golden rules and budget deficits in his first foray at dividing Tony Blair from his troops.

The media are indulging in their favourite sport of building public figures up, only, in due course, to knock them down again. At present, it seems, David Cameron can do no wrong, and his lieutenant, George Osborne, the shadow chancellor, comes close behind. It was interesting, for instance, that the newsflashes of Osborne's performance in the exchanges after the Chancellor's speech gave the impression that Osborne was impressive - Lord Heseltine, no less, described it as 'a staggering performance against Gordon Brown'; but Labour MPs in the chamber had a very different impression, and were not at all perturbed.

The Conservative scene is certainly very entertaining. Back in the 1960s, Harold Wilson told us that Old Etonian leaders such as Harold Macmillan and Sir Alec Douglas-Home were 'yesterday's men'. The search went out for a good, modern, grammar school boy to take on the technocratic Wilson, and, hey presto, the Conservatives alighted on Mr, as he then was, Edward Heath.

Recently I was told of someone whose CV for his job application was replete with alphas and a lifetime's achievement at the age of 22, but who coyly omitted the name of his school: when asked, he owned up 'Er, Eton actually'. Well, Old Etonians, you can relax. You are once again eligible for the top job in British politics.

Also, to judge from his initial performance, we shall have to revive an adjective that seemed, like Etonian prime ministers, to be past its sell-by date in the 1960s. These days the most devalued epithet in the English language is 'cool', but the advent of Cameron as Tory leader will, I predict, herald a revival of the word 'smooth'.

Oh, isn't he smooth: smooth while affecting consensus politics and simultaneously putting the knife in. Call me curmudgeonly, but I do not see the new consensus politics lasting the distance.

Cameron, author of the last Conservative manifesto, comes from a very right-wing, anti-European background. But, as Sir Peregrine Worsthorne, that doyen of right-wing Conservatism, has pointed out several times recently, if you are selling a bunch of nasty policies it is important to have an appealing (not appalling) leader out there in front.

Cameron is, by all accounts, very smart and very ambitious. Osborne is supposed to be, too, although he gave an odd interview to the Financial Times recently calling Brown 'unpleasant and brutal'. How's that for consensus politics? The Chancellor quipped last week that perhaps he hadn't been brutal enough. Who knows?

At this rate, Osborne's life as shadow chancellor could be nasty, brutish and short. While understandably critical of the gap between Brown's recent forecasts and outcomes, Osborne ought to watch his own arithmetic: 'For most of my adult lifetime, the Labour Party has been the dominant force in British politics and for much of my adult life Tony Blair has been the prime minister.' At 34, Osborne is the same generation as those young people who tell me that for most of their lives and adulthood (which starts at 18) the Conservatives in general and Thatcherism in particular have been the dominant political force.

Most of this generation is deeply disappointed in Blair, especially in regard to the liberty he has taken with our civil liberties. They wanted the Conservatives to lose so badly at the last election that they would move away from the extreme right, thus encouraging Labour to rediscover its soul.

For all the Conservatives' criticism of public spending and levels of taxation, the official figures still suggest that the present Chancellor has been remarkably prudent. Government expenditure as a percentage of gross domestic product was 41.4 per cent in the last (2004-05) financial year, below the proportion in most years of the Thatcher and Major governments (it was around 48 per cent in the middle Thatcher years and around 43 per cent in the middle Major years). Again, taxes and national insurance contributions as a percentage of GDP were 36.3 per cent in 2004-05, compared with the 37-38 per cent range for most of the Thatcher years.

The Chancellor was so prudent in Labour's first (1997-2001) term that public sector net investment was running at only half the level of the Major years. Public investment had been halved in the last, pre-election (1996-97) Major year, and more or less stayed there until beefed up sharply from 2001-02 onwards.

Thus the big investment in public services was long delayed, which helps to explain the impatience now shown by the public in the opinion polls. Nevertheless, or perhaps because of the delays, Brown seems to me to be in a strong position to defend his strategy from a revitalised Conservative opposition that wishes to have it both ways, promising better public services and tax cuts.

It is also difficult for Osborne and his colleagues simultaneously to complain about public sector borrowing and 'adjusted' fiscal rules, yet place tax cuts before lower borrowing and repayment of public sector debt.

The fiscal rules, in common with independence for the Bank of England, were always a means to an end, which in Brown's case meant being as Labour as he thought he could get away with in a world where the Thatcherite version of capitalism had apparently triumphed. For a long time there was a danger that, like Nigel Lawson in the 1980s, Brown would overreach himself in proclaiming the wonders of his economic management. There was bound to be a relapse. The public may not care much about fiscal rules, but it knows an economic slowdown when it sees one and, however 'stable' the management of the economy has been, a slowdown was inevitable.

The pre-Budget report goes into some detail to explain not only the slowdown, but why the Treasury 'got it wrong'. In addition to the impact of higher oil prices on real incomes, real earnings grew more slowly than expected. But the Chancellor can fairly claim that many of the more dire predictions of a collapse in house prices and outright recession have proved wide of the mark - at least so far.

But one must not forget that the whole point of the five successive interest rates rises between November 2003 and August 2004 was to slow down consumer spending and the house price/credit spiral. As the OECD says: 'The slowdown in growth since mid-2004 is largely due to weak consumer spending and coincides closely with the cooling of the housing market.'

The MPC gives every impression of waiting for the outcome of the winter wage negotiation season before taking further action to stimulate the economy. The Treasury, Bank and OECD all see immigrant labour from eastern Europe as having contributed to the remarkable quiescence of wage inflation. Most of the real economic crises in the UK since the second world war have been induced by panic measures to defeat inflation. There is evidence that indices of annual salaries are turning up. But on the whole, on that front, notwithstanding some other local difficulties, it has been so far, so good for Brown's chancellorship.