A battalion of troubles

FEW chancellors of the exchequer have ever reported such bleak news to the country. On November 29th George Osborne used his autumn statement to confirm that a foundering economy had thwarted the government's central mission: to eliminate (just about) Britain's structural fiscal deficit by 2014-15, the eve of the next election. The author of austerity admitted that spending cuts would continue into the next parliament.

The Office for Budget Responsibility (OBR), set up by Mr Osborne to provide independent economic projections, laid out the grim numbers. Growth in 2011 would be 0.9%, not the 2.3% forecast in the June 2010 budget that committed the Conservative-Liberal Democrat coalition to radical fiscal consolidation. The economy will grow by just 0.7% next year, and by 2.1% the year after. Even these figures look too sanguine. And while slow growth is thinning tax receipts, more money than expected will go on out-of-work benefits as unemployment peaks at 8.7% at the end of 2012, not the 8.3% predicted earlier.

The consequences for Mr Osborne's fiscal plans are profound. The deficit will still be £79 billion ($124 billion), equivalent to 4.5% of GDP, in the final year of this parliament (see chart). The national debt will peak that year at 78% of GDP. By the following year it will be £112 billion bigger than was forecast in March. Britain will run a structural deficit until 2016-17.

Such awful news would normally do for a government. Ed Balls, Mr Osborne's opposite number on the Labour benches, certainly claims vindication. He predicted that rapid spending cuts would choke off the economic recovery that was under way when the chancellor took office in 2010. But the coalition has not yet lost the confidence of voters.

Events in Europe have given the government two lines of defence. First, Mr Osborne, backed by the OBR, says it is natural for confidence in Britain to be lacking while the euro zone struggles for survival. Labour accuse him of using the euro crisis as an excuse for poor growth but many voters seem to think it is a good one. Second, the chancellor has been able to argue that only by tackling its deficit early did Britain avoid the crushing interest rates being paid by the likes of Italy. A Populus poll released a week before the autumn statement showed that voters trust the government over Labour to run the economy by 40% to 26%. An ICM poll that came out at the same time revealed that they tend to blame slow growth on factors beyond Mr Osborne's control such as the previous government's debts, stingy bank-lending and the euro crisis.

The real political hazard for Mr Osborne is not a sudden loss of faith in his fiscal strategy, either on the part of markets or voters—though there is some risk of both. Instead, it is the gradual erosion of support for his party as living standards decline. Public-sector workers (a constituency the Conservatives courted in opposition as part of their mission to broaden the party's appeal) are in danger of being lost to the Tories for the foreseeable future. Last year Mr Osborne froze the pay of all but the lowest-paid public staff for two years. In his autumn statement, he said this would be followed by a 1% cap on their pay rises for the two subsequent years. Even if inflation falls to its 2% target, this will mean a real cut in pay. He is also flirting with the idea of replacing national pay standards with regional variations, which would leave many even worse off.

Relations are already strained. On November 30th a mass strike closed schools and forced hospitals to postpone non-emergency operations. The casus belli is the government's plan, announced earlier this year, to make public-sector staff work longer and pay more for their pensions. Ministers want to raise their retirement age from 60 to the state-pension age of 65 (and then to 66 by 2020). Pension contributions will also go up by an average of around three percentage points, though low-paid workers will be spared this hike. Over time, public-sector pensions are to be based on career-average salaries rather than on final pay.

The government points out that its plan is based on proposals by a Labour peer, Lord Hutton, a former work and pensions secretary. Ministers have also made concessions since then, such as a guarantee that nobody who is less than ten years from retirement will have to work longer. But the unions, including public-sector behemoths such as Unite and Unison, are implacable and won ballots among their members for strike action.

A Tory chancellor taking on a public sector that grew fat during the free-spending Labour years could normally count on the fervent backing of his own side. But Conservative MPs accuse Mr Osborne of being keener to cut spending than he is to reform the supply-side of the economy to boost growth. They suggest scything business regulation as a cost-free stimulus. Some backbenchers also blanched at the micro-managing zeal with which Mr Osborne announced a slew of infrastructure projects both large and tiny (see article). The display reminded them of nobody so much as Gordon Brown.

That is harsh, but the chancellor does share something with his predecessor but one: he doubles as his party's political strategist. Mr Osborne planned to go into the 2015 election with a buoyant economy and a structural surplus; a modest tax cut in the pre-election budget would have rewarded voters for suffering the squeeze. He must now ask them to bear another couple of years of pain—and that is the best-case scenario.