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DERMOT MURNAGHAN: Now then, the Chancellor George Osborne delivers his Autumn Statement on Wednesday and try counting how many times he uses the phrase ‘long term economic plan’ for instance. He has staked his political career and indeed the next general election on getting the deficit down so how is he going to do on that pledge and what money does he have at his disposal?  I am joined now by Paul Johnson, who is the Director of the respected Institute for Fiscal Studies and by the political correspondent with the Financial Times, Kiran Stacey, a very good morning to you both.  Paul, start us off with setting out the background for the Chancellor.  It doesn’t look great does it yet here we are, he has already pre-announced more money for the National Health Service, the Prime Minister has said there are £7 billion of tax cuts somewhere in the pipeline in the next parliament.  

PAUL JOHNSON:  Well we are nowhere near where the Chancellor wanted us to be at the beginning of this parliament, he wanted the deficit close to sorted out by now.  We’ve still got a deficit of about £100 billion and that is a really big deficit, £100 billion is a big number. The scale of cuts that will be required into the next parliament will actually be very similar to those in this parliament, we are only halfway through the programme.  

DM: He wants to get it to surplus by 2018.

PAUL JOHNSON:  The Conservatives are saying they want a surplus on their budget by 2018/19 and that will require about the same level of cuts over the next parliament as we’ve had over this parliament so instead of being all the way there we’re only halfway there.  

DM: So what’s going on, Kiran, politically?  First and foremost we’ve got from the Conservative viewpoint with this extra money being announced today for the National Health Service, we’ll hear it all again on Wednesday, it’s neutralised that issue, do not allow it to be an stick for Labour to beat you with.  

KIRAN STACEY: Well that is the number one issue that Labour wants to fight the next election on, you see it time and time again.  Ed Miliband now almost every week at Prime Minister’s Questions brings up the NHS, it’s the one thing they have a clear lead on and I’m sure you wouldn’t get them saying this but Labour politicians are almost hoping for a bit of an NHS crisis over the winter so that they can say see, we told you so, the NHS isn’t safe in Tory hands.  As you say, the Tories are desperate to just push that back so the two billion extra we’re hearing about today, it might just about get them through the next few months but there are serious structural problems in the NHS, we know there is an ageing population.

DM: Just to stay with the strategy, there is that on the NHS and trying to get the ground firmly on management of the economy where they are quite a long way ahead but couldn’t they then be accused of irresponsibility if at the time, as Ed Balls has been describing, we still have a huge deficit never mind the growing size of the overall debt mountain, couldn’t they be accused of irresponsibility in giving any money away?

KIRAN STACEY:  Well you could say look, if you have this £2 billion there shouldn’t it be used to pay down the deficit?  However as Paul said, the deficit is £100 billion large, one or two billion here or there isn’t going to make a huge difference.  What we have actually seen over the last few years is George Osborne being a much more flexible on the deficit than many people give him credit for.  He keeps pushing his deadline back for getting back into the black and actually that’s quite a cunning way of making sure the money stretches that little bit further to deal with issues as they come up. The problem for Labour certainly is yes, they could go after George Osborne for saying you’re not being fiscally responsible enough but he’d just turn it straight back on them and say right, well what would you do?  

DM: We are also going to hear we think, Paul, an awful lot about infrastructure spending particularly in the north because that’s another of the Conservative projects.  Where would that money come from if you are announcing £1.5 billion for the A1 and things like that, where does that extra money come from?

PAUL JOHNSON: What’s not clear yet is whether there is genuinely extra money here.  This government very much exactly in line with what the last government said it was going to do, very dramatically cut infrastructure spending at the beginning of this parliament, has introduced some small increases over the last few years but what we haven’t seen is whether this increase in road spending over the next five years is actually an increase or whether they are just announcing how they are going to spend the money that was already in the budgets.  

DM: And tell me about that money for the NHS.  Having heard from Simon Stephens there about the amount of money that’s required, it’s almost as if you get the £2 billion this year and maybe the £1 billion from financial fines, there is much more required beyond that as well just to keep it going.  

PAUL JOHNSON:  Well we’ve had four or five years while the NHS has been protected, it’s had the tightest four or five year period it’s had in its history so since 1950.  Of course that does come after a period under the last government where spending was going up very fast but even with protection, that means the real spending on the NHS not going down, because the population is increasing and because the population of elderly people is increasing, that actually translates into a real per person cut so even with a couple of billion extra each year over the next several years, that is not going to be any additional money per person.

DM: It is interesting, isn’t it, Kiran, to see this issue of economic competence and safe management of the economy and the finances.  Listening to Ed Balls this morning on the Marr Show, he was being very careful to cost everything and the Conservatives are coming up with things like the £7 billion worth of tax cuts that I mentioned from the Prime Minister in his conference speech, we don’t know where that’s going to come from and there’s Ed Balls saying no, NHS money, that comes from the mansion tax so is being very careful to make sure everything is costed.

KIRAN STACEY:  Well what’s happened is that over the last four or five years the Conservatives have built up a reputation for fiscal prudence, whether that is warranted or not, they have got it.  If you look at polls most people think they would trust George Osborne more with the public finances than they would Ed Balls. What they are now doing is spending some of that political capital, so they are saying right, we’ve got this trust, now we’re going to promise you a big giveaway and it has not dented their economic credibility whereas poor old Ed Balls is there, desperately as you say costing everything and making sure all his sums add up, and people still say sorry we don’t trust you.

DM: People aren’t fools are they, there is a general election coming, do they know what’s going on here because you defer the pain don’t you until after the general election and if Osborne gets back in he is going to say whoops, sorry, I’m afraid the cuts have to be more severe, as Paul Johnson has been pointing out.

KIRAN STACEY: I think probably voters, as you say, are quite aware of that and quite aware of whichever party gets elected will have to make these cuts.  Both parties are pretending they don’t have to but I think voters are savvier than that and know that they have got more pain to come.  

DM: And Paul, in terms of what the OBR, the Office for Budget Responsibility, are going to say about the Chancellor, the field in which he is operating, are things going to be more or less the same, is there going to be anything there that will say he has got a bit more wriggle room?

PAUL JOHNSON:  Oh no, I don't think there is going to be more wriggle room, I think if anything he is going to have less wriggle room than the OBR were suggesting back in March.  The problem is that growth has been pretty good but from the Chancellor’s point of view it has been the wrong kind of growth, it’s been growth which has been really good for employment but very poor for wages and if wages aren’t growing then tax receipts aren’t growing and that’s creating the squeeze on the public finances that we’ve seen so far this year with things actually getting a little bit worse not better.  

DM: Okay, well gentlemen, thank you very much indeed for setting the scene, Paul Johnson and Kiran Stacey there on the Autumn Statement.