10/10/2012 07:06 BST | Updated 08/12/2012 05:12 GMT

David Cameron's Midterm Blues

As the Conservative party conference continues in Birmingham, prime minister David Cameron can reflect on what has to date been a difficult year for the largest party in the coalition government. Mid-term is often a difficult time for the incumbents; early successes are becoming distant memories while the unintended consequences of others are beginning to emerge. If Andy Burnham is to be believed, the NHS reforms provide a succinct example of this.

The Conservatives have been criticised in a number of quarters for lacking a real sense of vision of what they would like Britain to be and a lack of grip over Whitehall to ensure that policy is delivered. These criticisms have crystallised during the past few months of policy u-turns and disagreements with backbenchers on the party's right wing. These accusations are however slightly misleading; upon election in 2010 the Conservatives had a clear agenda developed over many years in opposition that they have set about implementing at considerable pace.  Localism, public service reform, reducing the size and scope of the state, a focus on intergenerational over material inequality and the Big Society represent a wide ranging and distinct manifesto. 

But this is also the source of the Conservatives current difficulties now they are in office. The Conservative's approach was predicated on sharing the proceeds of growth and being the heir to Blair; in short their policies were built upon the assumptions that drove New Labour and the Third Way. They were reliant on continuing economic growth and the emergence of a post-materialist society in which the big challenges of providing homes, jobs, education and consumer goods had been largely solved. Government's role would be to deciding the most effective and efficient use of public spending. In Opposition the Conservatives even went as far as to commit themselves to Labour's spending plans should they have won the next General Election.

Unfortunately the financial crisis shattered the foundations on which these ideas were built. For example, civic participation and volunteering is unlikely to occur at a time of unemployment, under-employment and a squeeze on living standards; not to mention reduced charity budgets. Cutting back the state to allow space for the private sector to grow can only be successful if businesses are not being cautious with investment and recruitment in the face of a double-dip recession. 

Welfare reform, such as the Universal Credit, is freighted with greater risk if a larger number of people are claiming benefits due to unemployment and under-employment.  It reduces the margin for error for those, as pointed out by Paul Mason, who are already on the bread line and forced into food banks when problem with their welfare payments occur. The finely balanced budgets of government departments also heighten the consequences should a major policy such as the Universal Credit creep over budget.

In public service reform it is not hard to imagine that a major reorganisation of the NHS may have encountered less hostility had its funding and staffing levels not also have been under severe pressure. Similarly, local authorities may have been given greater powers, but they struggle to wield these when grappling with significant reductions in their block grants.

The argument must therefore be that the Conservatives have struggled to offer a clear vision that is compatible with the new realities of the financial crisis, beyond deficit reduction itself.  In the two and half years remaining of this parliament the challenge will be to either adapt their manifesto to this rapidly evolving environment.

The Conservatives must also accept that a return to growth in of itself is unlikely to be sufficient; data from the Resolution Foundation suggests that a return to 2.5% per annum growth per year up between now and 2020 would still see living standards fall for those in the lower half of the income distribution. Indeed, for every £1 of growth 88p goes to those in the top half of the income distribution.  

This profoundly challenges the assumption that a return to growth will automatically deliver a return to the economic normality of the past thirty years; ever growing living standards for each successive generation. British politicians are understandably struggling to acknowledge the great elephant in the room; that a new and less generous economic settlement is on the way.  The Conservatives will need to prove that they have the policies and ideas to bring this about in a way that is fair, while continuing to make the tough spending decisions that being in government requires.