During the bank holiday weekend, an email was circulating among high-ranking City financiers with the intriguing subject heading: ‘Message from George Osborne’. It was not a hoax. An executive from a fund management firm had written to the shadow chancellor’s office asking what plans the Conservatives had to reduce the deficit, as he had not read about such plans in the newspapers. He was sent a reply — which so shocked him that he sent it to every merchant bank from London to Hong Kong. ‘It looks light on content, to say the least,’ he wrote. ‘The currency markets smell blood in the water.’

It was a classic case of a political move looking mighty stupid in the real world. A junior aide in Mr Osborne’s office — until recently a secretary working for a Tory MP — had been asked to reply to the fund manager in her own name. She started out promising to ‘set out our approach to public spending in depth’, but then proceeded to regurgitate clichés about a ‘culture of financial discipline’ and clamping down on office refurbishment. There was no hint of a secret post-election plan to reduce the deficit. The many financiers who were sent this letter would understandably conclude that there is no plan at all.

A few years ago, the Conservatives could have shrugged this off contemptuously. They have an election to win: why should they explain themselves to overexcited bankers? The reason they should is that these fund managers will have more power over the next government than any since Callaghan called in the IMF in 1976. Mr Cameron will need to borrow 20p in every pound his government spends. The investment managers will be his paymasters, and he needs them to trust him.

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Despite numerous charm offensives, Mr Osborne is still not winning them over. Financiers who attend his soirees grumble that it is all politics and no economics. When asked about economics, I am told, he becomes rather glum and evasive. But when asked about political strategy, his face lights up. There are no specific policies causing the City particular concern, but rather a general impression, which one hears repeatedly in the City, that the soon-to-be-chancellor has no expertise — and not even much interest — in the job he is about to inherit.

He is being damned on the flimsiest of grounds. A senior financier told me over lunch last month that he lost faith in the shadow chancellor when he found that Osborne had reviewed a book about the Nixon presidency for The Spectator in August last year. It was a fine review — and this was the problem. It suggested that in the first summer of the financial crisis, Mr Osborne had his head buried in an 880-page book about American political history instead of finding out about the financial world which was collapsing around him.

This is, of course, grotesquely unfair. Every politician is entitled to a holiday — although the shadow chancellor’s choice of Corfu last year did rather backfire on him — and the Tories simply cannot give the City the detail they crave. Investment managers who mostly make their living by placing bets on the future are understandably hungry for clues as to whether the Tories will control the budget or not. Weak chancellors are destroyed by the markets, and there is profit to be made in this process. But to give detail now would be an error, politically and economically.

Quite rightly, Mr Osborne’s strategy has been to seek a doctor’s mandate: to say that he reserves the right to take whatever measures are needed to save the public finances. Any decision to veer from this path (such as his recent ill-advised decision to protect the NHS budget for four years) ties his hands in ways he will deeply regret when he is in the Treasury. It has been enough of a political leap for Mr Osborne to admit that he will cut spending overall, and match the 10 per cent cuts outlined in the small print of the last Budget.

The truth, as Mr Osborne will have worked out by now, is that he will have to cut by far more — in the range of 15 to 20 per cent — if he wants to assuage the foreign creditors who will hold the keys to his spending limits. Yet even internally, this is not being contemplated. It risks starting turf wars, as other shadow ministers realise how Andrew Lansley’s manoeuvring to protect the NHS budget will lead to far deeper cuts in those political soft targets, defence and policing. For the moment, it is best not to spell this out.

Philip Hammond, to whom Mr Osborne intends to devolve many of the responsibilities of chancellor, is quietly holding a spending review (although he has told aides not to call it that, in case word leaks to the press). But the process is in its early stages. There is hope that the economy will recover more strongly than expected, that the analysts who all failed to predict the crash may also be missing the strength of the coming upturn. The forecasts change every month, runs the argument, so why come up with a plan now?

It would not, however, hurt to draw up a worst-case scenario. Sir Gus O’Donnell, the Cabinet Secretary, has been doing just this — working out just what Britain might do if forced into cuts of 20 per cent, as Canada was during its fiscal blowup. And what is unnerving the City is the feeling that Mr Osborne is so focused on the election (he is also the official campaign co-ordinator) that he has not reconciled himself to the harsher truths about his dismal inheritance. If he does not start planning soon, the City frets, his first Budget will do no more than another Labour one would to reduce the deficit.

However ill-founded these concerns are, it is time for the Tories to address them. The relationship with the City will be too important, in government, to be ignored. Four years ago James Carville, a former adviser to Bill Clinton, was asked what he would like to be reincarnated as. ‘I would like to come back as the bond market,’ he said, ‘because then you can intimidate everybody.’ It does not, as yet, intimidate the Conservatives. But unless they repair the relationship with their soon-to-be-paymasters, it shortly will.

This article first appeared in the print edition of The Spectator magazine, dated