"Where does all this leave Ed Miliband's newfound enthusiasm for the "squeezed middle"? Let's pass over his failure in every interview to define it – his last effort included around 90% of taxpayers. Where we can all agree is that these are difficult times for family incomes. There are two root causes. One is global: rises in food and commodity prices. The other is specific to the UK: the unwinding, through a 25% currency depreciation and an unavoidable fiscal consolidation, of economic imbalances built up under Labour. That is why the governor of the Bank of England has said that 'the real consequences of this crisis are only now beginning to be felt'.
My party learned the hard way over 13 years that opposition without a credible alternative tends to remain just that: opposition. The real squeeze is not on the middle, but on Labour's muddle."
And then there's his case that UK inflation is being boosted by "a 25% currency depreciation and an unavoidable fiscal consolidation." There's only one part of that that anyone could really quibble with: the "unavoidable" part. And that's the problem for Osborne. If people do not accept that aspects of the fiscal consolidation – such as the VAT rise – are "unavoidable," the the coalition will still catch the flak from rising prices.
Thing is, it isn't just Ed Balls who is circling around the VAT hike. The measure has plenty of opponents on the right as well, including Guido and a shoal of free market think-tanks. Little wonder why Osborne is shaping for a scrap.
P.S. As the Mervyn King quotation that Osborne references is buried inside a recent Q&A document, I thought I'd paste the full excerpt below. So, here's the Governor of the Bank of England:
"Given that we've seen these very large rises in commodity and energy prices, the real consequences of this crisis and the need to rebalance our economy are only now being felt. They weren't felt in 2008; they are now beginning to be felt. And this will come through over a considerable period. That's why we face a difficult time ahead."