In the Conservative Party’s Hundred Acre Wood, George Osborne has always been Tigger to David Cameron’s Christopher Robin. The Shadow Chancellor is a natural optimist, bouncing back enthusiastically after every setback.

As an aide, he used to cheer up John Major and William Hague in the bleakest times. A year ago he delighted his party by bouncing Gordon Brown out of holding an election. Not only was he the Conservative leader’s best friend, he was his closest political ally, the joint architect of the strategy for modernising the Tory party.

But in the past few weeks he has had his tail between his legs. The backbench Eeyores have begun moaning that it’s all going horribly wrong. The media bees have started to sting. There has been speculation that he might be left in the nursery.

His misjudgment over a yacht in Corfu has, critics say, been compounded by his inability to give a clear alternative to Mr Brown on the economy. His confidence seems to have been shaken. As his ebullience has deflated, so has the Tories’ poll lead.

Mr Osborne admits that it has been a tough few weeks. He will not, he tells us, be going back to Corfu next summer. “I regretted the whole farrago. I made a mistake — not because I broke any law or rule, I never asked for a donation, nor did I receive one — but it didn’t look good.”

He is determined to win back those in the party who have questioned his political acumen. “My door is completely open to anyone who wants to talk to me,” he says.

But he makes it clear that he is expecting to remain as Shadow Chancellor. “David Cameron and I are working very closely together on economic policy. not just for now but for the election to come.”

Although some have suggested that he should give up his role as party strategist, he says that he will continue to be chair of the general election committee as well as Shadow Chancellor. “The two roles are very complementary because what is going to be the biggest issue at the next election? The economy.”

He brushes off suggestions that relations between him and Mr Cameron — his neighbour in Notting Hill and godfather to one of his children — have been strained. “I have an extremely good, close relationship with him,” he says. “I have worked in politics for a long time. The one thing I have learnt is that things happen and you have to be absolutely resilient. You have to stick to the task and make sure you are true to your principles. There is a massive political challenge out there dealing with a huge economic crisis.”

Mr Osborne says that he is now focused on the economy “every second of the day”. In the past fortnight, he has talked to former Tory chancellors — Nigel Lawson, Sir John Major, Kenneth Clarke and Lord Lamont of Lerwick — as well as Lord Burns, the former Treasury Permanent Secretary, EU finance ministers, Harvard economists and heads of banks. At the moment he is re-reading J.K. Galbraith’s study of the 1929 crash. “Let’s hope that [a depression] doesn’t happen. What we know is that we are facing a severe recession.

I think it will last some time. Mass unemployment is going to be a serious problem.” He has friends “in the financial services” who have already lost their jobs.

The Prime Minister’s newfound popularity will, the Shadow Chancellor thinks, be shortlived. “Things like G20 summits and IMF meetings lend themselves to prime ministers who want to strut the world stage,” he says. “Gordon Brown wants to internationalise the problem because he was Chancellor for 11 years. But the problems we face are homegrown.

“The IMF and the EU say Britain will have the most severe recession of any major economy in the Western world. Eight out of ten people think the country is on the wrong track, people retain confidence that the Tory party is the party that offers change at the next election.”

The Conservatives have at times risked looking like friends of the fat cats in the City. “I think it is important we have strong links so we understand exactly what is going on,” Mr Osborne says. “Some elements in the Labour Party want to do down the whole financial services industry and make a scapegoat of them. That’s a mistake because this is not all about hedge funds in Mayfair, it’s call centres in Manchester too.”

But he insists: “I am not laissez faire and never have been. Freedom is not enough, it must come with responsibility. We believe in free markets within limits set by democratic government with strong institutions.” Mr Brown was responsible for regulatory failings, he says. The Prime Minister also, in his view, left Britain vulnerable to the downturn by believing that he had ended boom and bust.

“He did not prepare the public finances for bust but also he took no action to curb a massive boom in house prices, stock values and so on. He thought he had abolished booms so he couldn’t spot one when it happened. That is at the centre of how Britain got to where it is.”

The Conservatives have not yet shown that they have the answers, though. They have proposed tax cuts for businesses that hire the unemployed and have advocated a council tax freeze; now he wants to help people to avoid having their homes repossessed. One proposal being considered is to underwrite some mortgages for a limited period.

“We are looking very carefully at what we can do to help with repossessions, we are also looking at whether there are ways to support lending in the economy.” Critics say that this is tinkering when some experts claim that what is needed is a £15 billion injection of cash.

But Mr Osborne is convinced that he is following the right course. “We have to show that we are there to help people, but in a way that doesn’t mortgage our future,” he says.

He is vehemently opposed to the Prime Minister’s plan for a fiscal stimulus of tax cuts and spending rises, paid for by increasing the national debt.

“The issue in British politics is not tax, it is borrowing,” he says. “Gordon Brown doesn’t care about the amount of debt. His view is that he probably won’t win the next election, and the Tories can clear the mess up after he’s gone. That is deeply irresponsible. It’s a scorched earth policy which I think the history books will write up as a total disaster and which, more importantly, the public will see through between now and the election.”

Labour hopes that the voters will be grateful for tax cuts, however they are funded, but Mr Osborne believes: “The public is deeply concerned about how much is being racked up on the country’s credit card. They know you can’t just borrow your way out of debt. It puts an excessive burden on future generations. It means that any recovery is stifled by this weight of debt.”

There is also a more immediate risk. “We are in danger, if the Government is not careful, of having a proper sterling collapse, a run on the pound. The danger of that is that it pushes up long-term interest rates. The more you borrow as government the more you have to sell that debt and the less attractive your currency seems.”

Although everyone is asking how much the Prime Minister wants to borrow — “is it £60 billion, £80 billion £120 billion?” — the Shadow Chancellor says the question can easily become “how much are people prepared to lend to Gordon Brown?"

Mervyn King supported the idea of a fiscal stimulus but Mr Osborne argues that the Governor of the Bank of England put strict conditions on such a move. “He said it had to be temporary and that there needed to be a creditable framework to get the budget back in balance. There is no evidence of that whatsoever.”

The Tories must, he insists, reject spoonfuls of sugar in favour of codliver oil. “It is easy, as Gordon Brown is doing at the moment, to propose tax cuts and spending increases,” he says. “The Conservative Party should be the party that says you have to show how you pay for things, that borrowing and debt got us into this mess and borrowing and debt are not going to get us out of this mess.”

So if Alistair Darling proposes tax cuts, funded by borrowing, in the Pre-Budget Report in ten days’ time, will the Conservative Party oppose them? Mr Osborne says he will not decide until he sees the detail but he insists: “Our principle is absolutely clear — no to tax ‘cons’, yes to funded tax cuts.”

He denies that green taxes have been shelved. “I’m not against using green taxes but they must be replacement taxes, not additional taxes.” He remains committed to generous parental rights. “There’s tons of red tape that strangles small businesses, but when it comes to issues like flexible working and maternity rights I think society benefits from having parents more engaged with their children.”

The Tories are, he says, right to be concentrating on gross domestic product rather than general wellbeing at the moment. “In a recession, people are very focused on economic issues but the insight of the modern Conservative Party that quality of life is important has not changed. Look at the tragic cases of the baby killed in Haringey, the Shannon Matthews case — people are deeply concerned about broader social issues. The broken economy can lead to an even more broken society, the two are linked.”

The Conservative Party has promised to match Labour’s spending commitments on the public services until 2010. Mr Osborne says he is sticking to the pledge for the next two years but he makes no commitment after that. “There is no blank cheque to match Labour’s spending commitments — there never was,” he says. “The Government needs to live within its means . . . The public sector needs to be very conscious that this country is going through a difficult time.”

Even Mr Osborne — an heir to the Osborne & Little wallpaper company – is making cutbacks. “Of course, like everyone we are looking at the family budget and seeing what we can save. I have a Tesco loyalty card in my wallet.” Almost more damaging than the Shadow Chancellor’s excursion to the Queen K was the suggestion that he was privileged and out of touch. Was he embarrassed by the photograph of him in plus fours on a Bullingdon Club shooting party? “I think everyone’s got silly pictures from their time at university,” he says. He is not ashamed of his private school education.

“Alistair Darling was privately educated, Harriet Harman went to the girls’ school of the boys’ school I was at. There are lots of frontline politicians who were privately educated.” Few, however, are the son of a baronet. “My father set up a manufacturing business which he still runs,” Mr Osborne says. “It’s a family business, so I understand many of the issues employers of that kind of size are facing. I’ve come into politics partly because I want to let other people have the opportunities that I’ve had.”

George Osborne

James Bond or Indiana Jones? James Bond
Tigger or Eeyore? Tigger
Guacamole or mushy peas? At least I know the difference
Yacht or punt? Pass
Plus fours or jeans? Jeans

CV

Age 37

Education St Paul’s School and Magdalen College, Oxford (modern history)

Career 1994: Conservative research department 1994-97: special adviser at the Ministry of Agriculture 1997-2001: speechwriter and political adviser to William Hague 2001: became MP for Tatton 2004: Shadow Chief Secretary to the Treasury 2005: Shadow Chancellor

Family Married to the author Frances Osborne. Two children, Luke and Liberty

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