Osborne's Payday Loan Cap Shuts Down Labour Election Issue

So when is a government U-turn not a U-turn? When it is a political manoeuvre designed to shut down a negative election issue perhaps.

That is not how chancellor George Osborne is describing his decision to follow Labour leader Ed Miliband's call for a cap on the cost of payday loans, of course. He has described it as "the next logical step forward".

The government had already set up a powerful regulator in the shape of the Financial Conduct Authority, the successor to the Financial Services Authority, to oversee issues such as payday loans, and the new announcement was a sensible development from that, he said.

Labour, meanwhile, pointed out that Miliband had recently targeted the "Wonga culture" and called for just such a cap on payday loans as part of his campaign on the cost of living crisis which has been setting the political weather for months.

And shadow ministers reminded Osborne that, in March 2012, he told MPs: "Simply introducing a cap might have the effect of pushing a lot of people into a completely unregulated black economy. I am not sure that any of us would want to see that".

But Osborne has insisted he is not simply following Labour's lead because he has not gone for a cap on interest costs alone, but the entire costs of loans, including things like arrangement fees.

The aim, he said, was "to make sure that hardworking people get a fair deal from the financial system whether it's the banks or the payday lenders or the internet lenders".

But while the two sides will argue over whether the latest policy represents a government about-face or not, there is a better description of the move - a shutdown.

David Cameron's Australian elections guru, Lynton Crosby, has already urged the Tories to "scrape the barnacles off the boat", meaning ditch any policy that is proving difficult and an unnecessary diversion from the core economic message.

Short-term embarrassment

This is another string to the same bow, an attempt to shut down any Labour policy that could give Miliband an advantage in the election campaign. In some cases, that might simply mean adopting them and dressing them up in slightly different clothes.

It is worth suffering the short-term embarrassment of appearing to bow to Labour in order to neutralise a potential vote winning policy, it is argued. And, while Osborne may be Chancellor he is first and foremost a political strategists, he does nothing without considering all the political pros and cons.

So, while Miliband and his team may have reason to crow over this apparent victory, they will fear that it has killed off what was a powerful weapon in Labour's attack on the cost of living crisis .

There are still many on the Tory benches, however, who fear this is just the latest example of the government being forced onto Labour's chosen territory when it should instead be fighting on its own turf, notably the improving economy.

There are expectations that the Chancellor will have other policies to deal with the cost of living when he makes his crucial autumn statement next week.

But he is under increasing pressure to move onto that more natural Tory territory of growing economic recovery, with measures designed to bolster that rather than appearing to be reacting to Labour.