Can George slay Gordon the goliath?

This weekend, another hardy soul is preparing for battle. The callow 33-year-old George Osborne, like a smooth-faced private stumbling around in his putties, looks to have even less chance of surviving a Dispatch Box contest against Brown than any of his predecessors (apart from Letwin, perhaps, who was known to be terrified by the Chancellor). But this time, the Conservatives are more confident. To switch war metaphors, they hope Osborne will be not so much the hopeless infantryman in the trenches as David facing Goliath. While all eyes last week were focusing on when exactly Brown will finally take over at No 10 from Tony Blair, another question has arisen. Could the Iron Chancellor find himself slain by this unknown upstart?

The contest at first looks entirely unfair. Brown this weekend is at the pinnacle of his political power. Such was his authority last week that his allies at Westminster were told to lay off the weakening Prime Minister, with the recognition that there is no need any more to press Brown’s case for the top job. It is coming, probably by September next year. Brown has received rapturous applause wherever he has been: from the ovation he received from staff at the Treasury after returning there following election victory, to the cheers from the parliamentary party on Wednesday evening. Close political allies, such as Paisley MP Douglas Alexander, are in the Cabinet. Alan Milburn is spending more time with his family again.

Osborne by contrast is still licking his wounds after the Conservatives’ defeat at the polls, and a campaign in which political rivals felt he had failed to live up to his reputation as one of the party’s rising stars. "Osborne’s biggest moment was when he admitted that the Tory tax cuts wouldn’t actually happen until next year. He didn’t impress us at all," said one No 10 official. Thus, Labour chiefs believe Osborne will be like a lamb to the slaughter for Brown. Osborne looks like the kind of Tory that Labour loves to hate. Even those on his own benches admit that he looks like a classic Tory Boy ("he wears red braces" said one, huffily). He also comes from privileged stock: educated at St Paul’s and Magdalen, Oxford, he is sitting on a 3m share in the successful interiors company run by his father, Sir Peter. Labour MPs delight in reminding people of his real first name: Gideon.

But Brown’s new shadow does not conform to the stereotype so easily. He has friends across the political divide: notably Education Secretary Ruth Kelly, whom he shadowed until recently and who attended his wife’s book launch. He is socially liberal, voting against Section 28. Elected only four years ago, he - along with the Conservatives’ new shadow education minister David Cameron - is regarded as one of the new breed of Conservative politicians who could finally make the party more accessible to voters (both are members of the so-called ‘Notting Hill set’, the title give to the loosely affiliated group of socially liberal, sophisticated young Conservatives who live in west London).

Osborne likes to point out that his political career began not within the shadow of Thatcherism, but in opposition to Tony Blair, who was something of a hero for the youngster when he first began working in politics. Thus, his supporters hope, Osborne is not tainted with the public’s still negative memories of the Iron Lady.

The emergence of he and Cameron has inevitably led to comparisons with the rise of Blair and Brown in the late 1980s. Now Osborne has gone ahead of his colleague in the future Prime Minister stakes. Having first leapfrogged older colleagues to take the job as Shadow Chief Secretary to the Treasury in the last parliament his promotion to shadow Brown last week was a clear move by Howard to give him the chance to shine prior to a leadership battle later this year.

Before becoming an MP, he had impressed as chief speech writer and political secretary to William Hague and has won praise from party chiefs with assured performances on radio and TV, where he has taken the fight to Labour on the economy. "It is a great opportunity and I am going to take it on and bash Brown at the Dispatch Box," he told BBC Radio 4’s Today programme last week, in a typically robust observation. "I am not going to be afraid of saying I think he is taking the economy in the wrong direction." All very good: but will he be able to walk the walk?

Many jealous Tory MPs who have watched Osborne’s stellar rise through the party ranks will be privately hoping that his legendary self-confidence is brought down a notch or two in the new job. But along with that confidence, Osborne may also have something that deserted any of his predecessors: luck. "Brown has been able to build his reputation on the fact that we left the economy in such a good state," said one Conservative MP. "That’s not going to be the case now, however."

While Brown was accepting the accolades of his staff and MPs last week, it would not have passed his notice that his in-tray at the Treasury was being filled with some increasingly troubling reports. It began on Monday, when figures on manufacturing output from the Office of National Statistics provided compelling evidence of trouble ahead. The volume of goods leaving factories had fallen by 1.6% between February and March, a slump which sent a wave of panic across the City. "Truly appalling," said one senior economist.

"The 2002 Jubilee apart, this was the worst month in over 10 years," added Geoff Dicks, an economist at the Royal Bank of Scotland. Further bad news was to follow. The British Retail Consortium revealed that like-for-like sales had dropped 4.7% in April, offering more evidence that Britain’s shoppers, chastened by rising interest rates, were finally bringing an end to the consumer boom.

The Bank of England reacted immediately, cutting its forecast for economic growth for this year to 2.5%. Governor Mervyn King said that the slump in consumer spending was to blame. It will remain below average in future years, he added. Brown still maintains that Britain plc will expand by between 3% and 3.5% this year. But he is now almost alone in this assessment. Suddenly, the Chancellor who appeared to have the Midas touch, satisfying both public sector friends and big business, is looking increasingly isolated.

Back at his old desk at the Treasury, the immediate future does not look rosy for Brown, according to analysts. Brown is reliant on high growth to sustain the increases in public spending he has authorised. If that falls, he will be left with an almighty problem.

Jeremy Peat, the former chief economist at the Royal Bank of Scotland, said: "If growth is below expectations then he may well have to consider in the run-up to the next Budget next year whether he has to make readjustments; and consider either decelerating the rate of growth in expenditure, increasing tax, or raising the deficit to be higher than might be consistent with his fiscal rules." Thus the humiliating prospect of Brown being forced to admit that he has broken one of his golden rules is opening up.

The summer months will be crucial for Brown’s Treasury team. Peat added: "People will be watching whether the slowdown in consumer spending is sustained."

And along with consumer spending figures, anxious eyes will turn to the Treasury’s tax receipts. Analysts believe Brown has banked optimistically on the amount of cash he will be able to cream off the taxpayer. If incomes do not grow as he hopes or if companies do not turn in continuing profits, revenues will go down.

Thus, adds Peat: "It is quite possible that even if GDP goes up as he expects, tax revenue might not." The Institute of Fiscal Studies has warned that if Brown is to meet his golden rule - to balance the current budget over the economic cycle - he will have to start either raising taxes or cutting spending by 11bn a year, beginning from April next year.

The Tories attempted to make hay with Brown’s ‘black hole’ as an election issue last month, but were hamstrung by Letwin’s admission that he too could not rule out tax rises. Largely unburdened by the need to project an alternative vision, Osborne is now aiming to attack the Chancellor’s weak position. One of Osborne’s aides said: "Gordon Brown has still to tell us how he intends to fill his black hole in the public funds. We will be putting him under pressure on this. There is no doubt that among people who understand economics, Brown is tarnished. This isn’t 1999 or 2000 when he was seen as the prudent Iron Chancellor. We know Brown is always on top of his brief. But George is as well."

Osborne’s task is made all the more important politically because if the Conservatives are to establish a base upon which to form a successful election campaign in 2009-10, they need to quickly start eroding the massive public trust in Brown, who by then will almost certainly be the incumbent Prime Minister.

One Conservative MP said: "The next six months will be all about trying to remove the gloss from Brown.

We need to make sure that when he takes over as Prime Minister, people will look at him and say: ‘There’s the man who put my taxes up.’ We need to make some hits now so that he is damaged goods when he takes over. If Osborne is able to anticipate events and get Brown on the back foot, then he will have shown he has genuine credentials."

If that happens, many predict that he could emerge as a genuine contender in the leadership race. Osborne himself - along with Cameron - has sought to downplay his credentials. There is speculation that instead of running himself, he will back Sir Malcolm Rifkind for the job when the leadership race finally gets underway, in what supporters hope would be an ideal blend of youth and experience.

But there is little doubt that Howard has given Osborne the job largely to give him the public platform necessary for a future leader.