George Osborne has a spring in his step. A well-received budget, a growing economy, a fighting chance of winning the election, the opportunity to stick it to his critics. If, as they say, revenge is a dish best served cold, the chancellor has been plating up a large helping in the past few weeks. But between now and the general election of 7 May 2015 so much could go wrong for David Cameron and his closest cabinet pal – a Blair/Brown partnership without the rivalry and suspicion – that Osborne must wake in a sweat at night thinking about it.

It's not just the UK's fragile economic recovery, which could be knocked off course by renewed problems in any number of places, from the ailing eurozone to rising nationalist tensions in Asia, not to mention the new cold-war-style standoff over the integrity of Ukraine's borders. At home, Ukip's populist panaceas ("quit Europe, end immigration") enjoy rising popularity among disaffected Conservative voters who see the presiding duo as metropolitan posh boys; "greedy elitists" who don't know the price of milk.

A symbolically damaging defeat in next month's European elections just might be followed by a "yes" vote on Scottish independence on 18 September, ensuring that the names Cameron and Osborne will be remembered chiefly for failing to save the Anglo-Scottish union of 1707 from destruction. For the man who encourages speculation that his is the bigger part of Downing Street's strategic political brain such an event would be catastrophic – even without the hovering presence of Boris Johnson, the Tories' cheerful Ronald Reagan wannabe.

So Osborne would be wise to enjoy his burst of spring sunshine while it lasts. Since taking office in May 2010 he has endured a long, wet winter. Just this time last year, the chancellor was left squirming and furious in Washington when the IMF's chief economist, Olivier Blanchard, said he would be "playing with fire" if he failed to throttle back on austerity and provide more stimulus to the economy. The timing could hardly have been worse. After two dismal years, the Office for National Statistics (ONS) was about to pronounce on whether Britain had slipped into a triple-dip recession.

Osborne and Cameron … joined at the hip – for now. Photograph: Lewis Whyld/PA Archive/Press Association Ima

That had not happened under Mrs Thatcher. It had not happened under James Callaghan in the grim 1970s when Opec quadrupled oil prices. It had not happened in the 1930s. Indeed, it had never happened, not even in the great deflation that followed the crash of 1873. And still hasn't. When the official data came out, the news was that in the first three months of 2013 the economy had started growing again. Not by much, but by enough to suggest that a corner had been turned. Even better, the number crunchers decided that there had not even been a double-dip recession, merely a period of unusually sluggish activity.

For Osborne, it represented the turning of the tide. When he returned to Washington in bullish mood for this month's IMF meeting, there was no talk of him playing with fire. Indeed, the fund said the UK was likely to grow faster than any other G7 country this year. And the chancellor was more than willing to take on "the deficit deniers" and the "growth deniers" when he addressed a favourite rightwing thinktank, the American Enterprise Institute.

"The pessimists said our plan would not deliver economic growth. Now they say economic growth will not deliver higher living standards," Osborne said. "They were wrong about the past and they are now wrong about the future. It's only by continuing to work through our longterm economic plan that we can deliver more economic security and a brighter future for all."

But the success of the Osborne "plan" needs to be put into context. Britain's economic output – gross domestic product (GDP) – has yet to return to pre-2008 levels. The recovery not only lags behind that in the US and Germany, but is even slower than that which followed the Great Depression of the 1930s. Living standards have taken a colossal hit as incomes (except at the very top) have failed – year after year – to keep pace with prices. In the US presidential election debate in 1980, Reagan said Americans should ask themselves whether they were better or worse off than when Jimmy Carter became president. Despite tentative evidence that real wages are again rising, Osborne will fail the Reagan test in 2015 by some distance, except in a few favoured professions and places. As elsewhere, inequality has become a major fact of life and political distress.

Even so, the chancellor is confident voters will pay more heed at the general election to the performance of the economy in the final two years of the parliament than in the three preceding years. Miliband's stress on the "cost of living" crisis resonates with voters, but this weekend's YouGov poll for the Sunday Times – carried out after the better wage and unemployment figures – shows, to Labour's alarm, the gap between the parties narrowing. And voters blame the previous government, not the coalition, for the current period of austerity. Polls repeatedly show that Osborne and Cameron are far more widely trusted to run the economy than Ed Miliband and Ed Balls.

One reason for that is that the chancellor was given a free run to set the terms of debate during his first months in office. With Labour holding a five-month-long leadership election in 2010, the record of Gordon Brown's government was relentlessly trashed. The aim was to implant the idea that the recession was not a global phenomenon caused by out-of-control banks, but by Labour's profligacy and failure "to mend the roof while the sun was shining".

Given that both Cameron and Osborne had endorsed Labour's spending plans and light-touch regulations ("not light enough!") until after the disastrous collapse of Lehman Brothers in late 2008, this was chutzpah. But the cheeky strategy worked a treat. It was helped by the fact that Labour's electorate duly enthroned the Brownite Miliband, not his Blairite brother, David. Miliband and Balls (soon to be restored as shadow chancellor) were closely associated with key mistakes of Gordon Brown's decade at the Treasury and reluctant to acknowledge them. Only recently did Balls start admitting that, like US Federal Reserve chairman and Brown hero Alan Greenspan, they overrated the City's willingness to regulate its own reckless conduct.

But phase two of Osborne's plan did not go so well as the effort to blame Labour. It involved a concept dubbed "expansionary fiscal contraction", the idea that austerity would enhance growth by generating a warm feeling among consumers and businesses that the government was balancing its books. Both investment in new capacity and jobs as well as spending in the shops would rise even as the Treasury was hacking away at the deficit.

Part of the "blame Labour" campaign involved drawing ridiculous comparisons between Britain and crisis-stricken Greece. Even the new Lib Dem business secretary and unreconstructed Keynsian Vince Cable, whose warnings during the boom years had proved far wiser than Osborne's, joined in. That did not do much for fragile confidence. Osborne tackled Britain's deficit by cutting spending on infrastructure and welfare, and by putting up VAT to 20%. That slowed down the economy at precisely the time that Britain's main export market, the eurozone, was going into meltdown. When campaigning for the Labour leadership in the summer of 2010, Balls said Osborne's approach was "wrong in its analysis of the past; reckless in its diagnosis of the current situation; and dangerous in its prescription for the future". This analysis looked more and more perceptive as the economy crawled along for the next two years. But voters still mistrusted Balls's past record too much to take much notice.

Osborne eating a pasty after his notorious 'omnishambles' budget. Photograph: Apex

By the time of the 2012 budget, Conservative MPs were desperate for a package that would boost both growth and morale. What they got was the "omnishambles" budget, with its tax increases on pasties, caravans, cathedrals and grannies, but a cut in income tax for millionaires from 50p to 45p. Osborne did a U-turn on all but the last, but his reputation as a street-smart political brain took a serious hit as the tabloids savaged the "pasty tax" and much else.

From here, the story gets a little messy. Osborne says he stuck to his plan; his critics say he quietly ditched it and moved on to "plan B". Certainly, the idea of sorting out the public finances within one five-year parliament went out of the window. So did the timetable for starting to reduce national debt as a share of GDP. Some of the cuts in capital spending were reversed, with a host of road and rail projects given the go-ahead on the grounds that they will boost growth.

Paul Krugman, the Nobel prize-winning US economist, puts it this way: "So the UK government did a lot of austerity, then stopped doing more, and the economy began to grow thereafter. Does this vindicate expansionary austerity? To use an analogy I've used before, if I keep hitting myself in the head with a baseball bat, and then I stop, I will start to feel better; this doesn't mean that hitting yourself in the head with a baseball bat is a good thing."

It was not only the deficit-reduction plan that was shelved. Osborne arrived in office determined to change the face of the economy. Britain had become a nation of spendthrifts (as Vince Cable repeatedly warned in the boom years), racking up too much private debt and too much government debt. Given the right incentives, including those controversial tax breaks, growth under the coalition would be skewed more towards investment and exports.

Not for the first time in postwar British history, it hasn't worked that way, as Osborne recognised in last month's budget when he announced measures to boost investment and exports. He has talked tougher than he has acted, at least since his early days in office, and sought to address high levels of youth unemployment by cutting employers' national insurance contributions. The chancellor would also argue that his commitment to deficit reduction has won the government brownie points in the financial markets and provided the Bank of England with the freedom to boost activity through cheap borrowing and credit creation.

Interest rates have been pegged at 0.5% for more than five years. Threadneedle Street has created £375bn in electronic money since 2009 by buying bonds in the process known as quantitative easing (QE). Banks were encouraged to lend to the mortgage market and home loans have been subsidised by Osborne's Help to Buy initiative. Yet lending remains sluggish and banks, not borrowers, have been the chief beneficiaries of cheap money.

Pensioners' annuity rates on retirement have been dismal, prompting Osborne to say "save, save, save" in his March budget while simultaneously abolishing restrictions on how people spend their tax-subsidised pension pots. "Spend, spend, spend" was the subtext (on a foreign-made Lamborghini, if you wish).

In their desperation and gratitude for a tabloid-friendly budget (tiny cuts in beer and petrol duty still generate corny tabloid headlines, 1960s-style), more fastidious Tory MPs averted their gaze and cheered the conjuring trick. By Christmas, Omnishambles Osborne had overtaken Balls for perceived economic competence. Last week Ipsos Mori reported him to be presiding over levels of economic optimism not seen since 1976, when Labour's lovable bruiser Denis Healey was battling his own IMF crisis.

Osborne and his arch-rival Boris Johnson in London in 2011. Photograph: Getty Images

Yet, despite the froth and partisan pre-election press coverage, in the end it has been another familiar case of "here's the new growth, same as the old growth". Osborne is now presiding over a bog-standard British recovery built on a rising property market and more consumer debt. In the past 40 years, every housing boom has been followed by a housing bust. But there is always a sweet spot when growth is strong, inflation is low and Britons convince themselves of the four most dangerous words in economics: "this time it's different". If there is a reckoning, it won't come until after May 2015. Which is why Osborne thinks the election is his to lose.

As with Brown, whom he resembles in office, every Osborne move has as much politics as economics in its making. But will the electorally calibrated policy shifts – such as Osborne's unlikely use of a speech in Tilbury this year to declare his goal is to become the "full employment chancellor" – actually work? Since 1945 many chancellors have aspired to move from No 11 to No 10, but only four have succeeded: Harold Macmillan in 1957, Jim Callaghan in 1976, John Major, the dark horse, in 1990, and, of course, Brown after his long wait in 2007. All had their moments of glory: Macmillan and Major even won elections. But all were ultimately tainted with failure and defeat. It is as if the two jobs require different skill sets: No 11 the gravitas, No 10 the showmanship and a feel for the public mood.

No one disputes Osborne's influence. Once again, Cameron's recent reshuffle saw an Osborne man, Sajid Javid, promoted to cabinet rank after the chancellor reportedly gave Maria Miller the coup de grace. He was also credited with trying to lure Boris Johnson, his presumed chief rival for the leadership succession, back to Westminster at the 2015 election, widely seen as a precaution to dip the London mayor's hand in any defeat. Johnson, who routinely criticises the coalition from the safety of City Hall, duly invited Osborne and his cheerleader Michael Gove to a curry supper at home in Islington, to mend fences.

But Johnson will not be standing in 2015. Either victory or defeat will be Cameron and Osborne's to enjoy. That is a gamble too. What if Cameron were to resign after losing the Scottish referendum by proxy in September? Could Osborne, who would never break with Cameron, succeed his pal then? It seems unlikely, since he – and his chosen Bank of England chief Mark Carney – would share much of the blame for "going negative" over not sharing sterling with an Alex Salmond-led state. Yet much stranger things have happened: in the doomed invasion of Suez in 1956 Harold Macmillan was "first in, first out", a colleague who ratted on the policy and benefitted. Callaghan, Major and Brown also engaged in some deft treachery on the way up.

Yet Osborne's problem is surely deeper. His party finds him hard to love, the wider public even more so. After his four years in office, they still do not know what he really believes in. The CV is also not one that most voters warm to in a fiercely undeferential age. Born only in 1971, and chancellor at just 39, Osborne is the child of privilege, heir to a 17th-century Anglo-Irish baronetcy (he will one day be the 18th Sir George – formerly Gideon – Osborne). He was raised in a metropolitan, liberal atmosphere; his father's swish soft furnishing firm, Osborne and Little, has made him comfortably well off. Calling George "oik" because he only attended St Paul's School (founded 1509) may have been a good joke among Oxford's Bullingdon Club Etonians, but it does not make most people laugh in a world of rising inequality, one in which the chancellor, though far from banker-rich, seems to feel comfortable.

So having his hair restyled (new adviser Thea Rogers, a former BBC political producer, gets the credit) and telling voters "we're all in this together" will not be enough to secure his future or his reputation. Voters are disaffected and suspicious of the very qualities in the political elite that Osborne embodies. His best hope lies not in himself, but in the weakness of his rivals. The two Eds are yet to persuade the public they are ready for office. Johnson may never shake off his image as a buffoon. Dazzling Alex Salmond may finally trip himself up once too often, and Ukip's Nigel Farage might prove to be a bad-tempered chancer – or worse. As with the fate of the British economy, the prospects may not be appetising, but they are what they are.