For five years, George Osborne has been managing failure. The Chancellor’s sixth Budget, like its predecessors, was delivered in coalition; the presence of Nick Clegg and Danny Alexander on the government front bench is a permanent reminder of how the Conservatives fell short at the last general election. As his party’s chief strategist in 2010, Osborne continues to live in the shadow of that campaign.

This political failure was followed by an economic one. Osborne’s original ambition was to eliminate the structural deficit in a single term. The collapse of growth after he entered office forced him to postpone this goal. Higher-than-forecast borrowing cost the UK its triple-A credit rating, the metric that he had adopted as the defining test of his economic credibility. Few politicians have recovered from such a gap between promise and delivery.

Osborne’s skill has been to transform this political base metal into gold. He has been the great alchemist of this parliament. The Chancellor made a virtue of coalition government by co-opting the Lib Dems’ best ideas – increasing the personal tax allowance, granting new freedoms over pensions – and aggressively rebranding them as Conservative achievements. The Tories’ junior partners protest indignantly, reminding voters that David Cameron told Clegg during the first 2010 leaders’ debate that the country could not “afford” to “take every­one out of their first £10,000 of income tax”. (Osborne's Budget increased the threshold to £10,800.) But, as Ronald Reagan observed: “If you’re explaining, you’re losing.”

When the near-disappearance of growth almost halted deficit reduction, Osborne chose not to impose additional fiscal tightening, instead redefining austerity as a two-term project. Labour has been left unsure whether to applaud the Chancellor for adopting the more moderate path it advocated (“a victory for sensible Keynesian thinking” was how his shadow, Ed Balls, recently described it to me) or to denounce him for failing on his own terms. In both cases, it has been forced to concede that it, too, would impose austerity after the election, an admission that has corroded its left-wing support. There are some Conservatives who wonder aloud whether greater deficit reduction would have been more politically hazardous, liberating Labour to promise the return of big spending.

Osborne’s greatest act of conjury, as ­fiscal boundaries have shifted, has been to entrench an image of himself as a figure of unbending constancy. Aides say that the Chancellor, whose once-poor approval ­ratings now exceed those of the three main party leaders, is congratulated by the public on “sticking to the plan” during his hard-hat tours. Like Margaret Thatcher (who was sometimes for turning), he knows that, in politics, appearance matters more than reality.

The truth is that Osborne has changed. Midway through the parliament, after the humbling experience of his 2012 “omni­shambles” Budget, he began to remake himself as a more complex and sophisticated politician. Osborne now speaks of the state as an ally as often as he does of it as an enemy and compares himself to Michael Heseltine. He has resurrected the cause of “full employment” (albeit more loosely defined than in previous decades), championed increases in the minimum wage (which will rise by 3 per cent, to £6.70 an hour, from October) and begun the construction of a “northern powerhouse” to challenge London’s hegemony. This ideological rebalancing is driven by Osborne’s Huddersfield-born, comprehensive-educated adviser Neil O’Brien, who wrote of the need for the Tories to decontaminate their brand in urban regions during his time as director of Policy Exchange. That Osborne embraced such an interesting thinker is evidence, say Tory MPs, of his intellectual restlessness, contrasting him with the dependable but unimaginative Cameron.

But like a rock star whose new album includes traditional material for older fans, the Chancellor is playing some familiar tunes. He has revived his 2007 pledge to raise the inheritance tax threshold to £1m. It was this policy that spooked Gordon Brown into abandoning plans for an early election and that earned Osborne his reputation as a strategic grandmaster. But the politics is not uncomplicated for him. If the measure will appeal to aspirational voters, the decision to prioritise the reduction of a tax paid by just 4.9 per cent of estates risks reinforcing the Tories’ status as the party of the privileged. Few policies more sharply contradict Michael Gove’s exhortation to be “warriors for the dispossessed” and to penalise “the undeserving rich”.

The Budget promised less post-election austerity than implied by the Autumn Statement, as Osborne sought to neutralise Labour's 1930s attack line. But because of his ambition of a surplus by the end of the next parliament, accompanied by no further tax rises, a fiscal chasm remains between his plans and those of Labour. Ed Balls’s decision to leave room to borrow to invest would give him nearly £30bn of additional spending each year.

It was partly the fear of massacred public services that denied the Tories a majority in 2010, in the most propitious circumstances. Osborne’s wager is that their unexpected resilience will persuade voters that further austerity is tolerable; that fear of a “tax bombshell” and “economic chaos” under Labour will predominate.

When the Tories entered office, some doubted that this question would even arise. The belief was that they would be evicted from government on a wave of popular outrage over the cuts. But the wave never came. Osborne has managed failure well indeed.