This Budget was a reminder that political tactics alone are not enough to explain George Osborne’s actions. The most striking thing about it was the political risks that it took for economic growth. If Osborne was the polling-obsessed politician that his critics claim he is, he wouldn’t have gone near the 50p rate — nor would he have backed more toll roads.
This is not to say that there isn’t a lot of politics in his political economy. Underpinning each of Osborne’s Budgets is a desire to turn Britain back into a Conservative country, to undo Gordon Brown’s 13 years of statist social engineering. He believes, rightly, that countries with small states and large private sectors are much more likely to elect centre-right governments.
To the frustration of some on the right, Osborne chooses to do this through a series of nudges rather than one big shove. The decision to send taxpayers a detailed breakdown of where their money goes is a typical Osborne gambit: a seemingly small change but one designed to move the debate off social democratic ground. The hope is that this annual reminder of where everyone’s taxes go will act as an antidote to the constant calls for more spending from pressure groups and the media.
When Osborne and his closest aides met in the Treasury on Tuesday night, their sense was that this Budget is the axis which the parliament will turn. As they worked on the remaining details, they were all aware that it represented their last best chance to make the difficult choices necessary for growth. One of those present says, ‘If we’re not taking difficult but right decisions now — in the second year of the parliament — then when do we?’
There are three factors behind these touches of radicalism. The first is the realisation that sustained growth before 2015 is, by no means, a given. Back in those heady May days when Clegg and Cameron first stood together in the Downing Street garden; the assumption was that the economy would be in full bloom from 2013. This, it was thought, would provide the coalition with the revenues necessary for a classic pre-election Budget: a middle class tax cut or two for the Tories, an increase in the pupil premium for the Liberal Democrats.
But the continuing troubles in the eurozone, the legacy of the banking crisis and the spike in energy prices have put paid to that dream. Instead, there’s a realisation that three percent growth won’t come without reform: there’ll be no reward without political risk.
The second factor is that the government has begun to appreciate just how long it takes to get anything done in government. There have been two Cabinets held in the last four weeks to review the progress made since last year’s growth review. In both meetings, David Cameron demonstrated that he has fully abandoned his strategy of letting ministers run their department with little supervision. Instead, he now favours robust exchanges in which ministers are forced to defend their departmental records to their colleagues. One minister remarked to me after the first of these sessions, ‘It was quite unlike all the other meetings we have had. The questioning was acid.’
One who came under particular fire was the Environment Secretary, Caroline Spelman. She was left protesting that she had set up a problem solving unit to try to deal with the obstacles thrown up by her department and its quangos. But, to the dismay of her colleagues, further inquiries revealed that the unit has the equivalent of only three full-time staff.
The final factor is that the Chancellor and his ‘brains trust’ have now had time to turn their full attention to growth. One member of it explains that ‘We came in during a fiscal crisis and we set out a solution to that. That was necessary but not sufficient for growth. But now that we’re winning the argument on that, we can move on to the next step.’ The biggest growth measure in the Budget is that, overall, it cuts taxes; paid for by cutting out some unproductive spending.
Predictably, the change that is attracting the most attention is the drop in the 50p rate. This tax was one of the many snares that Gordon Brown left behind for his successors. It landed Cameron and Osborne with a new politically popular tax that was economically disastrous. Brown’s very political motives were quite clear because the tax only came into effect during the last election campaign. Brown knew that he would be long gone by the time it started hurting the economy.
It was after the autumn statement last year that Osborne decided he had to crack on with getting rid of it. His meetings with businessmen and potential foreign investors had convinced him that the rate was the equivalent of a neon sign declaring that Britain was not open for business. His hope is that cutting the 50p rate will foster those animal spirits that have been so absent these past few years.
Brown’s 50p trap was a classic example of how incumbents have the power to set the terms of debate. What they propose becomes the starting point for all political discussions; which is how Osborne — who didn’t spend a decade Brown baiting for nothing — intends to have his revenge on Labour.
In the Budget, he announced that the next spending review — which spans the 2015 election — will have to make £10.5 billion of savings in welfare if other departmental cuts are not to go deeper. This is a classic Osborne move. It forces Labour to fight on Tory territory and leaves them facing an unpalatable choice. A party that wasn’t prepared to vote to cap benefits at £26,000 for able-bodied, workless households now has to decide whether to back a set of stringent welfare cuts or to advocate higher taxes or deeper cuts elsewhere.
Ultimately, the test of this Budget will be whether the risks Osborne has taken deliver the growth that Britain so desperately needs. If they do, it will be a classic example of enlightened self-interest: for it is robust growth that is most likely to deliver Osborne’s Tory majority.
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