A few years ago George Osborne would have bristled at the idea that one of his budgets wouldn’t be the biggest event of the political week. His ability to conjure rabbits out of hats had already prevented electoral defeat for the Tories once (his 2007 inheritance tax pledge, now consigned to history, scared Gordon Brown out of calling an election he would have won).
But this week a low-key Budget was just what Osborne wanted — and delivered. One imagines, though, that he can’t be happy with the careless way that Downing Street managed to alienate almost the entire press just 72 hours before he got up to deliver it.
I understand that an inquest is now under way at No. 10 into who allowed Oliver Letwin to wander off by himself and negotiate press regulation in Ed Miliband’s office in the wee hours of Monday morning.
The Chancellor wanted to avoid a repeat of last year’s Budget troubles: this year’s statement was free of the pernickety measures littered throughout last year’s. His tone was sombre.
This was a more distinctly Tory Budget than Osborne’s previous ones. As those close to him delighted in saying, it cut spending to cut taxes. The reduction in the corporation tax rate to 20p emphasised the government’s efforts to make Britain competitive in ‘the global race’. The employment allowance, allowing employers to hire four staff on the minimum wage without paying employer’s national insurance, is a move to cheer those Tories who rightly fear the impact of our tax and regulatory system on small businesses.
Overall, though, Osborne’s message was that we need to keep on keeping on. This was leavened by various measures designed to ease the squeeze on family budgets. The abandonment of the 3p rise in fuel duty was meant to show the hard-pressed that the government is doing what it can to make life easier; while the cut in beer duty is a sort of reverse pasty tax, a measure to demonstrate that Osborne appreciates the importance of the working man’s pleasures. It also had the benefit of cheering the Sun, which had campaigned for it. The Tory leadership will be hoping that this ensures that the Sun doesn’t savage this year’s Budget as it did last year’s.
Meanwhile, in Cyprus, the banks are shuttered as the government tries to find a bailout deal acceptable to its people. The British government even flew a planeload of euros over to help out British troops based on the island. The Chancellor, understandably, made much of the contrast between the uncertainty in Cyprus and the relative stability here.
The situation in Cyprus is a reminder that the euro crisis has yet to reach its denouement. The various deals cobbled together over the past few years have not solved the problem, merely delayed it.
By forcing their parliament to reject the proposed terms of the bailout deal, the Cypriots have shown that there’s a limit to the amount of pain that southern European countries are prepared to accept in the name of the euro. But, equally, northern Europe politicians have no desire to appear a soft touch. The German Chancellor is particularly sensitive on this point. She has an election this autumn. Angela Merkel and the troika — the European Commission, the ECB and the IMF — also know that handing the Cypriots better terms would encourage other southern European countries to reject their bailouts. The Irish have already used Portugal’s more favourable terms to negotiate a reduction in the interest rate on their loans.
The Cypriot stand-off is yet another illustration of the fundamental contradiction at the heart of the euro: monetary union without political union doesn’t work. The situation is also a reminder of one of the paradoxes of British politics. The worse the situation is in the eurozone, the better it is for the coalition politically. The government doesn’t like to hear this. They point to the fact that uncertainty in the eurozone is one of the factors preventing the return of economic confidence. But trouble in the eurozone does help the coalition make its case. It illustrates what happens when a country loses the confidence of the markets and puts Britain’s problems into perspective.
Think back to May 2010. The formation of the coalition was driven by a sense of urgency created by Greece’s rising bond yields and the riots on the streets there. Indeed, the coalition’s loss of popularity has coincided with the eurozone crisis moving from an acute phase to a chronic one. If the crisis becomes acute again, I expect that the coalition parties’ position in the polls to improve even though the economy would suffer.
Taken in isolation, the coalition’s economic record is not impressive. The economy has flatlined over the past three years, inflation has risen faster than wages, making people worse off, and we have lost our triple A credit rating. This is why Cameron and Osborne are trying to make the next election a choice between them and Labour. The Prime Minister even devoted the peroration of his speech to the Tory spring conference to what Labour would do in its first days in office if it won in 2015. This very public contemplation of defeat was meant to concentrate the mind of his party. But in time, the Tory leadership hopes it will do the same for the country.
If they can succeed in making the next election a choice, then the Tories will be in a surprisingly strong position. A poll last week found that Osborne has an approval rating of minus 33. But it also showed that more people think that Ed Miliband and Ed Balls would do a worse job with the economy than David Cameron and George Osborne.
The Office for Budget Responsibility’s grim forecasts suggest that the next election will be fought before the voters have felt much of a recovery. The coalition will not be able to say to the electorate that it has returned the economy to rude health. Instead, it will have to argue that it was an achievement to stabilise it and that the Labour approach would send it back into intensive care. That case will be that much easier to make if there are banks in Europe that are being forced to stay shut for fear of what would happen if they opened.
James Forsyth and others discuss the Budget in this week's podcast, The View From 22 new.spectator.co.uk/podcast.