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The risks for Osborne now he's back on top

Success for the Chancellor fuels the Tories' in-house conspiracy theorists

22 March 2014

9:00 AM

22 March 2014

9:00 AM

The old Budget traditions are dying off. No Chancellor has observed Budget purdah, the tradition of not speaking about the economy for two months beforehand, since Norman Lamont. These days, the Chancellor even appears on the BBC on the Sunday before the Budget to begin the drum roll of announcements. The convention by which he exercises his prerogative to have an alcoholic drink as he delivers the speech has also fallen into abeyance. Ken Clarke, with his glass of whisky, was the last chancellor to have a tipple as he spoke.

But some customs remain. The Chancellor still appears in Downing Street with his red Budget box and they all try to produce a rabbit, a surprise to grab the headlines and wrongfoot their opponents. Osborne’s rabbit was aimed at those most likely to vote, the old. He introduced pension bonds, removed the need to buy an annuity and abolished the 10p tax rate on savings. Savers have borne the brunt of quantitative easing and low interest rates, and these changes should cheer those whose electoral support is crucial for the Tories.

Osborne’s overall aim, though, was to show that the job is not yet done. He wants voters to know there is still a long way to go to create a ‘resilient economy’: one that can weather the financial squalls threatening to become a feature of 21st-century capitalism. As part of this, there were measures to check the increase in public spending, to promote exports and help manufacturing.

What the Budget told us was more about the resilience of the coalition and the Chancellor than the economy itself. The Budget showed that, when it wants to, the coalition can still operate as a functioning government. In the last few months, there have been plenty of coalition flashpoints. Details of the Queen’s Speech Cabinet meeting leaked within minutes and the two sides have been increasingly eager to rain on each other’s parades. But the Budget process has been noticeably free of these shenanigans. There was a recognition that, in the words of one senior Liberal Democrat, this was ‘core government business’. As a result, both sides behaved themselves.


Tellingly, when a row about a Tory attempt to take credit for a further increase in the tax-free allowance threatened to upset the whole Budget process, the Tories calmed their rhetoric. There was an acceptance that this Budget was too important to fall prey to coalition rows. The Budget offers a road map for how the coalition parties can handle the 14 months between now and the general election. They can argue and brief against each other on peripheral issues as long as they stick together on the coalition’s founding purpose of righting the economy.

At the top of the coalition, there is an expectation that between now and the election, the rows will be far more frequent but far less consequential. Why? Because most of the disputes will not be about what this government should do, but what the two parties plan to do after 2015. In these arguments, both sides will be able to denounce the other without disrupting government business. Indeed, the coalition has become remarkably adept at not letting its public rows affect state business. I suspect that the two leaderships will prove equally adept at forgetting these rows altogether if parliamentary arithmetic forces them together again after the next election.

This ability to separate the central business of government from the political rows of the moment is how coalition survives, even with both parties in full, pre-election mode. But if the stamina of the coalition is striking (remember how few back in 2010 expected it to make it all the way to 2015), the Chancellor has proved if anything, even more resilient.

Osborne’s political career has been characterised by dramatic highs and lows. In opposition, the inheritance tax pledge that scared Gordon Brown out of holding an early election was followed by the Deripaska affair which almost cost Osborne his job. In office, the success of his 2010 emergency Budget was followed by the political disaster of the 2012 one. At one point, he was in danger of presiding over a triple-dip recession. But now the economy is in recovery and with it Osborne’s political stock.

This revival brings complications. When Osborne’s stock is high, it is assumed that he is constantly trying to work out how he can succeed his friend David Cameron. Too many Tory MPs respond to his every move by asking, ‘I wonder what he meant by that?’ The extent to which Osborne and his allies are thinking about the leadership is vastly overstated. But Osborne is an imperial Chancellor, with his interests ranging across every part of government. One attendee at a recent National Security Council meeting on Ukraine was struck by how, despite the Budget looming, Osborne was the one most engaged with how to deter Vladimir Putin.

Osborne is not an economist by training, but he has an acute sense of the changes he can instigate from the Treasury — witness the introduction of a childcare tax break that benefits couples where both parents work.

There are also wider changes to the economy that Osborne wants to enact. He wants to boost exports, hence him doubling the amount of government export financing and reducing the interest charged on it by a third. He is also keen to reduce the amount that government spends on welfare. The welfare cap he is bringing in will require the government of the day to come to the House of Commons when welfare spending is going to exceed £119 billion in today’s money.

No government is going to want to do that or face the rap for scrapping the welfare cap. So this will become a permanent addition to the political landscape, tilting it slightly to the right. Another thing that will entrench this idea is Osborne’s introduction of personal tax statements detailing precisely what people’s taxes are spent on.

Osborne did not want to deliver a typical pre-election Budget. A slew of giveaways would have undermined his argument that there is still a long way to go to secure the recovery. But he did want to set the terms of political debate, to make any deviation from his plans look risky. The test of whether he has succeeded in that will come when the election campaign proper gets under way.


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