Osborne can still see off Boris

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[/audioplayer]When George Osborne last stood up to deliver a budget, he had reached his post-election apotheosis. His economic (and political) strategy had been amply vindicated by the election result. He was, for the first time, regarded as David Cameron’s most likely successor. By the time the Chancellor sat down that status had been confirmed: his announcement of a National Living Wage had shown he was serious about the Tories’ claim to be the new workers’ party. Yet when Osborne comes to the despatch box on Wednesday to present this year’s budget, he will do so not as the prime minister-presumptive, but rather as a Chancellor in need of a political pick-me-up. To become the front-runner in a Tory leadership contest, even one several years away, is to put a target on your back, and Osborne has had a tough time lately. He has had to scrap the tax-credit changes he unveiled last July. This time he was keen to create a single rate of pension tax relief — which would have hurt higher-rate taxpayers. But he has been forced into ruling that out after a backbench and media backlash. One senior Conservative MP, who as recently as the start of this year was intending to back Osborne as leader, tells me that the seriousness with which this idea was considered has led to a ‘breakdown of trust between the Chancellor and the parliamentary party’. Osborne also finds himself on the opposite side to most party activists on the great issue of our time: the EU referendum. He wants to stay while most of them want to go. In the leadership stakes, he now finds himself trailing his ‘frenemy’ Boris Johnson. Even one of the Chancellor’s ministerial allies now admits: ‘The share price has had a profit warning and ticked down a bit.’ There is, though, reason to believe that Westminster is being overly bearish about the Chancellor’s prospects. First of all, he has already killed off the proposed pension changes. This means the heat has been taken out of the issue and the Osborne Cabinet ally who claims that the row ‘will be forgotten in no time as we’re not doing it’ is almost certainly correct. Second, when it comes to the future of the Tory party, the EU referendum dwarfs everything else. Osborne is caricatured as a Machiavelli — political and calculating. But he is taking a stance on the EU that he knows to be unpopular among those who will pick the next Tory leader. In both public and private, her is arguing for Britain’s EU membership with an intensity that goes far beyond what is required of a loyal lieutenant to the Prime Minister. One Tory who Osborne (unsuccessfully) tried to persuade to back ‘in’ says that he was struck by how much the Chancellor believed even his weakest arguments. The conventional wisdom is that the EU referendum has reduced Osborne’s chances of becoming leader and, therefore, Prime Minister. But the referendum campaign has also served to thin out the field. Theresa May’s route to the top job could have progressed through her conference speech into a declaration for ‘out’. But the Home Secretary failed to follow the logic of her own address, which warned that it was impossible to build a cohesive society with immigration running in the hundreds of thousands a year. After she backed ‘in’, it became very hard to see how she can become leader. Sajid Javid, the Business Secretary, is another leadership contender who flirted with Brexit. In the end he concluded that the disruptive effects of leaving the EU would be too great in the current economic climate. Javid knew that he would pay a high political price for his decision. ‘Outers’ are angry that he isn’t with them while ‘inners’, including several of his Cabinet colleagues, are mocking him for getting into such a position in the first place. He had to either confess his fairly weak preference for ‘in’ and be lampooned, or fake enthusiasm for ‘out’ as a careerist gamble. Javid declined to gamble. Then there’s Boris. His decision to back ‘out’ has made this referendum far more competitive: Vote Leave now has the most charismatic politician in the country on its side. It has also boosted his popularity at the grassroots. The way he is putting his shoulder to the wheel has impressed even those Eurosceptic Tory MPs who were wary of his motives. But Boris’s decision to back ‘out’ has also cost him some support. ‘In terms of the longer game, he’s annoyed a whole lot of MPs who would normally be natural Boris supporters,’ says one ‘in’-voting minister. Despite this, Boris is undoubtedly now the front-runner to succeed Cameron. And that means he has a target on his back. Boris’s decision to back ‘out’ will pay off if he has a good campaign that comes within striking distance of victory. If Brexit triumphs, Osborne’s leadership prospects will be over. But if ‘in’ wins, he will still have a chance. Those close to the Chancellor believe he can show that he respects the ‘out’ wing of the party. They hope Michael Gove (the conscience and intellectual driving force behind ‘out’) will be to the Chancellor’s leadership campaign what Osborne was to Cameron’s in 2005. Tellingly, Osborne has been far more assiduous in tending to his relationships with ‘outers’ than Cameron. In this budget, he needs to demonstrate, definitively, that the Tories are the party of working people. This is the best antidote to the charge that he is part of every elite going. But far more needs to be done to further this agenda and follow up on the living wage. If Cameron has his way, there won’t be a leadership contest for another three years and a lot can happen in that time. In the spring of 2013, few predicted that he would now be governing with an overall majority, that the SNP would hold nearly every seat in Scotland or that Jeremy Corbyn would be Leader of the Opposition. It would be rash and wrong to write off Osborne’s chances of succeeding Cameron. If his side wins the referendum and the economy continues to outperform the rest of Europe he will be a contender.