With one bound he was free!
George Osborne confounded the expectations of both his supporters and his critics on Wednesday by delivering an Autumn Statement that appeared, on the face of it, to put an end to his reputation as the Austerity Chancellor. He climbed down in the face of opposition to decisions he had claimed, as recently as July, were vital; and he distributed largesse where earlier he had promised to wield the axe. Has he become a vacillating chancellor who succumbs to pressure, or is he still pursuing the same austere goal by politically stealthier means?
Only a few days ago Mr Osborne’s strategy for the economy seemed to be coming unstuck. The toughest measure in his post-election July budget, cutting tax credits for the working poor, had been defeated by the House of Lords and faced huge criticism on his own backbenches. Figures for tax receipts in October had revealed that far less revenue was coming into the Treasury than had been expected. And there was talk of his being forced to abandon his main goal, turning the government’s finances from a huge deficit into a £10bn surplus by 2020. It seemed that in his Autumn Statement he would have to turn the screws on unprotected government departments, like the police, even more than he had warned and that he would be hamstrung in trying to alleviate the problem of tax credits.
But now the world suddenly looks very different. On Tuesday he responded to the growing evidence of continuing financial crisis in the NHS by bringing forward to next year extra money he had already promised for later. On Wednesday he non-plussed chief constables by giving them more funds rather than cutting their budgets. And in the greatest surprise of all, he simply abandoned entirely his previously sacrosanct policy of cutting tax credits next year. Yet at the same time he claimed he was still on course to achieve his cherished surplus by 2020.
So how has this magician’s trick been performed? Put at its bluntest, a whole load of money has unexpectedly been found down the back of the sofa. But is it “real” money? In days gone by, such a fortuitous discovery would have been regarded as meriting a very raised eyebrow. Back then, the Treasury was responsible for its own forecasts of things like tax revenue, economic growth and how much the government would have to borrow. And the Treasury, being run by politicians, was seen as hardly impartial in coming up with the numbers. But since 2010 the job of forecasting such matters has been in the hands of the independent Office for Budget Responsibility and it is the OBR which has been rummaging in the sofa. What it has discovered is that tax revenues over the next five years are likely to be higher than previously expected and what the government has to cough up in interest payments on its debts will be much less. That has left Mr Osborne with £27bn more to play with over the next five years than he thought he would have back in July.
This is the money that he has doled out to the police and others and that will save millions of recipients of tax credits from suddenly becoming much poorer next April. But does this largesse mean the end of austerity?
Far from it. Cuts to the daily running costs of some unprotected departments will still go ahead. Transport will have 37% less to spend on non-capital projects by 2020; the business department will be cut by 17%, environment by 15% and work and pensions by 14%. Indeed the relief to those on tax credits will prove only short-lived. Later in this parliament the whole tax credit system is due to be superseded by Universal Credit and it’s estimated that three million families will be worse off to the tune about £1,000 a year by 2020.
What is perhaps most striking about the Chancellor’s apparent easing of austerity, though, is his decision to take more of the strain in reducing borrowing through raising taxes rather than through cutting spending. Back in March he was aiming to cut government spending by 2020 by £41bn a year; now the cut has been reduced to £10bn. Instead he announced several major tax increases: stamp duty will go up substantially on second homes and buy-to-let properties; businesses will have to fork out an extra £3bn a year to finance apprenticeships; and councils will be allowed to raise council tax, especially to finance the increased costs of social care. As Robert Chote, the boss of the OBR put it: “There will be less reliance on public service cuts and more reliance on revenue increases and welfare cuts.” This readiness to increase taxes is not what many on the right of the Conservative Party think they went into politics to do.
Indeed Mr Osborne could be said to have stolen his opponents’ clothes, or at least the clothes of the opponents he was facing at the last election. As my colleague, Nick Robinson, put it when he was interviewing the Chancellor on Thursday: “When did you discover the inner Ed Balls in you?”. The point is that at the election Labour was arguing that much more of the burden of reducing the deficit should be shouldered by tax increases while Mr Osborne was insisting that spending cuts should overwhelmingly take the strain. The Chancellor has now, to some extent, taken their advice.
It is not the first time Mr Osborne has attacked Labour for irresponsibility and then done what they suggested. Back in 2012, when Labour was saying he was cutting “too far and too fast”, he eased up while claiming he was still pursuing his initial tough course.
The Chancellor is clearly of the view that votes are to be won in Britain by talking tough but acting a bit more gently. He has a personal motive for doing so. He believes that Labour’s move to the left under Jeremy Corbyn (and the Mao-quoting John McDonnell) has provided the Tories with the opportunity to occupy the centre ground and stay in office, with himself as prime minister, well into the next decade.
But there are risks in the willingness to trim and even adopt the policies of his critics, such as he has manifested this week. In the first place it exposes him to the charge of being willing to succumb under pressure, so encouraging others who want something out of him to try their luck. But his absorbing of those pressures this early in the parliament mean that if he is still determined to achieve his goal of a financial surplus in 2020, the tougher measures he will need to take will be applied at the end of the parliament, just before the next election which he hopes to lead his party into.
There is, of course, a way out for him there too. He could simply abandon the dream of the surplus. Plenty of people, including some eminent economists, think it is a wrong-headed goal anyway. So perhaps the flexible, one-bound-and-I’m-free, magician chancellor will have some other escapist tricks up his sleeve.
How convinced are you by George Osborne’s Autumn Statement?