“There could be a World War,” says David Cameron. “Or even worse, house prices might fall”, George Osborne replies This imaginary conversation, shown in speech bubbles and under the headline “Project Fear Brexit goes Nuclear”, appeared on the front of Private Eye last month. The cover worked, as good satire always does, because it contained a strong element of truth.
A high proportion of voters do believe, after all, that the government has taken “Project Fear” to absurd “nuclear” levels. Those of us who want to leave the European Union, having been dubbed “economically illiterate” by the Chancellor, have since been told by our Prime Minister that we’re “quitters” who are making Islamic extremists “happy” and “threatening peace and stability across Europe”.
For a statement initially viewed as “inconsequential” and “one to forget”, the political shockwaves from George Osborne’s mid-March budget continue to reverberate.
The rumblings over the planned £1.3bn-a-year “cut” to disability benefits, specifically Personal Independence Payments, started early. I use inverted commas because the Chancellor actually proposed a reduction in the planned increase in spending on PIPs – made to adults with long-term disabilities that restrict mobility and the completion of daily tasks.
PIPs expenditure is still set to rise, the budget documents show, from £16.2bn this year to £18.2bn in 2019. And the cost of the benefit has anyway already spiralled. As recently as 2013, the Office for Budget Responsibility put the PIPs bill for 2019 at around £14bn. Yet Osborne just allocated over £4bn more for PIPs spending that year in his latest budget.
This column is sometimes accused of being too downbeat about Britain’s economic prospects. I’ve just been joined in my apparent gloominess by none other than George Osborne.
The UK faces a “dangerous cocktail” of economic risks in a “very challenging world” the Chancellor declared last week. Addressing business leaders in Cardiff, far from talking up the UK’s prospects, Osborne issued a stark warning. “Anyone who thinks that it’s mission accomplished with the British economy is making a grave mistake,” he said.
Keeping up with last week’s Autumn Statement was all about staying upright, with your eyes wide open, in a blizzard of statistics. The numbers come thick and fast.
George Osborne plans to spend an extra £10bn on the NHS by 2020, he told us last Wednesday, while building 400,000 affordable homes. The police budget is protected and, burnishing his “one nation Tory” credentials, the Chancellor channeled further billions into foreign aid – now on course to receive more funding, by the end of this Parliament, than our very own Home Office. Then we had the headline-grabbing “rabbit”, as Osborne stunned the Commons by scrapping most of the controversial cuts to tax credits announced in his July post-election budget – wiping out a £4.4bn saving.
“You turn if you want to,” she said icily. “The Lady is not for turning”. I’m old enough – just – to remember hearing a then newish Prime Minister utter these words on News at Ten. What no-one knew at the time, but is obvious now, is that Margaret Thatcher’s speech to the 1980 Conservative Party conference marked the moment the grocer’s daughter from Lincolnshire melted away and the Iron Lady was forged.
The trade unions were militant, unemployment was sharply up and Britain had just suffered its humiliating “winter of discontent”. Thatcher’s response to economic stagnation, ubiquitous strikes and creeping statism wasn’t to buckle like previous Tory prime Minister Ted Heath, mollifying vested interests with ever more government largesse. She set out, instead, to tackle the unions, liberalize the UK economy from its sclerosis and, above all, amidst howls of protest, rein-in public spending.
Since the Conservative party conference in Manchester, much ink has been spent and airtime filled poring over the speeches of Messrs Cameron, Osborne and Johnson. Among the Westminster cognoscenti, some relatively clear conclusions have emerged.
The Prime Minister is “at the height of his powers”, we read, his speech “shifting his party to the centre-ground, like Blair but from the opposite direction”. The Chancellor is “a safe pair of hands” and “assured”, the political sketch-writers tell us, clearly “the leader-in-waiting”. As for the London Mayor, he remains “good at telling jokes” but “will have to show more than humour if he’s to launch a genuine bid for Number 10”.
George Osborne is just back from a five-day trip to China. The chancellor shook hundreds of hands and travelled thousands of miles to encouraging deeper trade links between the UK and the People’s Republic. As such, he now stands accused of kowtowing to the Chinese. I’d say such criticism is nonsense.
I’m no Osborne cheerleader. This column often highlights, for instance, the gulf between the Treasury’s “austerity” rhetoric and what’s actually happening to our public finances. While the annual budget deficit has fallen from the mind-blowing 11.4pc of GDP the Chancellor inherited in 2010, it remains huge at 5.7pc of national income – higher than when the UK went cap-in-hand to the International Monetary Fund in 1976.
Free of his pesky Liberal Democrat coalition partners, George Osborne was last week finally able to present a “totally Tory” budget – the first since 1996. With a Parliamentary majority, and a general election the best part of five years away, the Chancellor was well-placed to do what Conservatives are supposed to do, taking further steps to get our public finances in order. Except that he didn’t.
Since last week’s Commons set piece, Osborne has rightly won political plaudits. His package of measures displayed trademark strategic acumen and rhetorical guile. By putting welfare cuts front-and-centre and finally pledging to spend 2pc of GDP on defence, the Chancellor burnished his credentials among the Tory faithful, positioning himself for the party leadership contest which, it is widely assumed, will take place later this Parliament.
George Osborne is right. News that the main measure of UK inflation turned negative for the first time since 1960 isn’t a cause for concern. Yes, prices in April fell, which means deflation is official – and that hasn’t happened for over half a century. As the Chancellor says, though, UK deflation is far from entrenched and will rapidly reverse.
I’m more worried about early but significant signs of distress on Western sovereign bond markets. Our newly elected Government should be worried too. The British state is still borrowing very heavily, servicing an ever-growing debt pile. And if the UK gilts market goes haywire, with yields rising as investors demand higher returns, that would upend the economic recovery and put a somewhat different gloss on the Tories’ second term.
“The sun is starting to shine and we’re fixing the roof,” said a svelte-looking George Osborne. While last week’s budget involved a touch of fiscal loosening, and some predictably ridiculous statistical sleight of hand five years hence, the most important aspect of the Chancellor’s final Commons outing before the election was that he didn’t open the sluice gates and let public spending rip.
Yes, I know the pace of fiscal consolidation in the next Parliament, on these budget-day plans, is to be a bit slower, with a surplus of £7bn expected in 2019-20 rather than the £23bn outlined in the Autumn Statement. As such, the Tories will now apparently miss, just, reducing government spending as a share of GDP “to its lowest level since the 1930s”.