The chancellor’s bright-eyed optimism that served as the coalition’s defining mission turns to dust in the Commons
The disaster of March and the omnishambles budget meant the bar was set low for George Osborne’s autumn statement. So long as he avoided a move as politically disastrous as his slashing of the 50p top rate, so long as he didn’t riddle his text with a cluster of tax bombshells – like those that exploded in the face of grannies and pasty-eaters – the Conservative benches would exhale with relief. The Tories’ poll numbers have never recovered from the damage inflicted by that spring budget, so their minimal demand was an autumn statement that did no obvious further harm.
Judged by that low standard, Osborne survived his test: there were no obvious, fall-down-flat stumbles. If you were looking at the small picture, it looked acceptable. But the big picture was bleak. The chancellor came to the House of Commons to announce that everything he had once promised and predicted was wrong.
The old, optimistic growth forecasts were torn up, replaced by the glum admission that this year the economy will have shrunk by 0.1%. The initial, bright-eyed vow that served as the defining mission of the coalition – to eradicate the deficit by 2015, thereby winning re-election as a reward for clearing up the economic mess – has turned to dust.
Osborne had to admit that the nation’s debt won’t even begin to fall as a share of GDP until a full year after the next election, in 2016/17. The age of austerity, once scheduled to last a single parliamentary term, will now stretch to 2018. Paul Johnson of the independent Institute of Fiscal Studies said the appropriate reaction to these numbers was to be “appalled”. Osborne tried to prettify his bulletin of gloom as best he could but, in US parlance, he was putting lipstick on a pig. He succeeded in wrongfooting Labour with the boast that the deficit – the amount by which the debt is increased each year – was shrinking.
That worked long enough to throw Ed Balls off his stride, but soon unravelled. The small print revealed that Osborne claimed a fall in borrowing largely by factoring in the proceeds of a 4G telecomms auction that has not yet happened. In the technical argot of economics, this is known as counting your chickens before they are hatched. And there was plenty more in that vein, plumping up the balance sheet with sums of money that have not yet come in and are far from guaranteed.
Osborne has two roles in the government, chancellor and chief electoral strategist, but it is a mistake to think of these as separate. Every decision he takes is political and this was an intensely political mini-budget. For one thing, he gave a clear preview of the strategy he will run in 2015. Since the message cannot now be “job done”, it will be instead “we’re on the right track, don’t turn back.” But if growth remains elusive, if Britain does enter a triple-dip recession and loses its cherished AAA credit rating in the new year – both of which are highly possible – that will become a harder argument to make.
Politics throbbed through every line of the speech. He announced a below-inflation, 1% increase on benefits, thereby cutting the living standards of some of the poorest members of society – to be approved in a Commons vote. Such a vote is not strictly necessary, but it is politically useful: now Labour will have to declare whether it’s for or against such a real-terms benefits cut. Osborne is calculating that the Labour base will demand a no vote, thereby positioning Ed Miliband on the side of the scroungers against the strivers, as the Tory machine will cast it. Crude, but the polling suggests public opinion will side with the government. That was one among several moves that suggested Osborne’s ear was finely tuned to the Conservative Home frequency. Its favoured groups did well, whether motorists rewarded with the cancellation of a 3p rise in fuel duty – the headline move designed to win tabloid cheers – or the elderly given a 2.5% rise in the state pension. The pain was to be most acute for those on benefits: squeezed already, they will bear the brunt of a £3.75bn cut in welfare spending. According to the Resolution Foundation, the poorest 10% will lose 1.2% of their income as a result of the main measures announced yesterday, while the richest 10% will lose just 0.2% of theirs.
There were some clear political winners and losers. Michael Gove emerged stronger, his education department praised for underspending its budget and rewarded with the scrapping of national pay scales for teachers. School heads will now be able to set their own, performance-related pay, setting up a confrontation with the teaching unions which Osborne and Gove may relish.
As for losers, it’s hard not to point once again at the Liberal Democrats. They briefed that it would have been so much worse if the wicked Tories had been allowed to have their way unimpeded, that Osborne would have slashed £10bn from welfare rather than £3.75bn.
But that argument wears thin when Nick Clegg has to sit silently while the chancellor trashes his mansion tax policy and spends so much more on his pet policies than on those demanded by the Lib Dems. The age of austerity is hard for the Lib Dems, but harder still for the country. And now we know it will go on and on, no matter how much George Osborne tries to make ugly numbers look pretty.