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Osborne proves to be a lucky chancellor blessed with a less lucky opposition Osborne proves to be a lucky chancellor blessed with a less lucky opposition
(about 1 hour later)
Many politicians know luck and chance can be the covert kingmaker in their trade, and as pure a political figure as the chancellor, George Osborne, will know quite how fortunate he has been today with his four-year spending review.Many politicians know luck and chance can be the covert kingmaker in their trade, and as pure a political figure as the chancellor, George Osborne, will know quite how fortunate he has been today with his four-year spending review.
The review, setting the frame for the whole of the second-term government, still contains the predicted pain, massive cuts in local government and job losses, but nothing on the scale Whitehall feared.The review, setting the frame for the whole of the second-term government, still contains the predicted pain, massive cuts in local government and job losses, but nothing on the scale Whitehall feared.
His speech contained some skilfully disguised horrors, and as yet unexploded bombs, but the overall tone was more reminiscent of a Gordon Brown budget, largesse despatched hither and thither to populist causes, from sport and the police frontline to tampons.His speech contained some skilfully disguised horrors, and as yet unexploded bombs, but the overall tone was more reminiscent of a Gordon Brown budget, largesse despatched hither and thither to populist causes, from sport and the police frontline to tampons.
Related: George Osborne scraps tax credit cuts in welfare U-turnRelated: George Osborne scraps tax credit cuts in welfare U-turn
If Osborne has one person to thank for this, it is Robert Chote, the director of the Office for Budget Responsibility, the independent fiscal regulator. If Osborne has one person to thank for this, it is Robert Chote, the director of the Office for Budget Responsibility (OBR), the independent fiscal regulator.
Over its short life, the OBR has not always been the chancellor’s best friend. In the first half of his first period as chancellor, Osborne was repeatedly hit by the OBR downgrading his forecasts, leaving him with a worse hand than he hoped.Over its short life, the OBR has not always been the chancellor’s best friend. In the first half of his first period as chancellor, Osborne was repeatedly hit by the OBR downgrading his forecasts, leaving him with a worse hand than he hoped.
But in this parliament, the OBR has thrown aside some of its caution. In the few months since its summer forecast, the OBR has found a £27bn improvement in revenues through better tax receipts and reclassifications to national insurance, and lower than expected inflation. Just when Osborne needed a decent hand, the OBR dealt him something close to a royal flush.But in this parliament, the OBR has thrown aside some of its caution. In the few months since its summer forecast, the OBR has found a £27bn improvement in revenues through better tax receipts and reclassifications to national insurance, and lower than expected inflation. Just when Osborne needed a decent hand, the OBR dealt him something close to a royal flush.
Osborne could have used this windfall to pay down the debt, but instead he has chosen to spend it on health, security, police and slower than expected cuts to Whitehall.Osborne could have used this windfall to pay down the debt, but instead he has chosen to spend it on health, security, police and slower than expected cuts to Whitehall.
It still leaves problems. Local government funding halved, leaving councils to rely on asset sales and incomes from business rates. There are real-terms cuts to the schools budget, further reforms to the work programme, and cumulative cuts to welfare in the unprotected departments. The social care precept is a sticking plaster, especially for northern councils with low council tax bases. It still leaves problems. Local government funding halved, leaving councils to rely on asset sales and incomes from business rates. There are real-terms cuts to the schools budget, further reforms to the work programme and cumulative cuts to welfare in the unprotected departments. The social care precept is a sticking plaster, especially for northern councils with low council tax bases.
But the political meat of the spending review lies in the extent and cause of George Osborne’s U-turn on tax credits. The numbers are plain enough in the Treasury Red Book. The reversal costs him £9.3bn over the forecast period. But the political meat of the spending review lies in the extent and cause of George Osborne’s U-turn on tax credits. The numbers are plain enough in the Treasury red book. The reversal costs him £9.3bn over the forecast period.
Osborne has decided to execute a graceful U-turn, but it just underlines how much the original decision in the summer budget to cut tax credits by so much was not just an act of hubris, but a precision-guided Exocet aimed at in-work strivers, the social group the second-term Tory party is supposed to cherish the most. Osborne has decided to execute a graceful U-turn. But it just underlines how much the original decision in the summer budget to cut tax credits by so much was not just an act of hubris but a precision-guided Exocet aimed at in-work strivers, the social group the second-term Tory party is supposed to cherish the most.
As a result, Osborne will now have to despatch an employment minister, probably a junior one, to go to the Commons to seek MPs’ permission to break his self-imposed welfare cap for three successive years.As a result, Osborne will now have to despatch an employment minister, probably a junior one, to go to the Commons to seek MPs’ permission to break his self-imposed welfare cap for three successive years.
The welfare cap was always a piece of cheap electioneering, similar to the charter of fiscal responsibility, introduced by Osborne in a bid to lay a political trap for the shadow chancellor, Ed Balls, before the election. It is probably some kind of just deserts that it is Osborne himself who has now collapsed into the trap of his own making.The welfare cap was always a piece of cheap electioneering, similar to the charter of fiscal responsibility, introduced by Osborne in a bid to lay a political trap for the shadow chancellor, Ed Balls, before the election. It is probably some kind of just deserts that it is Osborne himself who has now collapsed into the trap of his own making.
The alliance that prompted the change was overwhelming. The Labour work penalty campaign; the brave Tory backbenchers who voiced their doubts when it was not fashionable; Frank Field, the astute chair of the work and pensions select committee; thinktank the Resolution Foundation that provided the statistical ammunition to show the scale of the tax credit damage; the Sun newspaper; and finally a devastating speech by the Labour peer Baroness Hollis in the much-reviled House of Lords. Instead of trying to curb the powers of the Lords, Osborne should send them a thank you note. The alliance that prompted the change was overwhelming. The Labour work penalty campaign; the brave Tory backbenchers who voiced their doubts when it was not fashionable; Frank Field, the astute chair of the work and pensions select committee; thinktank the Resolution Foundation that provided the statistical ammunition to show the scale of the tax credit damage; the Sun newspaper; and finally a devastating speech by the Labour peer Baroness Hollis in the much-reviled House of Lords. Instead of trying to curb the powers of the Lords, Osborne should send them a thank-you note.
Tax credits were due to be replaced in this parliament anyway, as more claimants go on to universal credit. It was a less remarked-upon feature of the summer budget that Osborne had also cut the value of universal credit – the Resolution Foundation says by 2020 more than 3m households are still set to lose an average of £1,000 from the £3.5bn cut to UC. Tax credits were due to be replaced in this parliament anyway, as more claimants go on to universal credit (UC). It was a less remarked-upon feature of the summer budget that Osborne had also cut the value of universal credit – the Resolution Foundation says by 2020 more than 3m households are still set to lose an average of £1,000 from the £3.5bn cut to UC.
However, heroic assumptions also have to be made about the numbers that will be on UC by the end of the parliament. Tucked away on p137 of the Office for Budget Responsibility report is a table showing seven successive forecasts to the numbers on UC. In March 2013, the caseload was forecast to be 7.5m by 2018-19, and now that forecast for the same year is 2.5m.However, heroic assumptions also have to be made about the numbers that will be on UC by the end of the parliament. Tucked away on p137 of the Office for Budget Responsibility report is a table showing seven successive forecasts to the numbers on UC. In March 2013, the caseload was forecast to be 7.5m by 2018-19, and now that forecast for the same year is 2.5m.
Universal credit remains probably the single biggest domestic policy nightmare of this parliament, but for now, Osborne can breathe a sigh of relief. A lucky chancellor doubly blessed with a less lucky opposition.Universal credit remains probably the single biggest domestic policy nightmare of this parliament, but for now, Osborne can breathe a sigh of relief. A lucky chancellor doubly blessed with a less lucky opposition.