Budget showed us the two Osbornes: the sadist and the political magpie
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Version 0 of 1. There are two views of George Osborne. There’s the George Osborne who wakes up in the morning thinking up ways to shrink the state. Osborne the slasher, Osborne the sadist, Osborne the friend of the bankers and the hedge fund dealers. But there’s also Osborne the pragmatist, Osborne the political magpie not averse to stealing policies from his opponents, Osborne the chancellor who sees himself as the latest in a long line of one nation Tories. This Osborne does not go to bed at night thinking about whether public spending should be 35% of national income as opposed to 40% of national income. He snuggles down with thoughts about how to win elections. Related: A pure and uncut Osborne delivered a budget that sucked up all around him There were glimpses of the harsher side of the chancellor in his seventh budget – the first to be a truly Conservative package in almost 20 years. Four years of 1% wage increases represent a real cut in living standards for public sector workers and will cause problems of recruitment and retention. The decision to limit tax credits and universal credit to two children is a crude form of social engineering. Exempting pensioners – the bedrock of Conservative support – from any of the pain associated with balancing the government’s books is politically cynical. But there was more to the budget than that. This was a budget that included measures Ed Balls might have introduced had Labour won the election: the crackdown on non-doms; a training levy for bigger companies; making the tax breaks for buy-to-let landlords less generous. There was extra money for the NHS and, most signficantly of all, the announcement of a compulsory national living wage from next April. This shows how far the Conservatives have come from the days when they opposed the national minimum wage, introduced by Tony Blair in his first administration. Osborne’s plan to have the NLW at £9 an hour by the end of the parliament is more generous than the commitment made by Ed Miliband to raise the minimum wage during the election campaign. Osborne’s critics will say that the decision to exclude under-25s means the NLW is less generous than it looks at first blush. They are right. They will argue that the wage increases received by the low paid will, in many cases, not compensate for the sums they will lose from a much less generous tax regime. They are right about that, too. Frances O’Grady, the general secretary of the TUC, said the chancellor is giving with one hand and taking with the other. She’s correct. Related: Osborne's budget stole Labour's best election promises like a relative rummaging in the wardrobe But the national living wage was a smart move. Had Osborne simply taken the axe to tax credits, he would have been accused – justifiably – of balancing the budget at the expense of the poorest. As it was, he was able to say that his aim was to move Britain from a “low wage, high tax, high welfare economy to the higher wage, lower tax, lower welfare country we intend to create”. The bill for tax credits has grown from £1.1bn in the year they were introduced by Gordon Brown to £30bn, and any chancellor ought to question the use of the state to subsidise poverty wages on this scale. Interestingly, the strongest opposition to the plan came from the free market thinktanks: the Adam Smith Institute and the Institute of Economic Affairs. The CBI wasn’t all that keen either. Its director general, John Cridland, said the government was getting pretty close to setting an overtly political mandate for the Low Pay Commission. “That’s not something I welcome,” he added. Both the ASI and the IEA would have preferred Osborne to tackle the low pay issue in a different way. They would have preferred deeper spending cuts to fund bigger reductions in taxes. And they would have liked a more radical reform of the tax system, with moves towards the harmonisation of income tax and national insurance. Raising the level at which employees start to pay NI towards the level of the income tax personal allowance would, they argue, do more to help the low paid than a compulsory increase in wages that the Office for Budget Responsibility estimates will cost 60,000 jobs. A different Conservative chancellor – a Nigel Lawson, perhaps – would have taken that option, throwing in a cut in the top rate of tax from 45% to 40% for good measure. This, though, was a different sort of budget: more cautious and less ideological than some of those served up in the 1980s. The caution showed through in the more measured approach to turning round the public finances. It will now take an extra year for the Treasury to run a surplus, while tax increases and higher government borrowing have been used to reduce the departmental spending cuts that had been pencilled in when Osborne delivered the last coalition budget in March. Related: George Osborne's budget hides plenty of pain, particularly for the young This is a case of once bitten, twice shy. Osborne tried to front-load austerity in the last parliament only to find that the economy, only just out of recession and badly affected by the crisis in the eurozone, could not cope. There are plenty of external threats to the economy – from Greece to China – and it makes sense to spread deficit reduction over a longer period. A second reason for caution is that the economy is structurally weak. The budget deficit is expected to be just shy of 4% of national income this year, while the current account deficit is even higher, at around 6% of national income. Despite the promises, there has been no rebalancing of the economy in the past five years and Britain is not well placed in the event that there is another global financial shock. Some Conservatives may wonder why Osborne did not produce a more Thatcherite budget. The answer is simple. Voters do not want one, despite giving David Cameron an overall majority in the election. What he offered was not an ideological package, but a dish of Conservative and Labour ingredients seasoned with the promise of economic competence. |