Spending review: the chancellor's masterclass in expectations management
With his u-turn on tax credits, the chancellor has adroitly extricated himself from a quagmire, and his other headline moves – while far from the social democratic ideal – will similarly confound his critics.
George Osborne is not a politician to bet against. His fortunes have oscillated wildly since the summer budget, just as they did in the last parliament, but he has emerged unscathed from his latest brush with political mortality. He executed a total u-turn on tax credits, managing expectations adroitly right up until the announcement of his 180-degree change in direction. Observers took a sharp intake of breath. Social security cuts will still be painfully felt, of course, not least when the universal credit eventually arrives. But the chancellor has simply and cleanly extricated himself from the political quagmire into which he was sinking.
Labour was largely lost for words. It could claim victory, but so could others, and nobody was listening. Yet even a centrist Labour shadow chancellor would have struggled to respond at the dispatch box today, because Osborne surprised everybody by giving relative protection to spending on education, science, skills and infrastructure – all things that modern social democrats believe are vital to long-term economic growth. He avoided exposing a security flank to the opposition by shielding the police from cuts, and he brought the military firmly on-side by protecting the defence budget. The top brass didn’t need to march up to No. 11 with their rusty rifles.
Nor can centrists argue much with an apprenticeship levy that raises £3 billion from large companies, or with stamp duty hikes for buy-to-let and second homes. This Autumn statement had plenty of wheezes – fiscal moments always do – and there were deep cuts to unprotected spending. But the chancellor has smoothed out his fiscal path since the summer general election, and raised more in taxes too. Add to that some helpful forecast revisions to debt interest and tax receipts from the OBR, and the chancellor had plenty of room for manoeuvre to soften his cuts.
Make no mistake: today’s announcement is still a long way from the social democratic ideal. The government’s targeting of an overall budget surplus – rather than allowing borrowing for investment – flies in the face of mainstream economic opinion, and makes the cuts much more painful than they need to be. The NHS can only survive, even on its increased budget, if it makes efficiency savings on a scale that is completely unprecedented. Many local authorities will find that the reduction in their grant from Whitehall is nowhere near compensated for by the devolution of business rates. Carbon reduction schemes have been slashed, with few details yet on what might replace them. And there will be a thousand other painful cuts, hidden in the parts of departmental budgets labelled ‘other’, that will have real impacts on real lives. Yet Osborne’s expectations-management has been so skilful that, oddly, centrists today find themselves breathing a sigh of relief.
Ironically, Osborne may now have opened up more territory for a right-wing challenger to his leadership credentials. Pushing Labour to one side has the downside of exposing a right flank: we can expect Osborne to watch out for this in the months ahead, and it will further strengthen the argument for bringing Sajid Javid alongside him as his running mate and chancellor-elect.
Meanwhile, Osborne will present himself as the workers’ friend, going into battle with big business over the living wage and the apprenticeship levy, while investing that little bit more in childcare, home ownership and other moves designed to tighten his grip on the crucial skilled working class vote. With older people firmly banked in the Conservative camp, Labour’s reinvention will need more compelling ideas than ever before.