Officials spend several months in late 2013 and early 2014 with Osborne’s team coming up with a variety of savings ideas, several of which make it into the Budget. Osborne is attracted by one idea in particular: a turbo-boost for savers, the idea that pensioners will no longer have to buy an annuity, and will be able to draw down as little or as much of their savings as they would like, with restrictions on access to pension pots removed. ‘Why don’t we just abolish this?’ he says when discussing the issue of compulsory annuities with Treasury officials. He has already been bold on pensions, when in the 2010 spending review he raised the state pension age to sixty-six from 2020, a significant but inevitable austerity measure, which will save billions of pounds; this decision is one that many Western governments are realising they must take.
The annuities proposal is different: it is a genuine choice on Osborne’s part, and is altogether more bold and innovative. He is petrified it will leak, so is determined to keep it to a tight circle. In the autumn he raises it with the prime minister – ‘the first person I always have to square’ – who gives it the green light.3 When he has risky ideas, he likes to consult one of a closed number of wise voices, in this case former chancellor Nigel Lawson. ‘The Treasury will be completely against you, as they were against much of what I tried to do,’ Lawson tells his young protégé, ‘but you should do it nevertheless. It’s a great idea.’ Osborne takes the permanent secretary Macpherson into his confidence, who tells him, ‘I think you should go for it,’ adding: ‘the Treasury civil servants will tell you not to do it, but that’s what they’re paid to do’. Then, still more to Osborne’s surprise, Macpherson admits that ‘we should have done this years ago’. The idea has been around for some time, but low interest rates since the financial crisis have reduced the value of annuities and made the proposal seem even more attractive. Additionally, the plan will raise money.
The Treasury’s biggest concern is an increase in means testing, but the plan’s reduction in the amount of guaranteed income needed in retirement to access flexible drawdown makes it attractive. Legitimate worries remain about mis-selling abuses, and whether people would go out and blow all their savings on a Lamborghini. Further worries are voiced about the impact on the financial services industry. The move will be highly commercially sensitive, and affect the share price of big insurance companies. Osborne runs it past the minister for universities and science, David Willetts, whom he regards as an authority on pensions (Willetts had been shadow Work and Pensions Secretary from 1999–2005), and also Liberal Democrat pensions minister Steve Webb, both of whom guide him on handling consumer groups.4 Because it is politic to do so, he also runs it past Iain Duncan Smith, without great personal hopes of learning much.
Debate continues for a long time about whether he should announce the measure in the Budget, or whether he should say he is holding consultations with a view to introducing it. The ‘consultation’ option is known as Plan B, and Osborne decides to abort it only a week in: ‘Come on: you’ve got to do things,’ he says decisively. A key concern in his mind is that if the pensions industry is given notice, it will run a campaign arguing it is a bad idea, and change will never happen. Discreet conversations take place with those who can be trusted in and around the pensions industry. A pivotal figure is Ros Altmann, a leading independent pensions expert and campaigner. She helps orchestrate a campaign of letters to garner industry support for the move, which despite politicising it, helps tip the balance, and makes it difficult for the industry to come across as negative about the proposal without opening itself to the charge of special pleading.
Osborne, ever the showman, is never happier than when he’s pulling his rabbits out of his Budget hat. Another rabbit is that from 1 July, stocks and share allowances are to be merged into one new, much bigger £15,000 tax-free limit for individual savings accounts (ISAs), to be called the NISA. It is designed to appeal to savers who are suffering because of the dire interest rates, and at little real cost for the Exchequer.5 Other measures include support for business, with investment allowances doubling to £500,000, support for exports, innovation and science, and an announcement that an Alan Turing Institute for data sciences is planned.
The detail behind the welfare cap is the other big measure in the Budget. The Treasury has been looking at finding ways to rein in departmental spending over which they have no control; especially now departmental spending is shrinking and they cannot afford any wastage. Its particular concern is where departments have little incentive to control their spending and where the Treasury foots the bill when things go wrong. The 2013 Budget had therefore announced a cap on annually managed departmental expenditure (AME). The spending review that year provided more detail, which was further filled out in the 2013 Autumn Statement which included more details of the ‘welfare cap’.6 As the DWP is a major spending department, the Treasury focuses particularly closely on it. There is also a desire to keep IDS on the ‘straight and narrow’ with non-Universal Credit projects. ‘The PM’s priorities, like migrant access to welfare and the household benefit cap, quite often took a back seat compared to Universal Credit,’ complained one Treasury official. Osborne thus announces in the 2014 Budget that he will be capping the total amount government is going to allow itself to spend on welfare – excluding pensioner benefits and jobseekers’ allowance – to £119.5 billion. This self-denying ordinance means that if government ever wants to spend more than the inflation-indexed figure it will need to seek parliamentary approval.7 ‘Never again should we allow [welfare] costs to spiral out of control and its incentives to become so distorted that it pays not to work,’ Osborne says in his speech.8 The 2014 Autumn Statement and the 2015 Budget figures confirm to the Treasury that the DWP is managing its expenditure better.
Overall, 2014 is a momentous Budget, the set-piece occasion where Osborne proclaims that the government has at last got the economy back under control. ‘We set out our plan. And together with the British people, we held our nerve. We’re putting Britain right.’ But the trumpeting of the return to financial health does not upstage his core theme. ‘This is a Budget for the makers, the doers, and the savers,’ he says in his closing remarks.9
Osborne and Rupert Harrison devise further elephant traps to try to divide Miliband and Balls, who do not totally agree over the future of the British economy. Miliband’s initial response is confident: ‘The chancellor … did not mention one central fact,’ he says. ‘The working people of Britain are worse off under the Tories. Living standards are down, month after month, year after year.’ He highlights the 2010 Conservative manifesto, which had promised a rise in living standards, ‘but they have delivered exactly the opposite’.10 Below the surface, idealist Miliband and more pragmatic and business-friendly Balls work to conceal their disagreements. Close colleagues in the court of Gordon Brown since the 1990s, now they are neither ideological soulmates nor even friends, and Osborne and Harrison are determined to squeeze every drop of political capital from their increasingly awkward relationship.
On 31 March, Osborne is in Tilbury Port in Essex to deliver what the Daily Telegraph describes as ‘his most upbeat assessment of the economy since taking office four years ago’.11 He lists the government’s achievements on the economy: Britain is, he says, ‘starting to walk tall in the world again’.12 The core problem for Cameron and Osborne is that the long-awaited good economic news does not seem to be translating into enhanced popularity. A YouGov poll for the Sunday Times before the Budget, on 28 February, has the Conservatives on 34% and Labour on 38%.13 A YouGov poll in the Sun on 31 March, the day of Osborne’s Tilbury speech, has the Conservatives remaining on 34%, with Labour down one point on 37%.14 The worry is UKIP, on 12% at the beginning of March but rising to 13% by its end. The Cameron team has yet to find a successful formula for dealing with this new enemy at their gates.
The ‘Northern Powerhouse’ idea is one strategy for taking the fight to the Labour heartlands. Ironically it owes its origin to Osborne’s f
ailure to win the nomination for the Herefordshire seat of Leominster in 1999.15 Had he been successful, he would not have become Conservative MP for Tatton in Cheshire in 2001.16 From his constituency comes his passion for nearby Manchester, which bears fruit in his drive to see it have a single elected mayor (to enhance budgetary control, and to maximise the chances for a Conservative being elected), as well as the merging of its health and social care services. The whole Northern Powerhouse strategy – designed to link Manchester to other leading cities in the north of the country, including Liverpool, Leeds, Sheffield and Newcastle, and give greater power to Manchester City Council – would almost certainly never have happened had he been the MP for Leominster on the Welsh borders.
The idea came from Osborne, but Neil O’Brien – an Osborne special adviser since 2012, and hitherto director of the Cameron-friendly think-tank Policy Exchange – is crucial, as are the Policy Unit’s Jo Johnson, Chris Lockwood and Tom Nixon. Second permanent secretary to the Treasury John Kingman and cities minister Greg Clark are both instrumental in driving forward the initiative. The term ‘Northern Powerhouse’ is coined in the spring of 2014 by Thea Rogers, the uncompromising former BBC producer who joined Osborne’s team in 2012. She famously smartened up his image and appearance (including his new Caesar-style haircut), and also got him making regular visits around the country to see business in action. Howard Bernstein, Manchester City Council’s chief executive since 1998, is another influence, along with Richard Leese, the leader of Manchester City Council. Bernstein is a key player behind the city’s renaissance since the IRA bombing in 1996. He is a particular fan of enhancing transport links across the north.
By the end of 2013, an appetite is growing in the Treasury to take a northern strategy more seriously. There have been many failed initiatives over the previous decades, which had generated cynicism in Whitehall and the regions. There is an impetus to find ideas for long-term improvements to the British economy. England has cities in the Midlands and north which are too small to compete globally, but which could become a real force internationally if only they could be linked with high-speed transport. Initial plans are on a much smaller scale than the Northern Powerhouse, but still include familiar elements such as greater transport links and further devolution of funds. The plans are gestating from the autumn of 2013 through to the summer of 2014, and further influences on their development include the Centre for Cities think-tank and Lord Heseltine’s report of October 2013, which advises further development of Local Enterprise Partnerships (LEPs). In March 2014, BBC economist Evan Davis presents a television programme, Mind the Gap: London vs the Rest, which captures the zeitgeist.
On Monday 23 June 2014, Osborne gives his first big Northern Powerhouse speech at the Museum of Science and Industry in Manchester. ‘There is a hard truth we need to address,’ he says. ‘The cities of the north are individually strong, but collectively not strong enough. The whole is less than the sum of its parts. So the powerhouse of London dominates more and more. And that’s not healthy for our economy. It’s not good for our country. We need a Northern Powerhouse too. Not one city, but a collection of northern cities – sufficiently close to each other that combined they can take on the world.’ In the run-up to the 2014 conference speech, Osborne becomes particularly excited about the possibilities of a High Speed Three rail link, connecting Liverpool to Hull via Manchester and Leeds.
The plan addresses the problem, growing since before Thatcher’s premiership, of the dominance of London and the south-east. Cameron is particularly attracted to the scheme because by May 2014 the gap in unemployment between the north and the south has become at its worst – 5%.17 The press response to the initiative is positive. Tory moderniser David Skelton writes in the Spectator that the north ‘needs to think globally’.18 Cameron sells the idea to the Lib Dems; Clegg is profoundly unhappy. He sees the policy as a threat to Liberal Democrat strength in northern councils and later launches a rival initiative called Northern Futures Plan. He also feels the policy gives greater power to Manchester without a similar initiative for Sheffield, which includes his own constituency. Despite later negotiating a separate deal for Sheffield, Clegg is ‘furious’ with Osborne at the time and feels it is an attempt to do him political damage, a claim denied by Osborne: ‘I had a massive clash with Nick Clegg, which caused a lot of bad blood which was unfortunate, as I never set out to do that.’19 Upon hearing further details of the Northern Powerhouse in the Autumn Statement, Clegg calls Cameron from a windy Bristol airport telling him it is ‘just ridiculous’. ‘Why don’t you sort it out?’ the PM replies. But Osborne is unrepentant. Upsetting Clegg no longer concerns him. Further resistance comes from Ed Balls, who is persistently negative and attempts to sabotage the agenda.
In January 2015, Cameron and Osborne make a rare joint appearance on a platform, at the Old Granada Studios in Manchester, where they lay out the six-point strategy for the Northern Powerhouse, which they follow with a two-day tour of the north-west.20 They speak at length about the aims of the scheme: increasing long-term growth in the north-west, delivering the largest and most sustained investment in long-term transport, and making the region a global centre of scientific innovation, with a particular focus on material science, biomedicine, super-computing and energy. This is one of a series of regional speeches given in the first quarter of the year; the prime minister and chancellor also travel to north Lincolnshire and Yorkshire together in February, visiting the set of the television soap Emmerdale.21
Osborne has several claims to being considered a significant and innovative chancellor beyond the evolution and adoption of the narrative of Plan A and austerity. His measures were constantly criticised by opponents for being too harsh, while some on the right believe he should have gone further down the austerity path. As he contemplates his chancellorship, which is likely to end the following May, he knows he neither simplified nor overhauled an overly complex taxation system. The creation of the Office for Budget Responsibility is an achievement, as is his reform to pension age and to annuities, and further regulation of the banking industry. But his Northern Powerhouse initiative, which was not even a twinkle in his eye in 2010, might well be considered his most enduring legacy.
THIRTY-ONE
The UKIP Challenge
2013–2014
‘Fruitcakes, loonies, and closet racists’: Cameron’s description of UKIP to Nick Ferrari of radio station LBC in 2006 is words he regrets as much as any other he has uttered as party leader.1 No other Conservative leader in modern times has had to contend with such a powerful new party of the right. One reason his party blame him for UKIP’s rise is the stellar boost that his ‘fruitcakes’ comment, oft joyously repeated in UKIP circles, gives the fledgling party. It carries potency because it clearly encapsulates a truth that Cameron feels about UKIP, or at least about some of its supporters – the racist and aggressively intolerant faction, who he despises and who make up some of its most vocal followers. Equally, as Cameron comes to realise, the party is also made up of reasonable people who have become totally disillusioned with the Conservatives and other mainstream parties; people who see their economic security and way of life being threatened by immigration; who see power leeching away to Europe; and who feel the opportunities open to their children for a better life than they enjoyed are under threat.
The perception that Cameron, an Old Etonian and privileged Tory, is dismissing and patronising a large element of the right-inclined electorate who have become unhappy with the direction that the country is taking never entirely goes away. It reinforces the impression that he is aloof, posh, and out of touch with ordinary people. This view receives a turbo-charge in May 2013 when an unnamed insider with ‘strong social connections to the prime minister’ is reported in the Daily Telegraph as speaking about ‘swivel-eyed loons’, even though they are describing a certain kind of Tory activist, rather than UKIP.2 Andrew Feldman strongly denies that he made the remark, following speculation on Twitter and elsewher
e on the internet. However, the report is manna from heaven for UKIP supporters, and the best possible recruiting slogan because it seems graphically to epitomise what Tory high command think of ordinary voters.
Cameron’s response to the UKIP challenge goes through a number of stages, but he never finds an effective response to it. ‘UKIP has certainly been an unwelcome and unexpected factor, with much higher support than we expected,’ he says in early 2014.3 To Graham Brady, chairman of the 1922 Committee, Number 10’s response is ‘always behind the curve and never established consistency on how to deal with UKIP’.4 For Liam Fox, great harm is done by the public believing that ‘they were being given a cast-iron guarantee on a referendum on the Lisbon Treaty, and it did not transpire’.5 To Owen Paterson, ‘Number 10 massively underestimated UKIP, and abusing them was absolutely crass. My constituency association said: “So this is what Number 10 really think?”’6 To Matthew d’Ancona, the damage is done by the inconsistency of approach: ‘He hasn’t handled UKIP well and should have gone in with all guns blazing.’7
When Cameron became party leader in December 2005, UKIP was only beginning to be a significant force. Founded in 1993, as a ‘non-sectarian, non-racist party [which] does not recognise the legitimacy of the European Parliament’,8 it won twelve seats in the European elections in May 2004. The party trod water for the next six years, and was led into the 2010 general election by Lord Pearson. The party contested 90% of the parliamentary seats with 560 candidates, aiming to win 5% of the popular vote, but ended up with only 3% and without a single MP.
Nigel Farage’s election as party leader in November 2010 is, according to the academic Matthew Goodwin, one of the leading authorities on UKIP, the key turning point in its rise. Farage, who previously led the party between 2006 and 2009, immediately starts overhauling the strategy, putting a focus on electoral politics and making gains in Labour as well as Conservative areas.9 Number 10’s first response, which lasts from autumn 2010 until late 2012, is to ignore UKIP. It fails at first to understand that Farage, an adept and popular communicator, is giving voice to a significant slice of the electorate. Now that the Lib Dems are in government, Number 10 believes that the protest vote, which always made up a large portion of Lib Dem support, has needed another outlet: in the shape of UKIP. This fails to explain fully the increase in the party’s support, which draws on discontent with the political establishment as a whole and genuine concerns about the level of immigration, especially in areas of the country still depressed after the recession. The Lib Dems also deluded themselves into thinking UKIP’s rise would aid their fortunes. ‘We’ve just sat back and watched the Tories chase their tail on UKIP in ways which have been quite helpful for us,’ says a senior Lib Dem. It was misplaced optimism.
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