Osborne is left with an economic and political challenge: to produce a Budget to persuade the electorate to vote Conservative while ensuring that the numbers still add up respectably. In February, his team focus heavily on the Office for Budget Responsibility (OBR). The Office for National Statistics’ economic revisions in the summer of 2013 showed that Britain hadn’t suffered a double dip, but only a single one.3 Information from the OBR filters into Osborne’s office suggesting that, with tax receipts at last picking up, debt as a percentage of GDP will fall. ‘The fact that the debt target might be in sight gave Osborne’s team great heart,’ says an official, ‘coming after all the lows and highs of the previous years since 2010.’ For Osborne, getting national debt falling as a share of GDP is ‘a vindication of our approach over the years since 2010. Everyone thinks I promised to eliminate the budget deficit; what I actually promised to do was to get debt falling as a share of national income by the end of the parliament. So that was very important for me, even though it didn’t make headlines in the press,’ he says.4 The better economic news plays its own part in bringing Lib Dems onside.
Osborne delivers one of his most political of all Budgets. The bank levy, and abolishing the 55% tax charge on pension pots, help to disarm Labour. So too does a reduction in the amount of budget surplus he wants by the end of the next parliament, thus neutralising Labour’s attack after the Autumn Statement about public spending reaching its lowest levels since the 1930s. The standard devices of taxing banks more, along with some well-drafted anti-tax-avoidance measures, provide the cash for some Osborne goodies, including a fully flexible ISA designed for older voters, and a new Help to Buy ISA aimed at first-time buyers, described nakedly by one of Osborne’s team as ‘big, classy, election campaign policies’.
Osborne is in defiant form when standing up to deliver his Budget shortly after 12.30 p.m. on 18 March. He might have been denied his wish for pyrotechnics in terms of fresh announcements, but no one can stop him exercising his flamboyance in language. ‘Today, I report on a Britain that is growing, creating jobs and paying its way … we’ll have paid off the debts incurred in the South Sea Bubble, the First World War, the debt issue by Henry Pelham, George Goschen and William Gladstone … Growth is up; unemployment is down; borrowing is down in every year of the forecast; we reach a surplus – all contributing to a national debt now falling as a share of national income. Out of the red and into the black – Britain is back paying its way in the world today.’5 He concludes, ‘Today I present the Budget of an economy that is stronger in every way than the one we inherited … Living standards: on the rise. Britain: on the rise. This is the Budget for Britain, the come-back country.’6
Osborne’s final Budget denies Miliband some killer lines of attack he would have had if it had come some months earlier, but he presses his case hard in response. His principal theme is that the Budget is from a government ‘who are not on [the people’s] side … the chancellor … made no mention of investment in our National Health Service and our vital public services’. He attacks the ‘colossal cuts’ in policing, local government and defence, and, in anticipation of a core Labour refrain in the imminent election campaign, warns that ‘they will end up cutting the National Health Service. That is the secret plan that dare not speak its name today.’7 The Budget is, however, generally well received, and not just in quarters that one would expect in a feverish pre-election climate. The Sunday Telegraph salutes Osborne as ‘Prince George’, carrying a picture of him resembling Machiavelli.8 The Observer the same day carries a poll finding that 43% of voters think he is ‘a good chancellor’ against 24% who believe the opposite.9 His caution is also praised: whether or not at Crosby’s insistence, he has resisted the temptation for gimmicks and has substantially kept his promise that it would not be a pre-election Budget with giveaways. ‘Considering the electoral temptation to give something to everyone … he gambled that voters would thank him for his fiscal discipline and back him,’ says The Times.10 Applause is not universal, however, and writing in the same paper the following day, the astute Philip Collins is far less impressed: ‘Mr Osborne did not chant, as he incited his pantomime audience to sing along, two important facts about the meagre recovery: “Productivity Down! Immigration Up!” It must have slipped his mind that the deficit in the balance of payments is the worst in peacetime since 1830 … we got a recovery based on household debt, consumer spending and government schemes to stimulate the housing market, a glass menagerie of a recovery, both precious and fragile at the same time.’11
The Budget overall is a hugely cathartic experience for Osborne. The months of strain and self-doubt that followed the 2012 Budget have all evaporated. He feels vindicated in his often bitterly contested judgements on the economy. His mind is switching to securing similar vindication for his wider political judgements. He feels that he could play a central role in devising the government’s day-to-day strategy alongside being chancellor, countering those who had argued from the outset, especially after the omnishambles Budget, that he should concentrate on being chancellor alone. Many of the core political judgements of the past five years have been influenced heavily by his forceful advice, including pulling out of Afghanistan, calling the Scottish referendum, heating up the rhetoric during the AV referendum, sacking Andrew Lansley, bringing in Mark Carney at the Bank of England and Lynton Crosby at CCHQ, emboldening Number 10 to bounce back assertively after the Syria vote defeat, and facing up to the military on defence spending. It is clear from the very beginning that Osborne, not Clegg, is the real deputy prime minister.
Treasury officials are struck from the outset by Osborne, who is a very different kind of chancellor from his predecessors. ‘I’m not prepared to countenance any anti-Number 10 gossip or thinking in the Treasury,’ he tells them in May 2010. This is not what Treasury mandarins are used to hearing. Even when PM/chancellor relations are good – as often between Major and Clarke (1993–7), and in the early days of Brown and Darling in 2007–8 – there has always been a certain wariness and worldly cynicism amongst Treasury officials about what Number 10 might be cooking up. This is an altogether different world. ‘Dave and George are not going to waste time or emotional energy fighting each other,’ said Hilton in early 2010, with a John-the-Baptist-style enthusiasm. ‘Oh yeah,’ many thought, ‘you just wait. How naive.’ But his prediction proved correct.
Osborne signals the change in style by the way he organises his day, which barely changes over the next five years. ‘He would start the morning working from his office in Number 11 before going to the 8.30 a.m. meeting in the prime minister’s room in Number 10. He would arrive at the Treasury just after 9 a.m., then spend the middle part of the day either there or in Parliament, before returning to Number 10 for the daily meeting at 4 p.m., spending the rest of his day at Number 11. His day, physically and politically, is bookended, starting and finishing in Downing Street.’ Officials whose careers span thirty or more years have never known a relationship between prime minister and chancellor anything like as enduringly close. There are no personnel or doctrinal issues, no need for Cameron to draw on figures in Number 10 to offer countervailing economic advice, as Thatcher did with Alan Walters, or Blair with Derek Scott. Cameron instead works closely with Jeremy Heywood and then Chris Martin, his two most senior former Treasury advisers in Number 10, who work to eliminate the customary mistrust between both offices. Cameron indeed favours Treasury advice over that of the Foreign Office, seen in the appointment of Ivan Rogers and Tom Scholar as his two key advisers on the EU, both of whom are ex-Treasury, rather than Foreign Office as is usual. As well as studying economics as part of his degree, Cameron worked in the Treasury in the 1990s, which further helped his instincts chime naturally with its officials.
Osborne might often be the better tactician, but Cameron’s is always the more dominant voice. Osborne always defers to him, and not just out of respect for his seniority in rank and age. Shorn of Cameron’s reassurance and support, Osborne would
not be able to perform as he does. Indeed were it not for Cameron and his team sticking by him at key moments, principally the aftermath of the omnishambles Budget, he would not have salvaged his reputation. During Osborne’s dark months, and they were very dark, it is Cameron who sustains him. Osborne always knows that. Deferring to and respecting Cameron is an article of faith, which he never doubts or lets anyone challenge in front of him. The success of the government, such as it is, is due above all to the relationship between these two men, with Osborne’s daring and showmanship balanced by Cameron’s innate caution.
But how good is Osborne as chancellor from 2010–15? Many charges are levelled against his stewardship of the economy over the five years. The central one is that the core programme of austerity, of questionable economic substance, may well have delayed economic recovery. Then comes the shift towards a mild Keynesian stimulus in 2012, with softening fiscal targets and ‘Funding for Lending’, whilst at the same time denying there was any Plan B and that Plan A was all that mattered. There are a host of other concerns: a worrying and potentially dangerous legacy of poor productivity improvement, a serious deficit in the balance of payments, and insufficient help for the worst-off in Britain, who in many cases saw their lives become even less secure. Others point to a failure to eliminate the deficit, with debt remaining at 80% of GDP, and a recovery significantly based on a fall in oil prices, as well as on household debt and consumer spending. The criticisms roll on and on. Janan Ganesh, Osborne’s biographer, is indeed right to say, ‘we should reserve judgement on Mr Osborne’.12 This is ever the case with chancellors. Even after ten or twenty-five years’ perspective, judgements are tentative, and even then will be substantially value-driven. By 2015, the British economy is judged to be the strongest in the West, alongside the United States: at least some of that success must be due to Osborne’s judgements, especially considering the economy’s starting point in 2010.
We are on surer ground when describing Osborne’s footprints than assessing their impact. Devising Plan A, and the immediate decision to announce in-year spending cuts in May 2010, the Emergency Budget and the Spending Review, define Osborne’s whole chancellorship from the outset. He goes on to invest considerable political capital in maintaining a consensus behind this strategy, domestically and internationally. The creation of the OBR in 2010 is a significant innovation, which brings order and clarity to both Budgets and Autumn Statements and, though it buffets him at times, it means he is able to live less hand-to-mouth than Darling or Brown had done before him. He will be remembered as a pension reformer: although the increase in state pension age would have happened anyway, his change to annuities is a genuine choice rather than a fiscal necessity. His overhaul of the banking regulatory system is another significant innovation, including the Financial Policy Committee, the Prudential Regulatory Authority and the Vickers Report’s recommendations, albeit changes which fade in public perception as concerns over the behaviour of banks move down the public agenda. He pushes big infrastructure projects, including HS2, Crossrail and the Northern Powerhouse: the last, changing the relationship between the Treasury and the regions, may be seen as one of his most enduring legacies. He has a major impact on welfare reforms, but little on schools, beyond support for Gove who he trusts implicitly. Universities attract much more of his attention, where he lifts the cap on university places. He protects the science budget and pushes universities and British companies to be less insular, not least in relations with China. Finally, cutting the 50p tax rate is very much his own decision, taken because he thinks it is the right thing to do economically and philosophically. It is of a piece with his competitiveness agenda and changes to corporation tax. Overall, he is proud to be the most pro-capitalist Conservative chancellor since Nigel Lawson in the 1980s.
Osborne shares credit too for the survival of the coalition. His fallout with Clegg contrasts with the loyalty and respect he shows to Danny Alexander, which is mutual. Their relationship is periodically stressed, particularly towards the end when Alexander chooses to present the Lib Dem ‘Alternative Budget’ on 19 March, the day after Osborne’s own. The case for presenting their own spending figures is reasonable, but the theatrical form that Alexander chooses, together with a yellow Budget case, is thought to be risible, not only by Osborne and Cameron but also the House at large, which is almost universally hostile. The worst moment in the Osborne/Alexander relationship comes during the election campaign when Alexander, troubled by Lib Dem ratings, leaks Treasury advice revealing that IDS has sent the Quad a proposal for nearly £8 billion of cuts in welfare.13 Osborne responds quickly by text: ‘Come on, I thought we’d agreed not to do this! Hope all is going well for you in Inverness.’
Cameron remains close to Clegg till the very end, although the relationship is severely tested when the Lib Dems realise that the Conservatives are making a full onslaught on their marginal seats. On election night, Cameron sends him a text wishing him luck: ‘This democracy lark is a nerve-jangling thing,’ it reads. They both believe that there is a strong likelihood that they will be in government together after the election. At the end of one of their final bilateral meetings, they ask officials and aides to leave the room. ‘We talked in a relatively perfunctory way about what might follow. It was all rather British,’ says Clegg.14 ‘We’re going to have to leave that until our next coalition,’ they joked, discussing unresolved issues. Cameron is far more positive than any of his Cabinet about the prospect of a future coalition government. He thinks Clegg is a bit naïve and can be self-indulgent, but he also has a genuine affection and respect for him. Clegg has defied the sceptics in his party who said that the coalition would not endure, or who argue that they should come out of it in the final months and fight alone. To do so, he says, would hand even more of the kudos for the government’s successes to the Conservatives, and call into question all the sacrifices that have been made. And yet he had seriously considered resigning a year earlier after the devastating results the Liberal Democrats suffered at the European elections. ‘We saw a catastrophic loss of support,’ Clegg recalls. ‘For a few days after the results, I considered going, but I didn’t talk to the PM; just my wife Miriam and Paddy [Ashdown].’15 Had he resigned in May 2014, the remaining months of Cameron’s premiership would have been very different.
According to William Hague, for Cameron ‘there was never any doubt in his mind or mine that the coalition would continue right up till the general election’.16 Any threat to the coalition’s survival comes in fact much more from the Conservative Party than the Lib Dems. Backbenchers who have always resented the coalition, and feel they were bounced into it, are prominent in pressing Graham Brady and the 1922 Committee to hold a vote on whether the party should come out of it. ‘The matter was discussed,’ says Brady. ‘There were certainly some members who wanted this to happen in the spring of 2014, but never sufficient.’ After the local elections that May and the Newark by-election in June, the unrest dies away.17 Number 10 argues very strongly to the 1922 Committee leadership that pulling out of the coalition would bring disaster: minority government with defeats every few days on the floor of the House, an inability to pass Budgets and financial measures, and the electorate presented with the impression of a shambolic government. (Although as Brady and Number 10 know, some backbenchers so hated Cameron that such a dystopian prospect would have been an incentive, not a deterrent.)
Clegg flexes his muscles in the final few months, in particular on foreign policy, wanting a tougher position on exports to Israel and a more assertive policy in the Middle East. Officials think ‘that kind of activism could have led to problems on foreign policy had it carried over into a second term’. The final Quad is held on 9 March, just before the Budget. The final Cabinet meeting comes two weeks later on 24 March. There is a full agenda, beginning with mental health, introduced by Clegg and Jeremy Hunt. Then Oliver Letwin, the company secretary of the coalition, gives a Panglossian survey of the coalition government’s achievements. Th
en follows a discussion on ISIS, Syria and Iraq. All know his seminal role in the coalition.
Cameron has been giving some thought to the final Cabinet. While out on a run, he comes up with the idea of concluding it with a small celebratory drinks party. When he is sent the proposed Cabinet agenda to peruse in his red box a few days before, he writes in the margins, ‘I’ve got quite a nice idea: let’s get everyone a beer from the constituency brewery.’ His idea is to have the meeting in the afternoon or evening so that everyone could relax together. Clegg is enthusiastic about the idea and says: ‘I’d like to get some crisps from my constituency too.’ Crowded diaries do not permit any deviation from the normal meeting time, however, so all attendees are presented at the usual morning meeting with the beers with a label saying, ‘Co-ale-ition. An unconventional pairing … that lasts the distance’. The beer is produced by Wychwood Brewery in Cameron’s constituency and is accompanied by a pot from Clegg of crisps made by Henderson’s of Sheffield. It falls some way short of the bronze medal that Churchill gave all members of the coalition government in 1945, but the gesture is still appreciated. Emotions run high around the Cabinet table. They are all conscious, at least a little, of the historic significance of their surviving five years of coalition government together: ‘We’ve come so far, and we should be proud of what we’ve done together,’ Cameron says to them. He and Clegg are not the only ones around the table expecting to be back together in six weeks. Both parties have had teams working informally on a new coalition agreement, the secrecy dictated mostly by the knowledge that such plans are abhorrent to the wings of both parties.18
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