Osborne has not solved the cost of living crisis

Britain needs convincing ideas about how to ensure that real wages rise.

Stand back from the detail of today's Budget and what we observe is Britain's political class trying – and failing – to respond to the crisis in living standards facing Britain.

They are doing this at the same time as they, of course, seek to outmanoeuvre their political opponents and build support among their friends. One manifestation of this will be the growing tussle over tax cuts, which will increasingly dominate party politics in the years ahead (see tomorrow's NS).

Until there are convincing ideas that resonate with the public on how to ensure that real wages will rise, party leaders will remain in the familiar territory of fighting over tax and benefit changes.

The political need to support living standards and kick-start growth, which greatly outstrips the practical ideas on how these goals can be achieved, resulted in a number of contradictions that ran through today's Budget.

Changes to personal tax – billed as reducing the burden on low-to-middle-income Britain – actually result in by far the biggest gains going to those in the top half of the income distribution. A statement of vaunting ambition about the need to reform and simplify the whole of our tax and National Insurance system immediately gets submerged in a sea of tax wheezes. And the heralding of a new model of growth is fleshed out with a set of micro-measures that will be wearily familiar to anyone who has spent time in Whitehall over the past decade.

There are, naturally, things to welcome. Steady growth in apprenticeships, extra support for science, a helping hand for first-time housebuyers and taxing private jets are all to the good. The extension of mortgage interest support will prove important in a year that is going to see more and more households pushed closer to repossession due to the impending hike in interest rates. And there may be some begrudging acknowledgement from an angry public for the cut in fuel duty.

But the real measure of today's political class will be whether they can develop a compelling account of what really underpins shared growth, in which the gains are more fairly spread across the working population. Without this, all of today's tax tweaks and the associated reform rhetoric will be neither here nor there.

Gavin Kelly is the chief executive of the Resolution Foundation.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Why Angela Merkel's comments about the UK and US shouldn't be given too much weight

The Chancellor's comments are aimed at a domestic and European audience, and she won't be abandoning Anglo-German relationships just yet.

Angela Merkel’s latest remarks do not seem well-judged but should not be given undue significance. Speaking as part of a rally in Munich for her sister party, the CSU, the German Chancellor claimed “we Europeans must really take our own fate into our hands”.

The comments should be read in the context of September's German elections and Merkel’s determination to restrain the fortune of her main political rival, Martin Schulz – obviously a strong Europhile and a committed Trump critic. Sigmar Gabriel - previously seen as a candidate to lead the left-wing SPD - has for some time been pressing for Germany and Europe to have “enough self-confidence” to stand up to Trump. He called for a “self-confident position, not just on behalf of us Germans but all Europeans”. Merkel is in part responding to this pressure.

Her words were well received by her audience. The beer hall crowd erupted into sustained applause. But taking an implicit pop at Donald Trump is hardly likely to be a divisive tactic at such a gathering. Criticising the UK post-Brexit and the US under Trump is the sort of virtue signalling guaranteed to ensure a good clap.

It’s not clear that the comments represent that much of a new departure, as she herself has since claimed. She said something similar earlier this year. In January, after the publication of Donald Trump’s interview with The Times and Bild, she said that “we Europeans have our fate in our own hands”.

At one level what Merkel said is something of a truism: in two year’s time Britain will no longer be directly deciding the fate of the EU. In future no British Prime Minister will attend the European Council, and British MEPs will leave the Parliament at the next round of European elections in 2019. Yet Merkel’s words “we Europeans”, conflate Europe and the EU, something she has previously rejected. Back in July last year, at a joint press conference with Theresa May, she said: “the UK after all remains part of Europe, if not of the Union”.

At the same press conference, Merkel also confirmed that the EU and the UK would need to continue to work together. At that time she even used the first person plural to include Britain, saying “we have certain missions also to fulfil with the rest of the world” – there the ‘we’ meant Britain and the EU, now the 'we' excludes Britain.

Her comments surely also mark a frustration born of difficulties at the G7 summit over climate change, but Britain and Germany agreed at the meeting in Sicily on the Paris Accord. More broadly, the next few months will be crucial for determining the future relationship between Britain and the EU. There will be many difficult negotiations ahead.

Merkel is widely expected to remain the German Chancellor after this autumn’s election. As the single most powerful individual in the EU27, she is the most crucial person in determining future relations between the UK and the EU. Indeed, to some extent, it was her intransigence during Cameron’s ‘renegotiation’ which precipitated Brexit itself. She also needs to watch with care growing irritation across the EU at the (perceived) extent of German influence and control over the institutions and direction of the European project. Recent reports in the Frankfurter Allgemeine Zeitung which suggested a Merkel plan for Jens Weidmann of the Bundesbank to succeed Mario Draghi at the ECB have not gone down well across southern Europe. For those critics, the hands controlling the fate of Europe are Merkel’s.

Brexit remains a crucial challenge for the EU. How the issue is handled will shape the future of the Union. Many across Europe’s capitals are worried that Brussels risks driving Britain further away than Brexit will require; they are worried lest the Channel becomes metaphorically wider and Britain turns its back on the continent. On the UK side, Theresa May has accepted the EU, and particularly Merkel’s, insistence, that there can be no cherry picking, and therefore she has committed to leaving the single market as well as the EU. May has offered a “deep and special” partnership and a comprehensive free trading arrangement. Merkel should welcome Britain’s clarity. She must work with new French President Emmanuel Macron and others to lead the EU towards a new relationship with Britain – a close partnership which protects free trade, security and the other forms of cooperation which benefit all Europeans.

Henry Newman is the director of Open Europe. He tweets @henrynewman.

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