Osborne's crown slips

The Tories are jumpy. The budget was meant to be unapologetically pro-business, instead it was a bun

What precisely is the mistake George Osborne has made with yesterday's Budget? Clearly something went wrong. Even if the Chancellor anticipated a rough ride for cutting income tax for the very rich, I doubt he imagined a barrage of brutal headlines like these.

The newspapers this morning are full of commentary about who won, who lost and who is better off, with a justifiable emphasis on the rather sneaky tax-free allowance raid on people who are about to retire. (Only by really testing the elasticity of the metaphor is it a "Granny Tax" and yet the label has a deadly resonance for the government.)

Osborne could have got away with this had he prepared the ground with arguments about generational distribution. There are plenty of politicians and commentators who might have been coaxed into reluctant recognition that, yes, pensioners have been spared much of the pain of austerity so far and, alright, the baby boom cohort that is about to retire can on aggregate afford it. That still doesn't avoid the fact that plenty can't. (Most MPs will concede privately that too many rich pensioners get universal benefits - winter fuel, bus pass etc - but that the politics of taking something away from the most diligent voters in the land are just too grim to contemplate.) The point is that the measure was a difficult sell, not an impossible one.

Osborne's mistake wasn't in freezing the pensioner allowance, it was in not realising it would be the story of the day - and the Treasury accidentally made sure it was the story of the day by leaking the rest of the Budget in advance. That had two awkward consequences. First, it gave Ed Miliband ample time to prepare a feisty response. Second, it hyped up journalists' expectations that there would be something extra - some really pyrotechnic surprise. Or, put another way, the Lobby was all fired up rifling through the Chancellor's hat looking for a rabbit and the one they found had been skinned and turned into a pair of fur-lined gloves for higher rate taxpayers. Oops.

Even then, a day of bad headlines doesn't kill a Chancellor. He can mobilise his troops - Osborne has a phalanx of loyal MPs who will take to the studios in his defence. If need be, he can u-turn. This was a tactical cock-up, not a strategic blunder. But I think it hints at something that really might be a longer term problem. The underlying argument in the Budget - the one the government thought it would spend the ensuing hours and days thrashing out - was that the rich should pay their way and that it just so happens that high rates of income tax are a rubbish means to that end.

It is an old argument and one in which ministers can be sure of finding moral and intellectual support throughout the Conservative party and much of the press. Osborne was quite prepared to have it out in public on those terms, mobilising in his defence the claim that rich people were being made to pay in other ways. (Stamp duty, anti-avoidance measures etc.) The pensioner allowance freeze muddies that debate. It risks looking like a uniquely sadistic kind of redistribution from old to opulent, frail to the flashman.

A big part of the government's problem is that the pre-Budget spin actively encouraged that kind of analysis. The Treasury and the Lib Dems set the day up as a test of how effectively the rich would be made to cough up for austerity. It is much harder to retreat from that moral imperative than it is to u-turn on individual policies.

That is one reason why Conservatives are feeling jumpy this morning. Can they really go through the rest of this parliament advertising their policies in terms of how effectively they heap the burden on the top tier of earners? Is that why they came into politics? Will it be credible even if they try? This is why, as one government advisor said to me today, "George Osborne's strategic crown has slipped a bit." Many Tories are asking themselves where this wilful tycoon-phobia is taking them. Cutting the 50p rate was meant to be a bold, unashamedly conservative move, signalling support for enterprise and wealth generation. It has ended up looking like a bungled apology for the fact that the rich are hard to tax.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.