George Osborne thinks he can win by appealing to mean-spiritedness

Here's why he's wrong.

During his pre-budget statement last week, the Chancellor George Osborne set out his intent to ensure that many benefits only rise by one per cent for the next three years.

This has been hailed by some on the right of politics as a fiscally responsible thing to do and a way of ensuring that benefits do not rise by more than many people's wages have in the last few years. There have been others who have claimed that it is regressive and unfair to heap such a burden of real-terms cuts on those in society least able to afford it.

But what many think, regardless of what they consider the rights and wrongs of the decision, is that Osborne has set a clever trap for Eds Miliband and Balls to fall into. The theory goes that public opinion is on the side of those who want to "control" the benefits bill and that anyone arguing against this will essentially be putting themselves on the side of the "skivers" as opposed to the "strivers".

As it happens it is beginning to look like Osborne has actually got this calculation wrong with 69 per cent of people in a recent poll saying they thought benefits should rise in line with inflation or higher. However, even without polling evidence, this move just feels wrong. The idea that the poorest in society should suffer a real terms cut in their income when many of those people are already close to the edge financially (witness the huge rise of payday lenders in recent years for example) sits very ill with me.

Part of the problem that was identified almost straight away by opponents of the measure is that 60 per cent of those affected by the cuts are actually in work. But really, that shouldn't matter either. Trying to pitch those who are working against those who are not is the worst kind of politics. The vast majority of those out of work would love to have a job and although unemployment is falling it is still far too high. Many of those who Osborne seems to be painting as skivers currently have no choice.

He has made a serious political mistake here. Ten years ago Theresa May made a speech where she described how the Conservatives had the unwelcome mantle of "The Nasty Party". This resonated because it rang true. David Cameron has spent years trying to detoxify his party with trips to the Arctic, endless speeches on the NHS and all sorts of other measures to attempt to reassure voters that they have changed.

With measures like this one per cent rise Osborne is retoxifying his party. He is punishing the poorest in society for an economic situation that they had nothing to do with creating and doing it in such a way as to try and pitch different sections of society against each other. He seems to be hoping that envy will win the day.

I hope and expect he is wrong about this. Not because opinion polls tell us so. But because I do not recognise the mean-spirited picture of Britain that he seems determined to paint. We're better than that.

The trap he thought he had set has sprung shut on the Chancellor as he tried to tip-toe away from it.

He and his party will ultimately pay a heavy price for this.

Mark Thompson is a political blogger and commentator who edits the award winning Mark Thompson's Blog and is on Twitter @MarkReckons.

George Osborne.
Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR