George Osborne settles defence budget ahead of Spending Review

A deal was done between the Chancellor and the Defence Secretary to settle the Ministry of Defence's budget for 2015-16 late on Saturday night.

The Ministry of Defence budget for 2015-16 has been agreed ahead of the Spending Review, George Osborne has said.

Speaking on the BBC's Andrew Marr Show this morning, he told stand-in presenter Sophie Raworth that the deal was done "last night" and defended how close to the wire these decisions are being made, saying that "in the past these things were often done the night before the spending round." To stick to his own economic plan, the Chancellor must announce £11.5bn of Whitehall cuts to Parliament on Wednesday.

The cuts agreed to by the MoD will result in the civilian headcount being reduced while the armed forces remain at the same level, BBC Political Editor Nick Robinson reported. Osborne has also said that the fines from the Libor bank interest rate-fixing scandal will go to schemes to benefit war veterans and their families.

Further complications became apparent this morning as seven former defence chiefs published a letter in the Observer, calling on the Prime Minister to resist pressure from the MoD to allow the military to dip into the aid budget to make up shortfalls elsewhere. They describe the ring-fenced aid budget as "critical to the UK's national interests".

Agreeing the cuts to the defence budget was a major hurdle for the Treasury to clear ahead of the Spending Review - as my colleague George Eaton wrote back in February, the idea that the MoD must find cuts while the aid budget remains ringfenced was a difficult pill to swallow for many Conservative MPs.

However, defence is not the last department to settle - Vince Cable's Department of Business, Innovation and Skills is still holding out. On the Marr Show, Osborne claimed that he and Cable were still "arguing about the small details" but denied that there was a "massive argument" going on with his Lib Dem cabinet colleague.

That isn't quite the story coming out of the Cable camp, however - the Observer reports today that the Business Secretary was in "no mood to back down in a dispute he regards as crucial to the government's economic credibility". The problem, it is suggested, is that the differences between Vince Cable and the Treasury run deeper than just quibbles over a few numbers here or there. Cable insists the coalition needs "a strong story to tell on growth" as well as emphasis on the necessity to cut. In accordance with this, he is reportedly pushing for investment in science, skills and training.

This is not a new direction for Cable. In an essay for the New Statesman in March 2013 entitled "When the facts change, should I change my mind?", he set out his hesitations with the coalition's economic policy, particularly in the area of growth and capital spending. He wrote:

The more controversial question is whether the government should not switch but should borrow more, at current very low interest rates, in order to finance more capital spending: building of schools and colleges; small road and rail projects; more prudential borrowing by councils for housebuilding.

Osborne is expected to put some emphasis on infrastructure spending in Wednesday's Spending Review, but Cable seems to be holding out for specific investment for his own department.

Exactly when, and how, Cable and Osborne will be able to resolve what appear to be fundamental intellectual differences, remains to be seen.

George Osborne. Photograph: Getty Images

Caroline Crampton is web editor of the New Statesman.

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By refusing to stand down, Jeremy Corbyn has betrayed the British working classes

The most successful Labour politicians of the last decades brought to politics not only a burning desire to improve the lot of the working classes but also an understanding of how free market economies work.

Jeremy Corbyn has defended his refusal to resign the leadership of the Labour Party on the grounds that to do so would be betraying all his supporters in the country at large. But by staying on as leader of the party and hence dooming it to heavy defeat in the next general election he would be betraying the interests of the working classes this country. More years of Tory rule means more years of austerity, further cuts in public services, and perpetuation of the gross inequality of incomes. The former Chief Secretary to the Treasury, Seema Malhotra, made the same point when she told Newsnight that “We have an unelectable leader, and if we lose elections then the price of our failure is paid by the working people of this country and their families who do not have a government to stand up for them.”

Of course, in different ways, many leading figures in the Labour movement, particularly in the trade unions, have betrayed the interests of the working classes for several decades. For example, in contrast with their union counterparts in the Scandinavian countries who pressurised governments to help move workers out of declining industries into expanding sectors of the economy, many British trade union leaders adopted the opposite policy. More generally, the trade unions have played a big part in the election of Labour party leaders, like Corbyn, who were unlikely to win a parliamentary election, thereby perpetuating the rule of Tory governments dedicated to promoting the interests of the richer sections of society.

And worse still, even in opposition Corbyn failed to protect the interests of the working classes. He did this by his abysmal failure to understand the significance of Tory economic policies. For example, when the Chancellor of the Exchequer had finished presenting the last budget, in which taxes were reduced for the rich at the expense of public services that benefit everybody, especially the poor, the best John McConnell could do – presumably in agreement with Corbyn – was to stand up and mock the Chancellor for having failed to fulfill his party’s old promise to balance the budget by this year! Obviously neither he nor Corbyn understood that had the government done so the effects on working class standards of living would have been even worse. Neither of them seems to have learnt that the object of fiscal policy is to balance the economy, not the budget.

Instead, they have gone along with Tory myth about the importance of not leaving future generations with the burden of debt. They have never asked “To whom would future generations owe this debt?” To their dead ancestors? To Martians? When Cameron and his accomplices banged on about how important it was to cut public expenditures because the average household in Britain owed about £3,000, they never pointed out that this meant that the average household in Britain was a creditor to the tune of about the same amount (after allowing for net overseas lending). Instead they went along with all this balanced budget nonsense. They did not understand that balancing the budget was just the excuse needed to justify the prime objective of the Tory Party, namely to reduce public expenditures in order to be able to reduce taxes on the rich. For Corbyn and his allies to go along with an overriding objective of balancing the budget is breathtaking economic illiteracy. And the working classes have paid the price.

One left-wing member of the panel on Question Time last week complained that the interests of the working classes were ignored by “the elite”. But it is members of the elite who have been most successful in promoting the interests of the working classes. The most successful pro-working class governments since the war have all been led mainly by politicians who would be castigated for being part of the elite, such as Clement Atlee, Harold Wilson, Tony Crosland, Barbara Castle, Richard Crossman, Roy Jenkins, Denis Healey, Tony Blair, and many others too numerous to list. They brought to politics not only a burning desire to improve the lot of the working classes (from which some of them, like me, had emerged) and reduce inequality in society but also an understanding of how free market economies work and how to deal with its deficiencies. This happens to be more effective than ignorant rhetoric that can only stroke the egos and satisfy the vanity of demagogues

People of stature like those I have singled out above seem to be much more rare in politics these days. But there is surely no need to go to other extreme and persist with leaders like Jeremy Corbyn, a certain election loser, however pure his motives and principled his ambitions.

Wilfred Beckerman is an Emeritus Fellow of Balliol College, Oxford, and was, for several years in the 1970s, the economics correspondent for the New Statesman