Ed Balls and George Osborne attend the State Opening of Parliament on May 8, 2013. Photograph: Getty Images.
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Budget 2014: how Osborne can reduce Labour's poll lead on living standards

The Chancellor needs to make it clear how national policy on jobs, housing and taxes will improve voters' personal situations.

Two weeks ago, to mark the launch of their brand new party headquarters, the Conservatives held a closed door event with the last Tory leader to win a majority at a general election. Sir John Major was there to launch an apprenticeship scheme. He also addressed the packed room setting out a "moral mission" for the Conservative Party. He said:

"Education reform to make sure that people are being better educated in order to maximise their abilities, Opportunity, by creating jobs. And we should bear in mind that – when we are creating jobs and wish people to move around the country and take those jobs – they need houses to move to as well."

While George Osborne wasn’t actually present at the event, it seems from what we have heard over the weekend that the Chancellor was paying close attention to Major’s words of advice. Speaking to Andrew Marr on Sunday morning, Osborne confirmed that his focus this week was on creating the optimal conditions for private sector led job creation and building more homes (by extending the Help to Buy scheme and building the first new garden city for 100 years in Ebbsfleet). He also dismissed calls for a rise in the 40p tax rate, saying that the government’s focus was raising the personal allowance for people on the lowest incomes (he was at pains to reiterate the fact that anyone earning up to £100,000 would benefit from an increase in the personal allowance).

Whatever people say about the Chancellor, there is no doubt that he is sticking to his guns. Slowly but surely the economy is starting to pick up. The question for Osborne is whether he can link his political and policy priorities to a subsequent rise in living standards. Broad based arguments about the creation of 1million new jobs, reducing the deficit, building 15,000 new homes simply won’t cut it. If the Conservatives want to be seen as the party that stands up for hard working people (to coin a phrase) then they must personalise their commitments making a clear link between national economic policy and the impact any policies will have on the cost of living. Here are just a few suggestions:

Jobs
It’s not simply the creation of jobs that is key to economic growth. The importance of productivity is often under-reported. As Policy Exchange revealed last week, the flexibility of the UK’s labour market has put us in a much better position to weather the effects of the recession. However, real wages have fallen as output per worker has decreased. The decline in wages has, by in large, been in line with falling productivity. Therefore as the jobs market picks up and productivity increases, wages will again begin to rise.

The problem for Osborne is that people do not automatically link an increase in jobs to a rise in their wages. Were the Chancellor able to make that connection – perhaps by setting out plans to make it easier for businesses to hire more staff by increasing the National Insurance threshold – then I would expect to see the Conservatives close the gap on Labour’s poll lead on "living standards".

Housing
Ebbsfleet should be the start of a new wave of beautifully designed, privately funded and locally popular garden cities. As Daniel Knowles observed in his excellent article in the Times: "Ebbsfleet will at best provide 20,000 new homes when it is finished. That is about what London needs very six months with demand."

The housing debate has so far been a numbers game. The statistics are indeed important with some experts suggesting 100,000 new homes being the equivalent to 1 per cent of GDP. However, talking about hard numbers de-personalises the issue. It also strikes fear into communities who wonder if the state will all of a sudden impose an ugly great development on the edge of their beautiful village. It’s therefore important for the Chancellor to set out the emotional and social benefits of building beautiful new houses. Well-designed new garden cities, built near existing towns and cities could offer affordable, family sized homes to younger generations.

They could also offer older people the chance to live in closer proximity to their families. Show me a grandparent who doesn’t want to live closer to their grandchildren. At the moment sky high property prices and a lack of supply have led to younger people having to move hundreds of miles from their roots and family members in search of a job and a place with plenty of decent transport links and amenities such as restaurants and bars. Garden cities and housebuilding in general could be a real economic and social "game changer" but the language need to be less divisive (Nimbys v first time buyers) and more focused on keeping families together.

Taxes
A great deal has been made of Osborne’s reluctance to increase the 40p tax threshold. The number of people paying the higher rate of income tax has risen steadily from just over 1.7 million in 1993/4 to 4.4 million and is expected to increase to over 5 million next year. That is a staggering one in six of taxpayers, up from one in 20 when Nigel Lawson was Chancellor. However, the people who have suffered the most from the recession are not those earning £40,000 a year. The people who have been hit the hardest are those in what economists term the 40th percentile – earning around £18,000 a year. So it is right that the Chancellor looks to prioritise raising the personal allowance over a change to the 40p rate.

That said, if he was going to look at altering the higher rate bands, the most interesting idea I have seen to date is from the campaign group Renewal. They suggest abolishing the 40p band and moving the higher rate threshold to around £62,000. They estimate that about 2 million people would benefit from this tax cut. Combined with a rise in the personal allowance, Osborne could actually take Renewal’s idea and make the case that during the course of the coalition, the government has actually given 97 per cent of the country a tax cut. A pretty strong electoral message.

Reducing unemployment, increasing the supply of housing and boosting the pay packets of people on low and middle incomes are all policies that will help drive economic growth. The Chancellor is sometimes dismissed as a political tactician lacking a real strategic direction. I think this is a lazy assumption. He has surrounded himself with some of the brightest advisors and has a clear understanding of what is needed to both drive economic growth and increase living standards. The trick is to continue doing what he’s doing but to ensure that he continually links the two. 

Nick Faith is Director of Communications at Policy Exchange

Nick Faith is Director of Communications at Policy Exchange

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Former Irish premier John Bruton on Brexit: "Britain should pay for our border checks"

The former Taoiseach says Brexit has been interpreted as "a profoundly unfriendly act"

At Kapıkule, on the Turkish border with Bulgaria, the queue of lorries awaiting clearance to enter European Union territory can extend as long as 17km. Despite Turkey’s customs union for goods with the bloc, hauliers can spend up to 30 hours clearing a series of demanding administrative hoops. This is the nightmare keeping former Irish premier John Bruton up at night. Only this time, it's the post-Brexit border between Northern Ireland and the Republic, and it's much, much worse.   

Bruton (pictured below), Taoiseach between 1994 and 1997, is an ardent pro-European and was historically so sympathetic to Britain that, while in office, he was pilloried as "John Unionist" by his rivals. But he believes, should she continue her push for a hard Brexit, that Theresa May's promise for a “seamless, frictionless border” is unattainable. 

"A good example of the sort of thing that might arise is what’s happening on the Turkish-Bulgarian border," the former leader of Ireland's centre-right Fine Gael party told me. “The situation would be more severe in Ireland, because the UK proposes to leave the customs union as well."

The outlook for Ireland looks grim – and a world away from the dynamism of the Celtic Tiger days Bruton’s coalition government helped usher in. “There will be all sorts of problems," he said. "Separate permits for truck drivers operating across two jurisdictions, people having to pay for the right to use foreign roads, and a whole range of other issues.” 

Last week, an anti-Brexit protest on the border in Killeen, County Louth, saw mock customs checks bring traffic to a near standstill. But, so far, the discussion around what the future looks like for the 260 border crossings has focused predominantly on its potential effects on Ulster’s fragile peace. Last week Bruton’s successor as Taoiseach, Bertie Ahern, warned “any sort of physical border” would be “bad for the peace process”. 

Bruton does not disagree, and is concerned by what the UK’s withdrawal from the European Convention on Human Rights might mean for the Good Friday Agreement. But he believes the preoccupation with the legacy of violence has distracted British policymakers from the potentially devastating economic impact of Brexit. “I don’t believe that any serious thought was given to the wider impact on the economy of the two islands as a whole," he said. 

The collapse in the pound has already hit Irish exporters, for whom British sales are worth £15bn. Businesses that work across the border could yet face the crippling expense of duplicating their operations after the UK leaves the customs union and single market. This, he says, will “radically disturb” Ireland’s agriculture and food-processing industries – 55 per cent of whose products are sold to the UK. A transitional deal will "anaesthetise" people to the real impact, he says, but when it comes, it will be a more seismic change than many in London are expecting. He even believes it would be “logical” for the UK to cover the Irish government’s costs as it builds new infrastructure and employs new customs officials to deal with the new reality.

Despite his past support for Britain, the government's push for a hard Brexit has clearly tested Bruton's patience. “We’re attempting to unravel more than 40 years of joint work, joint rule-making, to create the largest multinational market in the world," he said. It is not just Bruton who is frustrated. The British decision to "tear that up", he said, "is regarded, particularly by people in Ireland, as a profoundly unfriendly act towards neighbours".

Nor does he think Leave campaigners, among them the former Northern Ireland secretary Theresa Villiers, gave due attention to the issue during the campaign. “The assurances that were given were of the nature of: ‘Well, it’ll be alright on the night!’," he said. "As if the Brexit advocates were in a position to give any assurances on that point.” 

Indeed, some of the more blimpish elements of the British right believe Ireland, wedded to its low corporate tax rates and east-west trade, would sooner follow its neighbour out of the EU than endure the disruption. Recent polling shows they are likely mistaken: some 80 per cent of Irish voters say they would vote to remain in an EU referendum.

Irexit remains a fringe cause and Bruton believes, post-Brexit, Dublin will have no choice but to align itself more closely with the EU27. “The UK is walking away,” he said. “This shift has been imposed upon us by our neighbour. Ireland will have to do the best it can: any EU without Britain is a more difficult EU for Ireland.” 

May, he says, has exacerbated those difficulties. Her appointment of her ally James Brokenshire as secretary of state for Northern Ireland was interpreted as a sign she understood the role’s strategic importance. But Bruton doubts Ireland has figured much in her biggest decisions on Brexit: “I don’t think serious thought was given to this before her conference speech, which insisted on immigration controls and on no jurisdiction for the European Court of Justice. Those two decisions essentially removed the possibility for Ireland and Britain to work together as part of the EEA or customs union – and were not even necessitated by the referendum decision.”

There are several avenues for Britain if it wants to avert the “voluntary injury” it looks set to inflict to Ireland’s economy and its own. One, which Bruton concedes is unlikely, is staying in the single market. He dismisses as “fanciful” the suggestions that Northern Ireland alone could negotiate European Economic Area membership, while a poll on Irish reunification is "only marginally" more likely. 

The other is a variation on the Remoaners’ favourite - a second referendum should Britain look set to crash out on World Trade Organisation terms without a satisfactory deal. “I don’t think a second referendum is going to be accepted by anybody at this stage. It is going to take a number of years,” he said. “I would like to see the negotiation proceed and for the European Union to keep the option of UK membership on 2015 terms on the table. It would be the best available alternative to an agreed outcome.” 

As things stand, however, Bruton is unambiguous. Brexit means the Northern Irish border will change for the worse. “That’s just inherent in the decision the UK electorate was invited to take, and took – or rather, the UK government took in interpreting the referendum.”