George Osborne arrives in Downing Street as an emergency security meeting is held following the deadly attacks on tourists in Tunisia, on 26 June. Photograph: Getty Images.
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As Osborne prepares further austerity, Greece has come to his aid again

The Chancellor can cite the country's fate as a permanent justification for cuts. But he shouldn't overreach. 

In the five years since his austerity programme began, George Osborne has had no greater ally than Greece. The fate of that benighted nation has served as a permanent justification for retrenchment at home. “You can see in Greece an example of a country that didn’t face up to its problems, and that is the fate that I want to avoid,” the Chancellor said before his first Budget in 2010. Ahead of his seventh, he was able to resurrect this argument, citing the crisis as proof of the need to “get our own house in order”.

Opposition politicians and economists rightly contend that it is a surfeit, rather than a dearth, of austerity that has immiserated Greece. Though one would not know it from Osborne’s statements, the country’s cyclically adjusted primary budget surplus (which assumes a normal level of economic activity and excludes debt interest payments) is the largest in Europe at 6 per cent of potential GDP. It is the absence of stimulus for a depressed economy that explains the overall shortfall in revenue. Greece, on this basis, has been far more fiscally responsible than the UK government (which has failed to achieve a surplus of any kind). Indeed, had Osborne not reduced the pace of the cuts, the recovery that he lauds would have been weaker.

But as Labour learned to its cost, political stories trump economic realities. The narrative that the UK and Greece spent like drunken sailors – and that only one has had the fortitude to sober up – resonates more with voters than Keynes’s paradox of thrift.

For Osborne, the latest and most severe stage of the Greek crisis has arrived with uncannily good timing. It is harder to justify continued austerity when the economy is expanding. Those voters who lose out begin to wonder where the proceeds of growth are going. Yet the spectre of Greece enables Osborne to argue that fiscal consolidation must continue in order to establish an insurance fund against future crises. The public might not like austerity but, as the last parliament demonstrated, it is prepared to tolerate it as a necessary treatment.

How Labour confronts this political reality is one of the defining questions of its leadership contest. In her speech at Reuters on 30 June, Liz Kendall sought to redefine fiscal responsibility as “proud Labour tradition”, rather than a Conservative trope. The newest MP in the race recalled how budgetary prudence ran like a thread through the party’s history: in its 1923 manifesto, in Stafford Cripps’s 1948 Budget (“We must secure an exceptionally large Budget surplus”), in Harold Wilson’s 1964 manifesto and under Tony Blair and Gordon Brown in 1997. “Sound public finances are not an alternative to Labour values: they are Labour values,” Kendall declared.

When I asked her to name the tax rises and spending cuts that she would impose to fulfil this mission, she declined, insisting that this was not the time for “individual details”. It is easier to be fiscally responsible in theory than in practice. Yet Kendall can be forgiven for not wanting to enter an austerity arms race with Osborne. There are few votes to be won and many to be lost among the Labour selectorate in doing so. As she fights to prevent the contest from irrevocably hardening into a two-horse race between Andy Burnham and Yvette Cooper, the most pessimistic of her supporters fear that she may be beaten into fourth place by the left-wing backbencher Jeremy Corbyn.

Osborne’s emergency Budget on 8 July will resemble a direct sequel to that of 2010. Greece again provides the apocalyptic backdrop; Harriet Harman returns as the doughty leader of the ravaged opposition; the second half of the deficit remains to be eliminated. But it will differ in one significant respect. Osborne’s Budget will be the first delivered by an all-Conservative government since Kenneth Clarke’s final statement in November 1996. No longer will the Chancellor’s measures require the imprimatur of the Liberal Democrats.

The onus is now on Osborne to deliver the policies that were previously struck down by Nick Clegg and Danny Alexander. Foremost among them is the reduction of the top rate of income tax from 45p to 40p (following the previous cut from 50p) – an issue of totemic political significance. Osborne is known to have advocated the policy in 2012 but the Lib Dems (who demanded a mansion tax in return) forced him to meet them halfway. “George has no excuse not to act now,” one of the 160 Conservative MPs demanding a 40p rate told me. As a likely future leadership candidate, Osborne has a political incentive to prove his credentials as a free-market Conservative. He has long believed that the 45p rate is an economic hindrance that is outmoded in a globalised world (few EU member states have a higher rate). By reducing it to 40p, he could emulate his mentor Nigel Lawson who did the same in 1988 (from 60p).

Osborne will not have a better opportunity to act than his first Budget: “If it were done when ’tis done, then ’twere well it were done quickly.” The Tories are in the grace period of the electoral cycle and Labour and the Lib Dems are leaderless. Should the opposition protest, Osborne will be able to point out that he has merely returned the rate to its level for 155 of the 156 months that Labour was in power. The “millionaires’ tax cut” of 2012 did not stop the Conservatives winning a majority. Any damage from again cutting the top rate will likely have dissipated by 2020.

But a reduction in taxes for the top 1.5 per cent of earners risks appearing hideously incongruous as others have their in-work benefits shredded. One Tory sceptic tells me that it would be “political masochism” to act now. David Cameron’s ambition to reclaim the mantle of “one nation” would be better served by a reduction in taxes for the poorest. The National Insurance threshold, which stands at just £7,956, is regularly cited by Conservatives.

Because of the enduring shock that the Tories have a majority of any kind, its modesty (12 seats) is too easily forgotten. By cutting the top rate, a policy for which he has no mandate, Osborne could immediately overreach. The task of imposing further austerity is formidable enough without gifting some voters an exemption. Greece has given the Chancellor the script he needs: one of shared sacrifice to stave off a comparable national humbling. He should resist all inducements to depart from it.

George Eaton is political editor of the New Statesman.

This article first appeared in the 01 July 2015 issue of the New Statesman, Crisis Europe

Photo: Getty
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Like it or hate it, it doesn't matter: Brexit is happening, and we've got to make a success of it

It's time to stop complaining and start campaigning, says Stella Creasy.

A shortage of Marmite, arguments over exporting jam and angry Belgians. And that’s just this month.  As the Canadian trade deal stalls, and the government decides which cottage industry its will pick next as saviour for the nation, the British people are still no clearer getting an answer to what Brexit actually means. And they are also no clearer as to how they can have a say in how that question is answered.

To date there have been three stages to Brexit. The first was ideological: an ever-rising euroscepticism, rooted in a feeling that the costs the compromises working with others require were not comparable to the benefits. It oozed out, almost unnoticed, from its dormant home deep in the Labour left and the Tory right, stoked by Ukip to devastating effect.

The second stage was the campaign of that referendum itself: a focus on immigration over-riding a wider debate about free trade, and underpinned by the tempting and vague claim that, in an unstable, unfair world, control could be taken back. With any deal dependent on the agreement of twenty eight other countries, it has already proved a hollow victory.

For the last few months, these consequences of these two stages have dominated discussion, generating heat, but not light about what happens next. Neither has anything helped to bring back together those who feel their lives are increasingly at the mercy of a political and economic elite and those who fear Britain is retreating from being a world leader to a back water.

Little wonder the analogy most commonly and easily reached for by commentators has been that of a divorce. They speculate our coming separation from our EU partners is going to be messy, combative and rancorous. Trash talk from some - including those in charge of negotiating -  further feeds this perception. That’s why it is time for all sides to push onto Brexit part three: the practical stage. How and when is it actually going to happen?

A more constructive framework to use than marriage is one of a changing business, rather than a changing relationship. Whatever the solid economic benefits of EU membership, the British people decided the social and democratic costs had become too great. So now we must adapt.

Brexit should be as much about innovating in what we make and create as it is about seeking to renew our trading deals with the world. New products must be sought alongside new markets. This doesn’t have to mean cutting corners or cutting jobs, but it does mean being prepared to learn new skills and invest in helping those in industries that are struggling to make this leap to move on. The UK has an incredible and varied set of services and products to offer the world, but will need to focus on what we do well and uniquely here to thrive. This is easier said than done, but can also offer hope. Specialising and skilling up also means we can resist those who want us to jettison hard-won environmental and social protections as an alternative. 

Most accept such a transition will take time. But what is contested is that it will require openness. However, handing the public a done deal - however well mediated - will do little to address the division within our country. Ensuring the best deal in a way that can garner the public support it needs to work requires strong feedback channels. That is why transparency about the government's plans for Brexit is so important. Of course, a balance needs to be struck with the need to protect negotiating positions, but scrutiny by parliament- and by extension the public- will be vital. With so many differing factors at stake and choices to be made, MPs have to be able and willing to bring their constituents into the discussion not just about what Brexit actually entails, but also what kind of country Britain will be during and after the result - and their role in making it happen. 

Those who want to claim the engagement of parliament and the public undermines the referendum result are still in stages one and two of this debate, looking for someone to blame for past injustices, not building a better future for all. Our Marmite may be safe for the moment, but Brexit can’t remain a love it or hate it phenomenon. It’s time for everyone to get practical.