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

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The Women's March against Trump matters – but only if we keep fighting

We won’t win the battle for progressive ideas if we don’t battle in the first place.

Arron Banks, UKIP-funder, Brexit cheerleader and Gibraltar-based insurance salesman, took time out from Trump's inauguration to tweet me about my role in tomorrow's Women’s March Conservative values are in the ascendancy worldwide. Thankfully your values are finished. . . good”.

Just what about the idea of women and men marching for human rights causes such ill will? The sense it is somehow cheeky to say we will champion equality whoever is in office in America or around the world. After all, if progressives like me have lost the battle of ideas, what difference does it make whether we are marching, holding meetings or just moaning on the internet?

The only anti-democratic perspective is to argue that when someone has lost the argument they have to stop making one. When political parties lose elections they reflect, they listen, they learn but if they stand for something, they don’t disband. The same is true, now, for the broader context. We should not dismiss the necessity to learn, to listen, to reflect on the rise of Trump – or indeed reflect on the rise of the right in the UK  but reject the idea that we have to take a vow of silence if we want to win power again.

To march is not to ignore the challenges progressives face. It is to start to ask what are we prepared to do about it.

Historically, conservatives have had no such qualms about regrouping and remaining steadfast in the confidence they have something worth saying. In contrast, the left has always been good at absolving itself of the need to renew.

We spend our time seeking the perfect candidates, the perfect policy, the perfect campaign, as a precondition for action. It justifies doing nothing except sitting on the sidelines bemoaning the state of society.

We also seem to think that changing the world should be easier than reality suggests. The backlash we are now seeing against progressive policies was inevitable once we appeared to take these gains for granted and became arrogant and exclusive about the inevitability of our worldview. Our values demand the rebalancing of power, whether economic, social or cultural, and that means challenging those who currently have it. We may believe that a more equal world is one in which more will thrive, but that doesn’t mean those with entrenched privilege will give up their favoured status without a fight or that the public should express perpetual gratitude for our efforts via the ballot box either.  

Amongst the conferences, tweets and general rumblings there seem three schools of thought about what to do next. The first is Marxist  as in Groucho revisionism: to rise again we must water down our principles to accommodate where we believe the centre ground of politics to now be. Tone down our ideals in the hope that by such acquiescence we can eventually win back public support for our brand – if not our purpose. The very essence of a hollow victory.

The second is to stick to our guns and stick our heads in the sand, believing that eventually, when World War Three breaks out, the public will come grovelling back to us. To luxuriate in an unwillingness to see we are losing not just elected offices but the fight for our shared future.

But what if there really was a third way? It's not going to be easy, and it requires more than a hashtag or funny t-shirt. It’s about picking ourselves up, dusting ourselves down and starting to renew our call to arms in a way that makes sense for the modern world.

For the avoidance of doubt, if we march tomorrow and then go home satisfied we have made our point then we may as well not have marched at all. But if we march and continue to organise out of the networks we make, well, then that’s worth a Saturday in the cold. After all, we won’t win the battle of ideas, if we don’t battle.

We do have to change the way we work. We do have to have the courage not to live in our echo chambers alone. To go with respect and humility to debate and discuss the future of our communities and of our country.

And we have to come together to show there is a willingness not to ask a few brave souls to do that on their own. Not just at election times, but every day and in every corner of Britain, no matter how difficult it may feel.

Saturday is one part of that process of finding others willing not just to walk a mile with a placard, but to put in the hard yards to win the argument again for progressive values and vision. Maybe no one will show up. Maybe not many will keep going. But whilst there are folk with faith in each other, and in that alternative future, they’ll find a friend in me ready to work with them and will them on  and then Mr Banks really should be worried.