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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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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