George Osborne is a man with an election to win. Rarely has the Chancellor, who remains his party’s chief strategist, delivered a fiscal statement more brimming with political intent. With the Liberal Democrats adamant that by next March it will be too late for major coalition agreements, this was a Budget in all but name. Osborne’s aim was to maximise the Conservatives’ strengths and to neutralise their weaknesses.
In view of the former, he sought to sharpen his dividing line with Labour on the deficit by making future reductions conditional on dramatic cuts to welfare and public services (the OBR forecasts that the state will have shrunk to just 35.2 per cent of GDP by 2019-20 – the lowest level for 80 years). “We have a choice – we can ease up, our we can continue with our plans,” he declared, in an appeal to voters to let the original axeman finish the job. “Some have pointed to lower tax receipts and put forward policies for higher taxes,” he noted. “I prefer lower tax receipts offset by lower debt interest payments.” Osborne’s wager is that the electorate will agree.
His new slogan of choice, “on course to prosperity” (annexed from New Zealand’s National Party in a Lynton Crosby-inspired move), is designed to convey the message that the storm is easing but that it’s too early to change captains. Osborne served notice of another political trap for Labour by promising to hold a vote “in the new year” on his target to eliminate the structural current deficit by 2017-18, forcing the opposition to either commit to billions of pounds of additional cuts or to be derided as fiscally profligate.
But if Osborne’s delivery was confident, his announcements betrayed his anxieties. Labour, still narrowly ahead in the polls, hopes to triumph in May by making the NHS and the need to build a fairer economy the defining issues. Today’s statement aimed to provide the Tories with defensive cover. As trailed at the weekend, Osborne announced that he would devote an extra £2bn year to the health service (“The closest thing the English have to a religion”, as one of his predecessors observed) and plow the £1.2bn raised from foreign exchange fines into GP services.
To counter Labour’s claim that the Tories remain a party for the few, not the many, he unveiled details of a new Diverted Profits Tax to ensure that Google and other light-footed corporations “pay their fair share”, a renewed assault on individual and collective tax avoidance, and steeper charges on non-dom residents (up to £90,000 for those resident in the UK for 17 of the last 20 years). The result, he boasted, was that “the net contribution of the richest 20 per cent will be larger than the remaining 80 per cent put together – proving we are all in this together.”
But as ever, Osborne had saved a rabbit for the end, one charged with shooting a Labour fox. In one of the biggest reforms of his Chancellorship, he announced that the current stamp duty system would be replaced with a graduated model, ending the cliff edge effect that leads to such dramatic variations in payment. The result, he boasted, was that 98 per cent of homebuyers would pay less and only those purchasing homes worth more than £937,000 would pay more – with the wealthiest paying the most (a £5m house will see its bill rise from £350,000 to £514,000).
It is a smart and progressive reform, but the political aim is transparent: to neutralise Labour’s mansion tax (which would apply to properties worth £2m and more). Osborne openly contrasted it with the opposition’s policy, noting that it only affects buyers, not owners, and that it avoids “a revaluation of hundreds of thousands of homes in this country”. The Chancellor’s hope is that this, in common with largesse for the NHS, will be enough for him to secure a draw on this territory and to shift the contest back to the more favourable terrain of the deficit.
But he risks merely confirming the wisdom of the opposition’s policies: to spend £2.5bn extra on the NHS and to levy a small annual charge on the top 0.5 per cent of properties. Just as you can’t out-Ukip Ukip on immigration, Balls and Miliband will hope that you can’t out-Labour Labour. But Osborne has concluded that the risk of inaction is greater than the risk of action. We don’t have long to wait to find out if he is right.