While the economic benefits of George Osborne’s first solo Budget will take time to become evident, the political consequences have been immediate. Labour’s descent into internal warfare on tax-credit reductions will no doubt have pleased the Tory high command more than anything else that has happened since their victory in the general election (which even they didn’t expect).
There are some things in the Budget that I disagree with, but George Osborne was wise in choosing to tack his party back towards the centre ground previously occupied by the coalition, avoiding the lurch to the right that many had predicted. The economy will certainly benefit from a slower pace of deficit reduction and a more sensible balance between tax rises and spending cuts in the final stage of fiscal consolidation. In these respects, the Budget looked more like the Liberal Democrat than the Conservative manifesto.
But in doing so Osborne has created – as he no doubt intended – the central political dilemma of this parliament for the new Labour and Liberal Democrat leaders. Do they take on the argument about welfare reforms that the Conservatives would like, or find a different battleground? On that, this ginger rodent agrees with Harriet Harman.
I spent five years as chief secretary to the Treasury in the coalition government – the longest-serving Liberal in the Treasury since Lloyd George. I am proud of what we Liberal Democrats achieved in government. Entering government for the first time in 70 years, we dealt with the most serious financial crisis in that time.
We restored sanity to the public finances, and did so in a way that asked those who have the most to contribute the most. We cut income tax dramatically for low-income families, focusing greater time and money on improving the educational prospects of children from disadvantaged backgrounds, and delivered the first long-term plan for investment in our creaking infrastructure. Nor did we flinch from the necessary difficult decisions. We put our country before our party.
At the end of the last parliament, the UK was enjoying the strongest growth in the developed world, was creating jobs at a pace unmatched anywhere else, and had more than halved the deficit that we inherited from Gordon Brown.
Yet nor should anyone doubt that the UK still faces huge economic challenges. While the Greek soap opera commands the headlines, the UK still has a larger budget deficit – one of the biggest in the EU. It is a reminder of why it is so important to have a credible plan and to stick to it. With a plan, a country can command confidence and choose its own path; without one, the markets determine your fate and it is the poorest who pay the price.
So, it is right to resist the anti-austerity rhetoric and continue the process of becoming a country that pays its way. The fiscal profile now looks more like the one I proposed in my “alternative budget” before the election – though not enough for me to hand over the yellow Budget box quite yet. The Budget actually increased public spending in the next few years, slowing the pace of deficit reduction, and put more of the burden on tax rises. It’s also worth noting that some of the signature tax rises – a new levy on banks, rebalancing tax on dividends, squeezing non-doms – were all increases that I had proposed. Liberal Democrats can hardly oppose policies that we ourselves devised.
The election result was brutal for Liberal Democrats. Yet it should not be misread. Our position in the opinion polls was severely weakened over the years, but had it not been for the SNP tsunami in Scotland (which did for me) and England’s visceral rejection of the prospect of Scottish Nationalists being put in charge of the UK by Ed Miliband (which did for many of my colleagues in England) we would have considerably stronger parliamentary representation today.
The Liberal Democrats have built up substantial economic and financial credibility. In rebuilding the party, I hope the new Lib Dem leader will not sacrifice that gain. Both Tim Farron and Norman Lamb are admirable politicians, and both have said the right things about the economy. Tim’s comments on small business and entrepreneurship show a welcome focus on building a distinctive constituency of business support, and I hope radically pro-enterprise policies will follow.
Occupying the centre ground is no guarantee of electoral success, but vacating it is a sure precursor of failure. Neither Labour nor the Liberal Democrats should envisage a future as a sort of soggy Syriza in sandals. I don’t like some of the welfare reforms in the Budget, but to make it the political dividing line is to fail to recognise the views of most people.
A closer look at the Budget arithmetic offers other possibilities. A spending review that has to find approximately £20bn over four years is eminently deliverable. But with the defence budget now protected, at least £8bn needed for the NHS, and several billion more for international aid as growth takes off, the pressure is likely to fall harder than expected elsewhere.
Ensuring that schools have the policies and resources to deliver rising standards for all children feels like a much more fertile argument for the next leader of the Liberal Democrats to lead. Picking fights over core liberal issues such as civil liberties and the environment, which the Conservatives seem intent on trashing, and speaking with the most authentically pro-Europe voice in the EU referendum, all underpinned by a responsible economic policy, seems like the best route for my party to follow.