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8 July 2015

Osborne’s politically deft Budget makes life even harder for Labour

The Chancellor ruthlessly exploited the opposition's weaknesses and addressed his party's own. 

By George Eaton

The Conservatives had waited 19 years for a Tory-only Budget. There was plenty in George Osborne’s seventh statement to make them feel it was worth it. The inheritance tax threshold will be raised to £1m from 2017, finally fulfilling the ten-year-old pledge that made the Chancellor’s reputation. The 40p tax threshold will be increased to £43,000 next year as a downpayment on the promised £50,000 threshold. “The defence and security of the realm”, as Osborne grandly phrased it it, will be guaranteed by year-on-year real-terms increases in the MoD budget and a joint security fund of £1.5bn a year. The UK will meet the Nato pledge to devote at least 2 per cent of GDP to defence spending. By acting early in the parliament, Osborne has prevented what would have been a fierce internecine struggle and earned the favour of those MPs whose support he will need in the coming Conservative leadership contest. 

The tax credits system that the Tories have long regarded as a form of Labour bribery was further unravelled. Support for families will be capped at two children and those who start a family after April 2017 will received reduced payments. The planned £12bn of welfare cuts will advance Osborne’s goal of a budget surplus by 2019-20 and further surpluses thereafter. Public service spending is forecast to fall to just 14.5 per cent of GDP by 2019-20 – the lowest level since 1964/65. The state that Gordon built has been epically rolled back. 

But Osborne, who has grown in stature with every Budget since his 2012 nadir, was too politically astute to dress his statement in Tory clothes alone. The anticipated rabbit was unveiled in the form of a “National Living Wage”, a measure designed to provide political cover for his cuts to in-work benefits (while poaching a pet cause of his leadership rival Boris Johnson). The wage is a “living” one by Osborne’s definition alone. The planned rate of £7.20 from next April is below the current voluntary UK rate of £7.85 and far below the London rate of £9.15 (it is, in other words, merely a higher minimum wage). In a further sleight of hand, the Chancellor omitted to mention that the current rates took account of the in-work benefits he had just cut. But in politics, as Ronald Reagan observed, “if you’re explaining, you’re losing”. The experience of the last five years proves that Labour cannot assume that voters who recieve a pay cut will not thank Osborne for their “pay rise”. For a party that in recent memory opposed a minimum wage of any level, a rate of £9 by 2020 (£1 higher than that promised by Labour at the election) it is still some journey. 

There were other acts of political crossdressing that the opposition will find even harder to dismiss. Permanent non-dom tax status has been abolished with anyone resident in the UK for more than 15 of the past 20 years now paying full Brtish tax on all worldwide income. As Osborne allowed himself to cheekily note, his erstwhile opponent, Ed Balls, had warned that full abolition would likely cost the government revenue. In a long overdue move, an apprenticeship levy will be imposed on all large firms to fund the Tories’ promise of three million more. Roads investment will be guaranteed by hypothecating revenue from Vehicle Excise Duty. It took Osborne far too long to recognise the value of infrastructure investment and the need to raise productivity  – but he can no longer be caricatured as a simple-minded Randian. The only consolation for Labour is that so many of the issues it campaigned on – higher wages, non-dom taxation, higher NHS spending, free childcare – have been embraced by Osborne. The party had many good ideas; it was the sales pitch that was the problem. 

It was a coalition, not a Conservative, Budget that Osborne had expected to deliver. After the Tories’ unforeseen victory, this was a statement designed to ruthlessly consolidate their advantage. Labour’s weaknesses were exploited through the budget surplus law and the reduced benefit cap; the Conservatives’ were addressed through tax cuts and a “National Living Wage”. After another Budget sweeping in its scope, the opposition is less sure than ever about how to reset the terms of debate in its favour. 

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