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Old Truths Not New Politics! A Surer Way to Success for Mr Osborne

This week George Osborne gave the first spring budget from a Conservative majority government for almost two decades. That government had, in the 1980s, defined itself and set Britain, back on the road to financial stability and prosperity after the disasters of the 1970s and the IMF bailout, through a series of bold budgets. Mr Osborne, of course, has already been Chancellor for five years in the Coalition, and his tentative steps towards financial prudence have helped to win his party their majority. In this budget, he had the chance to define a new, conservative fiscal agenda.

But the problem for Mr Osborne is that he is inclined to a different sort of innovation. He is the architect of a new politics, which aims to combine aspects of market economics with the costly interventionism favoured by the left and facilitated by the Treasury establishment moulded by Gordon Brown and bequeathed with him along with a vastly swollen debt and otherwise empty coffers in 2010. Wednesday’s budget was another exercise in this type of politics.

‘Market’ Osborne’s mantra is that the budget deficit will be abolished by 2020. We heard it again on Wednesday. Nor has he changed his aim to cut government debt as a share of GDP every year. Yet the OBR forecasts that the deficit will be as much as £72bn this year – around half that inherited in 2009/10. Meanwhile Mr Osborne has missed the target of cutting government debt as a proportion of GDP in the past year (to 83.7 per cent of GDP) and thereby broken his own rule.

At the same time the largesse to Wednesday’s winners makes it more difficult to see how the sunlit 2020 scenario can materialise, though there will be something to please the left, as well as the centre and the right. Mr Osborne announced tax cuts for business, with corporation tax to be cut to 17 per cent by 2020, business rates abolished for many small businesses. Personal tax thresholds will rise in 2017: basic rate tax will be paid after earnings reach 11.5K (benefitting 31 million earners) and the higher rate threshold will rise to 45K (to the benefit of half a million). Spending for savers will kick in, with a new lifetime ISA for the under 40s ISA for their first house or a pension, to be topped up by the government by £1 for every £4 saved.

These may look like liberal reforms, but they involve a mixed bag of commitments targeted at certain interest groups which Labour had championed – small business, young people(the generation saddled with student debt, ‘lost’ to home ownership and the glimmer of any saving), the low paid, and the ‘squeezed middle’ championed by Ed Miliband last time round. There were also headline grabbing tax rises – the sugar tax on fizzy drinks and the rise in insurance premium tax.

The trouble is that ultimately the economic measure of any government is whether it can pay the bills in poor times as well as good. How far will this budget go to dispel the storm clouds about which the Chancellor has continued to warn? Wednesday’s figures drove the message home. The UK economy is now forecast to grow at a slower rate than anticipated, with GDP growth at only 2 per cent in 2016 and 2.2 per cent in 2017 (not 2.4 and 2.5 per cent).

The analogy with last time round is apposite. When the Thatcher government took power in 1979, no secret was made of the economic plan, and the ideology on which it rested. The plan was to return to health the ‘sick man’ of Europe. Public spending cuts were needed and the country, said Mrs Thatcher, must live within its means. The structural reform of the economy shackled by the centrally planned system of post war Britain must give way to leaner, competitive models allowing for competition to raise standards and bring prices down. And, employment must be modernised, with trade union action governed by a clear, transparent law, outlawing the wildcat strikes and closed shop under which the country, its economy and many workers and their families suffered, to get Britain back to work.

Today some problems are similar, others very different. Structural change is needed for a high skill, high productivity economy, to incentivise home grown talent to do better and reach the levels found in our competitors. Sensible immigration laws are needed to allow the brightest and best talent from the world to settle here and draw a line under huge mass immigration from low skill, low earning EU citizens, whose living standards then have to be topped up by the expensive social state. And yes, Britain needs lower overall levels of public spending and a far smaller state. This should go hand in hand with a clearer, cheaper more transparent tax system which lowers overall levels of tax as a proportion of GDP and lower public spending. And there needs to be the commitment that the rule of law will operate and be applied transparently and clearly, and that it is law made by the UK Parliament or to which Parliament consents.

Such a system would restore the fortunes of the country just as the last Conservative chancellors did over two decades ago. For George Osborne there is still all to play for. Many may not have liked the lady, but they gave her three victories and her successor, John Major, a fourth.

Dr Sheila Lawlor

Dr Sheila Lawlor is Politeia’s Founder and Director of Research. Her background is as an academic historian of 20th century British political history, having started her working life as research fellow at Sidney Sussex College, Cambridge and Churchill College, Cambridge. Her academic publications include Churchill and the Politics of War 1940-41 and for Politeia she has written on social, economic and constitutional policy.

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