How Osborne’s most recent budget appeared to take the wind out of Labour’s sails

Will Spence (2014) studies Human Social and Political Sciences at Pembroke College, Cambridge. In this article he considers whether Osborne’s most recent budget limits the rhetorical power of Labour’s opposition.

Osborne was as politically cunning as ever in his most recent budget statement, but it should be applauded nonetheless.

Little gives George Osborne more pleasure than laying political traps for Labour. His recent proposal to create a new law forcing future governments to run a budget surplus ‘to fix the roof whilst the sun is shining’ proved as much. By announcing it this summer but then delaying any vote until autumn, Osborne was able to define his opponents before they could define themselves. The statement seemed like a stunt intended to dictate the direction of current Labour leadership discussions.

George Osborne with despatch box

In similar fashion, today’s budget announcement was cleverly designed to take the wind out of Labour’s sails by giving off the popular impression that the Conservatives are a one-nation party driven by the prospect of awarding hard-working people.

The most surprising aspect of Osborne’s speech came at the very end. His announcement that from 2020 workers over 25 years would be paid £9 an hour in a National Living Wage scheme was met by shock and awe in the Commons. In his general election campaign, Ed Miliband made a point of promising to increase the minimum wage to £8 by 2020. He also made a point of being the first politician to under-promise and over-deliver. Today Osborne did both by introducing many enhanced Labour policies. The usual pattern in British post-election politics is that the victors, having promised the world before the election, admit that things are actually tougher once they come into government.

Osborne did the opposite. His unexpected introduction of the national living wage will give an estimated 2.5 million people an average £5000 rise over five years[1], and the proposed £9 an hour by 2020 is £1 higher than that promised by Ed Miliband in the run up to the general election.

Election_Ed-Miliba_3259641bOsborne didn’t stop there. One of Miliband’s policies was to abolish the ‘non-dom’ status (a policy that his own shadow chancellor of the exchequer Ed Balls admitted would see less money being collected by UK governments). Osborne stole this policy, whilst improving it markedly. Rather than introducing a blanket abolition, Osborne has refined the proposal to abolish non-domicile tax status for those wealthy residents who have lived in Britain for 15 of the past 20 years – a much more sensible policy.

This pattern of adopting and improving what were once distinctive Labour policies was evident throughout the speech. Osborne targeted hedge funds and private equity firms (hitting them with £375m capital gains tax), announced £47 billion of tax rises over this parliament (coming, for example, from the vehicle excise duty) and proposed a new apprentice levy, which imposes a tax on businesses to create 3 million more apprenticeships (echoing old Labour calls for UK businesses to hire 1 national for every foreigner they take on). Osborne’s pledge to increase NHS spending by a further £8 billion by 2020 is similarly reminiscent of Miliband’s election pledges. Whilst it is true that corporation tax was decreased to 18% in order to increase international competitiveness, a new 8% tax on annual bank profits has been introduced. This will bring in £1.6 billion to the Treasury over the next five years – ensuring that the sector originally responsible for the crash continues to bear its share of the burden.

Any Labour supporter should begrudgingly welcome these measures. But, as is often the case with Osborne’s budgets, the story doesn’t end there.

By placing the national living wage announcement at the end of his speech Osborne cleverly deflected attention away from earlier policies, whilst also making Harman’s rebuttal time very uncomfortable indeed. Her response seemed more like a pre-rehearsed attack on Osborne’s slimy prime-ministerial ambitions than a substantial criticism of policy.

This can’t hide the fact that many of Osborne’s measures will make life more as opposed to less difficult for the least wealthy in British society. You don’t need a degree in economics to figure out that cuts to tax credits will counterbalance the national living wage. Moreover, lower income families who want to have a third child by 2017 will receive less help from the state, student maintenance grants will be replaced with loans by 2017, and, perhaps most importantly, working age tax credits will be frozen for four years. On the face of it Osborne’s budget appears to be aligned with one-nation rhetoric whilst stealing Labour’s clothes. The reality, of course, is much more complicated. The devil’s in the detail, and Labour will doubtless find many aspects of this budget to criticise.

Overall, however, Osborne’s most recent budget should be celebrated. It is not surprising that Harman had difficulties in responding to Osborne’s national living wage announcement. Supporters of the Left and Right alike should welcome this policy. Osborne is shifting the emphasis from costly government contributions to businesses being more responsible in their wage packages. Similarly, measures that at first sight appear to be the spawn of a terrible Tory majority seem reasonable upon closer inspection. Student grants, for example, are to be replaced by a comprehensive loans system whereby students don’t have to pay anything back until they earn more than £21,000 a year. Also, social justice warriors ignore the fact that the maintenance loan available to students will increase to £8,200. This will do a lot to help low income students in London, for example, where the cost of living is particularly high and not sufficiently catered to by the current system.

university_2525188bFurthermore, it is worth remembering that changes made to higher education funding under the last coalition government did not deter students from lower income families from going to university. Thanks to the government’s insistence that any university charging the full £9,000 a year would have to introduce new measures attracting lower income students, the number of disadvantaged students accepted at British universities last year was higher than any other previous year – amounting to 18.3% of the total.

Have difficult decisions been made in this budget concerning tax credits? Of course they have. The reduction of the welfare cap to £20,000 outside London is similarly unpleasing. But, the state of affairs in Greece makes this week a particularly sobering time to think about the consequences of unbridled government spending. Under Osborne’s plans the UK is projected to reach a £10 billion spending surplus by 2020. If successful, this will reduce the amount of debt-interest repayments made each year (which is forecast to be a huge £36bn in 2015/2016 ) and allow the government to maintain and eventually increase spending on vital public services.

In 1944 Hayek explained how, “[that] people should wish to be relieved of the bitter choice which hard facts often impose upon them is not surprising. But people are only too ready to believe that the choice is not really necessary, that it is imposed upon them merely by the particular economic system under which we live. What they resent is in truth that there is an economic problem”. Osborne’s budget will inevitably hit middle and low-income families in society, but these are decisions that must be made for the long-term good of the economy. The alternative, as Greece has shown, is perilous.

All in all, Osborne’s budget today contains much to be celebrated in what are very difficult economic circumstances. If the two million jobs created in the last parliament are anything to go on we should be very optimistic about this budget. Do Osborne’s measures take the wind out of Labour’s sails? They certainly make it harder for any Labour leadership hopeful to step into 10 Downing Street in 2020. Whether they represent a feasible and, perhaps more importantly, fair solution to society’s problems as a whole remains to be seen.

[1] http://www.bbc.com/news/uk-politics-33440315

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