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May, Grayling & Hammond launch "a co-ordinated counter-attack" on Osborne over spending

By Paul Goodman
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The Independent reported yesterday that George Osborne has taken it upon himself to intervene in today's same-sex marriage bill.  The Chancellor, it said, "is understood to have been contacting MPs whose position is still uncertain" (on a measure, remember, which is officially a matter for a free vote).  It is surprising that he can find the time to do so, given the problems on his doorstep at the Treasury - and within the party.

The Financial Times today claims that Philip Hammond, Chris Grayling and Theresa May  "all told the chancellor in blunt terms that he should rethink his strategy" at a recent Cabinet session about the spending review.  The paper describes their assault as "an immediate and co-ordinated counter-attack".  As it makes clear, the troika were demanding not a change in economic strategy, but a shift in spending priorities.

If the NHS, international aid and schools budgets are to be protected, it follows that other departments will not be.  And since Osborne's strategy is to bring in the bulk of tax rises before the bulk of the spending squeeze, it also follows that the protests from the Departments that are losing out are growing louder.  By 2018, the FT says, "some departments...could have lost more than half of their budgets since 2010, if cuts continue to be applied on the same path as so far".

But the problems that the Chancellor is having with his Cabinet colleagues pales when compared to that he is having with Conservative backbenchers.  The Daily Mail reported last week that "conspirators intend to send a letter to the Prime Minister after the local elections on May 2, calling on him to replace the Chancellor if his March budget fails to drag the economy from the doldrums".

This is clever ploy by those concerned, since:

  • Downing Street can't claim that Osborne is more popular than the party in the polls, a come-back available to it when Cameron is criticised.
  • Cameron and Osborne are effectively a dual party leadership, so the Prime Minister won't move his Chancellor.
  • This "refusal to listen to the mood of the backbenches", in turn, further weakens the position of Cameron - the real target of the disaffected.

The Chancellor knows better than anyone that his fortunes depend on two factors.  First, on Ed Miliband keeping Ed Balls as Shadow Chancellor, not only because the latter's unpopularity is more extensive than the Chancellor's own, but because Ball's function as a walking reminder of the Brown years is integral to hopes of a Tory victory in 2015 - when Cameron hopes to re-run the deadly Conservative election campaign of 1992.

Second, Osborne grasps that if growth doesn't come, his chances of succeeding his friend as party leader and Prime Minister will vanish altogether.  I suspect that my old boss from my Shadow Treasury days is fatalistic about whatever happens next.  Some of the big infrastucture decisions that the Government could have made haven't materialised: a decision about airport expansion, for example, has been pushed back until after the next election.

The budget may produce radical supply-side measures but, over at the Business Department, Vince Cable believes that the problem with the economy lies with demand, not supply - and there no sign that the Treasury is champing at the bit for further wrangling with him.  Nor will Osborne scale back state spending even further, and make the bold tax cuts that David Davis, and some other Tory backbenchers, are urging.

No Chancellor in such circumstances is going to have an easy time with his Cabinet colleagues.  But the less growth there is in the economy, the greater the pressure will grow on the Chancellor.  William Hague was forced to defend his former Political Secretary yesterday.  Expect more where that came from after the budget and May's elections - amidst danger for Cameron that the EU referendum pledge, like the AV referendum victory before it, has failed to quell.

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