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If it's to work, Osborne's spending scaleback will need Cameron's full support

By Paul Goodman

OSBORNE behind CAMERON When Gordon Brown was Chancellor, the Treasury was in charge.  With Stalin-like focus and fixity, he commanded Whitehall from his desk, quietly expanding the state while simultaneously shrinking his rivals: Milburn, Charles Clarke, Byers - all were gradually asphyxiated by off-the-record briefings to the media and on-the-case micro-management of their Departments.  Brown's racking up of record debt helped him along.  Since there was no effective public spending constraint, there was also no Cabinet revolt: broadly speaking, other departments were getting the funds they wanted.  When he became Prime Minister, he simply shifted his desk from Number 11 to Number 10, and the style of government continued.

Under the Coalition, everything's different - or at least seems to be.  The Government's attempting to restore responsibility to the public finances.  This means a public spending scaleback which, in turn, means mutinously unhappy departments.  Iain Duncan Smith wants to keep some of his savings for welfare reform.  Liam Fox is battling with the Treasury over his budget in general and Trident in particular.  It's reported that neither Caroline Spelman nor Vince Cable have offered the savings requested.  But the public spending scaleback will come, accompanied by the biggest Treasury problem of all: MPs guarding their local patch, with one eye on the next election and the other on the coming selections (given the planned cut in the number of Commons seats).

All this would be testing enough against a background of falling inflation, lower interest rates, and economic recovery.  Against one of pressure on all three fronts, it's even more severe - as today's Bank of England forecast is likely to confirm.  The Times (£) covers the main issues this morning.  The Bank's likely to say that inflation will be higher and growth lower than expected.  The fragility of the housing market and consumer confidence will unnerve consumers and voters.  Vince Cable, who's emerging as the key Cabinet obstacle to a sensible tax system, has helpfully made his own adjustment to official assessments of the risk of a double-dip recession.  Asked for his view, he said that “The Government’s own forecasting risk puts it at something like one in four, one in five" before providing a personal estimate: “Well, you know, certainly well below 50-50."

At first glance, George Osborne is in a weaker political position than Brown was - even when the bleak circumstances are discounted.  He's lost a Chief Secretary who was up to the job and gained one who apparently isn't.  Policy is to restore normality to government after the Brown years, which means scaling back the Treasury's scope: note the role of the new Office of Budget Responsibility.  In the face of Work and Pensions' briefing of its case, there's been no concentrated Treasury counter-briefing (which there would have been in Brown's day).  None the less, the Chancellor's in a much stronger place than he may seem to be.  The Treasury has the last institutional word when it comes to spending, and Osborne's budget delivered a clear plan to control it.

What will matter above all to Number 11 during the months to come is the stance of Number 10.  David Cameron has been willing, when he thinks it's necessary, to leave Ministers standing while the music's playing.  Crispin Blunt was hung out to dry over prison reform.  So was Anne Milton over the future of nursery milk.  The last incident raised a question about the spending review to come: will Cameron, having asked Ministers for big savings, back up their plans?  (And all spending squeezes entail hard decisions - let alone one on the present scale.)  When Ministers seek to go above the Chancellor's head by appealing to the Prime Minister - which they will - what will happen?  Cameron and Osborne learned a lot in opposition from the Blair/Brown fratricide.  They've thus a long record of sticking together, and wouldn't have come this far without doing so.  I believe that they'll do so again over the spending review.  But it poses the biggest challenge to their teamwork to date.


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