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A six-point plan for George Osborne, who should stay in post for this Parliament

By Paul Goodman

George Osborne on Marr 2 To date, the most reviled member of the Cabinet has been Nick Clegg.  His image has been burnt in effigy, dog excrement thrust through his letterbox: the chorus from the left has been "Shame on you for turning blue" - for giving a Conservative-led Coalition political cover.  Clegg's thus turned out to be a human shield for George Osborne, who'd normally have taken the flak for the Government's plan to eliminate the structrual deficit.  The row over yesterday's ONS GDP estimate indicates that this first, early period for the government is about to come to an end.

This isn't because a further quarter of contraction is inevitable.  Fraser Nelson pointed out yesterday that erratic GDP figures are common when an economy emerges from recession, contrasting the last quarter's worse-than-expected figure with the previous quarter's better-than-expected one.  This helps to explain why Ed Balls backed off from talking up, as he's done previously, the likelihood of a double-dip recession.  Rather, Osborne's about to be thrust front-of-shop by the spending scaleback beginning in earnest.  Announcing deficit reduction - and polls that back it in principle - is one thing.  Carrying it out is another.

When the new financial year arrives, public outcry will come with it, as some local councils cut social services, libraries and road repairs while simultaneously hiking council tax, schools freeze spending and lay off staff, and hospitals begin to slow their throughput of patients.  Never mind that well-run public services can usually find ways of cutting waste and improving efficiency without harming services.  Some Labour-held councils will believe that they've no reason to do so, and every incentive to swing the axe and blame the Treasury.  Trade union campaigns and celebrity protests will utilise Facebook and Twitter to get the message out.

Clegg's ratings won't get better.  But Osborne's will get worse, as Balls harrys him, Liberal Democrats wobble and Conservative MPs feel constituency pressure - all at the same time as a boundary review, if Labour peers don't continue to hold the AV Bill up.  Up till now, the Chancellor's had a relatively easy run in Government, announcing a determined plan last May to eliminate the structural deficit in the course of this Parliament.  The assaults on his relative youth, inherited wealth and lack of experience outside politics have receded, as have the gripes about his media appearances.  Stand by for these to return.

The deficit reduction plan is the foundation on which this Government's built.  If it's taken away, this administration will lose its reason to be.  Osborne's no choice, then, but to see the task through, as Geoffrey Howe did during the bleak years of the early '80s.  Margaret Thatcher kept Howe at the Treasury for the whole of her first Parliament, and the Prime Minister's little option but to do the same this time round - all the more so because Osborne has been half of the Team Cameron duopoly that's run the Party since the 2005 leadership election.  Both men rose together and must stick together, or they'll fall together.

The Chancellor will be hoping that the Government's relationship with the voters falls into three parts -

  • The honeymoon period, during which the spending scaleback is announced and the Government and Party remains relatively popular.
  • The trial separation, during which the scaleback's implemented and the voters flock to Labour in drove during local, Scottish and Welsh elections (and to UKIP during the European ones).
  • The renewal of vows at the 2015 election, at which voters, rewarded by tax cuts, spending rises, economic growth and a private sector jobs boost later in the Parliament - and terrified of a Balls/Miliband tax hike - "do a 1992", and rally behind the Conservatives, forcing a Tory majority Government (or one in coalition with the Orange Book wing of the Liberal Democrats).

To maximise his chances of gaining this happy ending, Osborne will need to -

  • Mobilise third parties.  This will be difficult in relation to the spending scaleback.  Such groups as the Taxpayers' Alliance will continue to hammer waste and profligacy.  But few disinterested parties are going to line up full-square behind the details of Osborne's plan.  But among the elites, some economic commentators will distrust the new Balls Shadow Treasury regime, however tightly the new Shadow Chancellor tries to draw Labour's own tax and spending plans.  And at the grassroots, new movements are already emerging to back Michael Gove's Free Schools plan.
  • Utilise the Liberal Democrats.  Geoffrey Howe didn't have, say, Alan Beith as his Chief Secretary during the 1979-83 Parliament.  This probably wouldn't have helped that Government deliver Thatcherite retrenchment more efficiently, but it would have widened the breadth of its appeal.  Osborne must use Danny Alexander and other Liberal Democrat Ministers to help drive home the message that the deficit reduction plan is "in the national interest".
  • Shift the conversation from cuts to growth.  This will be very difficult to do.  David Cameron's already had a go (indeed, several goes).  Osborne's first budget was bound to be framed as a "cuts" budget, and attempts to try anything else were likely to be unsuccessful.  It doesn't have to be that way with his second, and the test will be whether the can present his plans for banks, manufacturing - particularly in relation to its energy costs - petrol duty and the 50p rate as part of a plan for growth. 
  • Plot a public route for personal tax cuts.  Reducing the defict will and should come first, but Osborne should start to plot a route to lower personal taxes.  The risk is that tax cuts for poorer workers, championed by the Liberal Democrats, aren't balanced by reductions further up the scale, thus boosting disincentives to earn.  The Treasury carried out a study of the effects on revenue when it raised CGT.  Now a precendent's been set, shouldn't it also study, say, the 50p and 40p rates?
  • Find and convey a policy agenda for "Sid's Heirs" - the C1s and C2s that both the Government and Labour have little connection with.  No Conservative Cabinet member seems to have a natural instinct for these voters, as Thatcher, Norman Tebbit and, yes, Michael Heseltine (who set council house sales in motion) did during the 1980s.  I've previously set out a five-point programme of immigration control, more homes, better school places income tax cuts and share sales.
  • Sharpen the counter-attack on Balls.  The Party's political operation's improved since the non-event of the summer of scrutiny on Labour.  Michael Fallon's been brought in to sharpen things up, which he's doing.  Greg Hands runs an energetic operation as Osborne's PPS.  The Chancellor has a backbench support team, including his sharp former chief of staff, Matt Hancock.  But couldn't such energetic Ministers as Grant Shapps and Chris Grayling - busy though they are - be utilised as attack dogs if necessary?  Or even - a very long and risky shot - David Davis?

As I say, those complaints about Osborne will be heard again soon, and more loudly.  But there's a credit side to the ledger.  He was the first senior member of Team Cameron to work out that modernisation could go too far.  He produced the inheritance tax and stamp duty cuts package that helped turn the polls round in 2007, and panic Gordon Brown off calling an election he might have won.

He stuck to the need for an austerity programme more unyieldingly than Cameron did.  The deficit reduction plan, with its politically-framed protection for international development and health (which I expect the Shadow Chancellor to mirror), is his.  The Government's voice may be Cameron's, but its hands are  Osborne's.  Forget about drafting in a replacement: the future is Osborne or Balls.  Choose.


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