Osborne throws the kitchen sink at Balls... and Balls throws it back at Osborne

By Paul Goodman
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Tony Blair and Gordon Brown committed their party to Conservative spending plans when they fought the 1997 election.  Their shrinking of the target at which their enemies could fire set the tone for the next 20 years, followed as it was by one of biggest landslide victories in British history. Voters, the orthodoxy held, are always fearful that Labour, once translated from opposition to Government, will raise taxes more than a Tory Government; and the Conservatives (once the same translation has happened) will cut spending more than a Labour Government.

It admittedly took the Conservative leadership a very long time to mimic New Labour's position.  Neither William Hague in 2001 nor Michael Howard in 2005 did so - which offered opportunities to Tory modernisers to turn their volume up.  David Cameron's leadership gave George Osborne, convinced after 2005 that a James Review type-plan on savings was too complicated to sell to voters, the chance they were looking for.  The Shadow Chancellor, having junked much of his early enthusiasm for flatter taxes and parked the conclusions of Lord Forsyth's Tax Reform Commission, prepared himself to mirror Labour's spending plans.

But then the world changed.

In the wake of the collapse of Lehman Brothers and the nationalisation of Northern Rock, Alistair Darling and Gordon Brown tore up one of the sacred texts of the New Labour canon - namely, never to put up the top rate of tax.  In his 2009 budget, Mr Darling raised it to 50p.

And in his speech to the 2009 Conservative Conference, Mr Osborne ripped up another.  Rightly and riskily, he confirmed that a Tory Government would rein in Labour's spending plans.  "Now let's see if I've cost us the election," he said afterwards.

The Shadow Chancellor's instincts were correct.  Coming off Labour's plans contributed to his party's failure to break through in midlands and northern marginals six months later, where state dependency was deeper embedded.

What began in 2009 will continue in 2015.

Although Mr Brown was the main supporting actor in the New Labour drama, he wasn't the star of the show, and was never as emotionally committed to it as Tony Blair Superstar.  His fondness for dividing lines between his party and the Conservatives went much further than Mr Blair's.  Both agreed that the Tories should be challenged to match Labour's spending: if the Opposition failed, it would be decreed to be on the wrong side of the line.  But they were never of the same mind about the top rate.  Mr Brown would have been happy to go into the 1997 election with a pledge to raise it - and, 12 years later, he was able to give his instincts full rein.

It will surprise no-one to see Ed Balls cited as a Brown disciple, at least when it comes to dividing lines.  But it's worth remembering that Mr Osborne should, in the same context and some others, also be listed as one.  Like Mr Brown, the Submarine Chancellor is in effect the Government's Chief Executive.  Like him, he is an octopus, with tentacles that reach deep into Whitehall and Westminster.  Like him, he tends to surface, outside his brief, only on big occasions, such as the budget and the autumn statement.  Like him, he avoids big interviews - with Jeremy Paxman or Andrew Neil, say, on-screen.  And like him, he likes dividing lines.

And now both the Chancellor and his Shadow are further crossing each other's.

Balls's one, a legacy from the Brown Government, was that 50p rate.  Again, riskily and rightly, Mr Osborne crossed it.  But it helped to send the Tory poll ratings plummeting (though how big a contributor it was to the fall is impossible to know).

Osborne's one is welfare.  First there was the benefits cap.  Now there is the "benefits freeze".  And Mr Balls, together with Mr Miliband, seem prepared to cross it.  The Leader of the Opposition made it the battering ram of his Prime Minister's Questions assault last week.

So has Labour made the wrong political call, as the Chancellor seems to have done?

At first glance, Messrs Miliband and Balls are in a very bad place.  They support the pay freeze.  It follows that if they oppose the benefits freeze (actually a one per cent rise), they are suggesting that the incomes of those on benefit should rise faster than those in work.  The Prime Minister swooped on this point in the Commons last week, pointing out that those of the latter have gone up by 20%, and those of the former by only 10%.  Labour claim that voters oppose the move but, as Jonathan Jones has pointed out on Coffee House, the polling is ambiguous.  And approval or disapproval of a particular move won't automatically translate into votes in 2015, anyway.

Furthermore, the move puts Balls and Miliband on the back foot in another way, since they will be asked to explain how they would fund a real-terms benefit increase.  Fundamentally, the Chancellor is right to argue people on benefits must share in the general retrenchment, and to point out that crucial disability benefits will be protected.  But there is a big question about our old friend, presentation.  Grant Shapps has rushed out a national advert in marginal seats which asks whether the Government should be giving more support to "hardworking families" or "people who won't work. A survey sent to party members takes the same line.

It opens as follows:

"We’re interested in your view about the fairness of our benefit reforms. Conservatives in Government have made a decision that we will support people who work hard and that work will be rewarded.

"Labour say that benefits should go up by more than average wages – even though it will be the taxes of people in work that pays for this increase. We don’t think this is fair for the following reasons..."

The clear inference is that those receiving benefits aren't in work.  But this is wide of the mark.

Mr Miliband claimed last week that 60% of those affected by the freeze are in work.  This may well be an over-estimate.  But undoubtedly many of those who are subject to the benefit freeze will be.  Why?  Because of Mr Brown's tax credit Professor Branestawn machine.  Many of those receiving the child tax credit will not be unemployed.  Neither will those receiving the working tax credit.  Miliband and Balls claim that these people are strivers.  CCHQ and Mr Osborne suggest that the real strivers are those who don't claim benefits.  The battle in these marginal seats may turn on which version voters believe.

In a better world, these tax credits would be wound down and tax cuts would be wound up - perhaps through a new 10p band, perhaps through cuts in the 20p rate.  This isn't going to happen (though two million people have been taken out of tax by the rise in the personal allowance), so we're left with the politics.  Mr Osborne, assisted by polling evidence, has seized on voter hostility to welfare - hence his praise for those who "walk out of the house, but look at the next door neighbour, blinds pulled down, who’s living on benefits".  His gamble is that voters will prefer his version of events to his shadow's - the Osborne broad-brush to Balls's nitpicking detail.

A familiar complaint is that the party leadership has no feeling for strivers - for the kind of voters who Margaret Thatcher once made the party's own.  It may thus be unfair to question the political judgement of the few senior Tories who tries to bear them mind.  But that is exactly what the question touches on - whether the Chancellor has a feel for them rather than a slightly bloodless perception of how to triangulate or where to draw dividing lines.  Mr Osborne could describe the benefits freeze as a regrettable response to a national emergency.  Instead, CCHQ is presenting it as Strivers v Shirkers.  Will this gambit work?  And is it right?