Drawing the Battle Lines for the Next General Election – George Osborne the Gambler

osborneBANG! The chancellor fired the starting gun for the next general election campaign when he stood up at lunchtime today to deliver his latest spending review for the fiscal year covering 2015/16.

Today marked the last serious economic set piece event outside of the annual budget statements before the next general election and it was a decidedly ‘political’ affair.

Mr. Osborne claimed that Britain’s economy was ‘out of intensive care’ and was ‘moving from rescue to recovery’ with the deficit being brought down by a third. It was theatrical performance riddled with soundbites, but for the chancellor it was an opportunity to ridicule the Labour leadership and especially his opposite number the shadow chancellor Ed Balls, whose ideas he claimed ‘had collapsed into incoherence’.

Getting down to the crux of the announcements, in big picture terms the government only had to find £11.5 billion worth of cuts against a backdrop of a total spending figure of £745 billion. But what may be small beer in terms of sums is hugely symbolic when it comes to announcing where the axe will fall. With the exception of the seemingly ‘sacred cow’ departments: education, health and international development, the rest of Whitehall felt another gust of icy wind sweep along its corridors.

Welfare spending came under sustained attack with the introduction of a new cap set each year for four years (not including the state pension). Next the chancellor tackled the controversial issue of universal pensioner benefits announcing from 2015 winter fuel payments would be linked to a temperature test – and therefore those living in warmer climates would be ineligible.

Seemingly the Conservatives have evaluated the risk of alienating older voters having previously campaigned to protect such benefits in the last election campaign, a stance which is proving increasingly unsustainable given the state of the public finances and is proving all too easy pickings for Labour and the Liberal Democrats to feed on and criticise.

The defence budget was frozen, in what may be the most political of moves coming out of today’s announcement, as it would hardly be palatable for the armed forces to shoulder further cuts if they are expected to intervene in new conflict areas overseas at some time the future. All the while the situation in Syria simmers away.

With the majority of departments taking a further funding hit of between 6%-10% to their day-to-day budgets Whitehall is witnessing a slew of spending cuts that started in 2010 that are deeper and longer than ever before. In fact some departments will have seen as much 30% sucked out of expenditure by the time of the next election.

Public sector pay came under intense scrutiny with future rises limited to 1% for 2015/16 and the biggest reform being to automatic progression pay where employees receive a pay rise and move up a pay grade every year regardless of performance. Clearly the chancellor is gambling that he has the weight of the majority of public opinion behind him on pay as he played hard on the ‘unfairness factor’ in that other parts of the public sector who don’t receive this annual increase coupled with the private sector which has to fund it.

Mr. Osborne confidently repeated the prediction he made in 2010 that every job lost in the public sector would be replaced by three new jobs in the private sector, and claimed that over the period 2012/13 five new jobs had in fact been created in the private sector for every one lost in the public sector.

As with any budgetary statement there are always a number of carrots a chancellor likes to dangle in front of voters and today was no exception. Announcing that council tax will be frozen for the next two years, the chancellor underlined that this would mean nearly £100 off the average tax bill for families in the UK.

It’s important never to forget that as well as being chancellor George Osborne is his party’s principal political strategist and the announcement of a rebate for the people in the South West of England facing ‘exceptionally high water bills’ will be useful collateral when bargaining with voters on the doorstep and persuading them that it’s the Conservatives who have really helped put money back in their pockets and not their junior coalition partners the Liberal Democrats whose heartlands stretch across the West Country.

Unlike the annual budget statement the spending review provides less of an opportunity for the chancellor to ‘grandstand’ in lauding or criticising external actors or organisations, but Mr. Osborne didn’t waste the opportunity to outline the government’s intention to permanently commit to funding the military covenant with the money collected from the recent LIBOR fines. In a pointed criticism of the British banks involved the chancellor claimed ‘those who represented the very worst of values will support those who represent the very best of British values’.

Finally, it was infrastructure capex which received a much needed shot in the arm. Mr. Osborne committed a further £50 billion to build ‘roads, railways, bridges, broadband, science and schools’. Despite this new money which brings a total of £300 billion in guaranteed funding over the period 2010-20 the obstacles of planning development and the absence of underlying growth still gnaws away at the effectiveness of this investment.

The chancellor announced a further £2 billion in funding each year for a Single Growth Fund which Local Enterprise Partnerships can bid for as a major step forward in reforming the way money is spent locally on the ground.

In response Ed Balls claimed Mr. Osborne was ‘out of touch’ and had singularly ‘failed on living standards, growth and the deficit and families and businesses were paying the price for his failure’.

The trade unions have been especially vociferous in their criticism accusing the chancellor of simply having ‘another dig’ at public sector workers who ‘have already been scapegoats’ for the government’s problems and ineffective polices.

Mr. Osborne has plainly set his eyes on the prize in 2015 and he’s not for turning. There is no plan B, there is no retreat from the level of fiscal austerity that the coalition government has implemented since it came to power three years ago.

The chancellor has rolled his dice and gambled that the majority of British people will continue trust and support his approach (even if they don’t like him) and that they will reward his party at the ballot box (or at least calculate that they are a better option than Labour). Only time will tell.

Photo credit: www.mirror.co.uk