26 November 2015

The politics of the autumn statement

The whirligigs of time have brought George Osborne his revenge. When he was made Chancellor, the Labour benches were all ready to put him down over his willowy figure and public school, even sneery, manner.

Osborne realised his own unpopularity when he was booed at the Olympics. He has reacted well. Note that he has even changed his personal appearance slightly of late in his transmission to being seen as an heir to Blair rather than Thatcher, as touched upon in the Autumn edition of Prospects.

He has recognised that there is no mileage in following the hard right of the party. He is faced with a Shadow Chancellor who is prepared to quote openly from Chairman Mao, one of history’s greatest mass murderers. As a result the Autumn Statement continued what I sense of Osborne, namely that he is out to secure the electoral middle ground. The size of the British state will be reduced to 36.4% of GDP, marginally less than the 40% of GDP that it tends to hover around. Remember that the City was allowed to let rip under Labour governments in order to ramp up public spending. However, even they never quite took it to the 50% levels commonly seen in the welfare systems of Scandinavia. The material cuts that came through, seeing 80,000 jobs lost were largely done by more automated or remote delivery. They were concentrated on transport, business, justice, environment and local affairs. Michael Gove’s cuts and redevelopment of the prison system const itute the area to watch for truly creative funding initiatives.

Osborne looked fully in command, even when briefly in retreat. It all helped that the Office for Budget Responsibility had found an extra £27 billion of funding down the back of the sofa, softening the tax credit reforms and enabling security expenditure to be kept up.

Osborne knows how to reverse his position, as he has now done on tax cuts. His graceful dropping of this issue prevented too much gloating and renewed criticism from the benches opposite. His hike of 3% in stamp duty affects two unpopular demographics whilst benefiting the young trying to get on the housing ladder. He created no spilt milk by hitting foreigners or a more elderly demographic who have used property channels en masse as a pure means of pension investment.

Osborne made a point of saying that there is nothing wrong intrinsically with the UK economy that another five years of growth will not put right. Yet he also de facto acknowledged that any surprises from the global economy are unlikely to be positive ones. Remember, that if the world economy were to slip into recession, the UK would enter it with a high level of Government borrowing and historically high levels of personal indebtedness. With interest rates at already record lows and Quantitative Easing already in place, the rationale for any other policy response has neither been improvised nor clearly discussed.

Osborne was sensible to highlight the state of the economy beyond London. All too often the reading of the UK is limited by the South Eastern bias of its commentator base. We have a widespread success rate in manufacturing that Osborne has been increasingly wise to highlight coupled with a healthy rate of new business formation. All this reeks of a Government which is prepared to mend the roof whilst the sun is shining. All that remains for Osborne to worry about is whatever could go wrong, that is the unexpecte d. I fear the ramifications of a weakening in the Chinese economy being increasingly transmitted by Yuan devaluations as an unhealthy dose of global deflation, thereby slowing growth. That fear is a real test that Osborne is well aware of.

As long as Jeremy Corbyn remains Labour leader, Osborne has the benefit of opposition benches that are virtually in catatonic shock. One can hardly see how Corbyn is tolerated for the next four and a half years despite the fact that polls show his expanded grassroots base increasingly supportive. He just looks to be both a nightmare to eject and yet a gift that keeps on giving. I would advise against Tory complacency on the issue, as Labour’s paralysis has left its MPs desperate for a solution.

One has to assume that Labour has a sensible leader by 2020. Osborne was wise enough to shift away from a position that could be circumscribed or defined by “austerity”. Osborne will have to keep reiterating the gentle message that something like £50,000 is being spent by central government on a family of four. He needs to keep to such simple themes to get them over to the electorate. The unexpected can come in any number of ways. Had it not been for Syria and the downing of a Russian jet by the Turks, the newspapers would have been more full of the shocking revelations of bullying and alleged suicide attempts coming from the shenanigans surrounding minor Tory figure Mark Clarke. In that respect, the reception of this Autumn Statement has already dodged one bullet.

To be fair to Osborne, he has come through as much tougher and more resolute than many had sensed. As the opposition benches will have ruefully acknowledged, he yesterday slyly cut 19% from the funding of opposition parties. Recall that, despite my deep personal endearment with the Prime Minister, he was apt to dither a bit in the depths of recession. Osborne then stuck to his guns saying that there was no Plan B. He knew that no such plan was necessary or possible at the time and that, had he deviated, the first item would have been “sack the Chancellor”. Osborne has reminded us of his mettle with yesterday’s performance.

More than ever, George Osborne clearly hopes that he will leave office by moving in next door. It is increasingly hard to see what could prevent him. One has to assume that he is largely right over the economy’s ongoing progress and one can fairly assume that the “Stay in” camp wins the Brexit referendum. Here the dilemma is how our older demographic, which traditionally turns out in high numbers for a referendum, takes the ongoing immigration pressures growing on the Continent. History has a way of coming up with Plan Bs but Osborne’s rivals look small beside him. May lacks parliamentary support, Javid comes over as just a Thatcherite banker with a good back story in his immigrant roots and I maintain that Johnson is just a comedian who does Churchill. There is no one else.

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