When David Cameron and George Osborne first took office in 2010, the policy priority of the two Coalition parties was deficit reduction. The Conservatives had stressed it since tearing up their plans in the aftermath of the 2008 banking crisis. The Liberal Democrats were won over to it almost as soon as the election was over, daunted by the warnings of Mervyn King, then Governor of the Bank of England, that Britain’s deficit could become the worst in the EU. It was already at its highest since the Second World War. There was talk of national bankruptcy.
Buttressed by a Commons majority of over 70, Osborne began the long slow squeeze on public spending growth that continues to this day. Total departmental spending fell by over 10 per cent. The Institute for Fiscal Studies described the Coalition era as “the tightest period for public spending in 60 years”. But for all that, the deficit mountain is still there, stubbornly unconquered at £90 billion or so last year. Meanwhile, Britain’s debt is estimated to be about £1.5 trillion, or 80 per cent of GDP.
In the wake of the Government’s tax credits defeat in the Lords, all eyes in the Westminster Village are on the Upper House. Both before the crucial vote, there was excitable talk of Cameron creating up to 150 new Conservative peers to get the proposals through the Lords. Now that it is over, Lord Strathclyde will lead a review to examine preventing the Lords from blocking the Government’s financial proposals. But isn’t this to look at the problem the wrong way round?
It is true that the Lords is increasingly prone to defeat the Government, and that Liberal Democrat peers have no respect for the latter’s mandate. It follows that since the Upper House is too big and they are over-represented in it – by the very criteria that they use themselves – they are cruising for a bruising, since the Lords urgently needs a cull. It should not have rejected a financial measure advanced by the Government, even if the latter was unwise to present this as a statutory instrument.
None the less, simply to blame the peers is to miss the point. Osborne’s tax credit plans would have been watered down in any event, perhaps in this month’s Autumn Statement (had he got ahead of trouble coming), maybe in the New Year (had he waited for it to arrive). We set some of the options out on this site as early as the middle of this month: phasing them in more slowly, altering the threshold above which tax credits are withdrawn, introducing a cap, bringing in work advisers for those affected.
Here is the nub of the matter. The original pressure to make those changes, and thus ease up on the £4.4 billion saving that the Chancellor had pencilled in, was coming from the Commons – not the Lords. Over at CapX, Tim Montgomerie lists some of the names: Guto Bebb, Stephen McPartland, Andrew Percy, Johnny Mercer, David Davis, Andrew Tyrie, Zac Goldsmith, Boris Johnson. Above all, perhaps, Heidi Allen – whose speech against Osborne’s plans was widely hymned to the skies.
Some of these are “big beasts”, in Commons terms at least. Tyrie is the Chairman of the Treasury Select Committee. Goldsmith is the Conservative candidate for the London Mayoralty. Boris actually is the Mayor of London, and a Tory leadership contender to boot. What happens in the Lower House is watched closely in the Upper one. Labour peers in particular will have followed last week’s Commons debate on tax credits and Allen’s whip-defying maiden speech.
If those MPs had not agitated and briefed (in which latter occupation they were joined by some Ministers) Lady Hollis and her Labour colleagues might not have acted as they did, searching for a vote formula that fell short of rejecting the changes altogether but ahead of one that simply expressed disapproval. But whether they would have or not, Cameron and Osborne’s problem in the Commons would have remained.
This stretches wider than the management and consequences of a single proposed spending cut. The Chancellor’s critics were right to point out that his plan would have caused pain to many voters. But causing pain to voters is intrinsic to spending reductions, as Margaret Thatcher and Geoffrey Howe found during the early 1980s. With a formal Government majority of less than 12, the question poses itself: is the Conservative Parliamentary Parliamentary willing to inflict the pain to make the gain?
That £4.4 billion must now be found elsewhere, and it is evident from reading this morning’s papers that the Treasury, for all its brave talk of having “wriggle room”, hasn’t a clue where to find it. And when it eventually produces an alternative, it may find that Tory MPs like it no more than they did the tax credit plan. Nor may the centre-right media: the Spectator and the Sun weighed in against the Chancellor’s scheme.
One reading of this week’s events is that Osborne is being punished for hubristic over-confidence – first producing a plan with too many losers to be politically practicable, and then provoking the Lords by sending it there in the form of a statutory instrument. Another version is that he is striving, as Thatcher and Howe did before him, to get public spending back under proper control – and, in this modern context, both to shrink Gordon Brown’s dependency empire and that untamed deficit with it.
Whichever one you prefer – and ConservativeHome has stressed the second – it is hard to avoid the conclusion that the energy, brainpower and focus of the Conservative movement, in the Commons and the Lords and elsewhere, is no longer focused on deficit reduction. It has moved on: to widening the Party’s appeal; to winning a larger majority in 2020 than it did six months ago; to making the most of Labour’s Corbyn chaos.
Perhaps this is right. Maybe it is enough to have halved the deficit as a percentage of GDP. It could be that there really will be no return to boom and bust, that growth will sail calmly on (eventually disturbed by only the mildest of downturns) and that we can all merrily tread the primrose path to the future. Could this be the Chancellor’s plan after all – to proclaim tough debt targets on the one hand while simply Carrying On Spending on the other?
If so, we all have cause to worry – not least when glancing sideways to another deficit: the record peacetime balance of payments one that Mark Field explored on this site recently. The story of the New Labour years is a grisly reminder that benign economic times don’t last forever. The Government has largely ring-fenced older, retired, better-off people from the spending scaleback. There is not much left to squeeze the required savings from. And in seeking them, Osborne is now up against colleagues who have a new reason to stop him: they don’t want him to succeed Cameron in Number 10.