It was meant to be a routine budget. Now Osborne looks like the government’s last chance
‘The Cameron project is worth saving’, a government insider said to me recently. It was a striking declaration. After ten months in government, the people on the inside are not talking about a bumpy start or a rough patch. Rather, their language suggests an existential struggle: they worry that, unless something changes, they will fail. The sense of panic that was so acute among Conservatives four years ago, when Gordon Brown seemed ready to call and win an election, has returned. And with that, a feeling that something drastic needs to be done — and that George Osborne is the man to do it.
It has become something of a tradition that, when the Cameron project is in trouble, Osborne is asked to produce a cunning plan. He managed it last time. It was his inheritance tax cut proposal which, four years ago, scared Brown into cancelling the planned election.
Osborne learned much, perhaps too much, in his years opposing Brown. One of the main lessons he’ll have taken is that budgets, if used properly, are devices that can redirect a government’s course, and blindside the opposition. Delivering a budget is one of the few occasions in the political calendar when the government has all the cards. One surprise announcement can force opponents to tear up all their plans.
The Prime Minister has hardly been playing down expectations, boasting that his Chancellor will reveal the ‘most pro-growth budget this government this country has seen for a generation’. A tall order, especially as I understand that the Chancellor will not offer any serious tax cuts. But his budget is likely to be packed with pyrotechnics — fiscal diversions, to allow his fellow ministers a little breathing space. For almost three months, Osborne has been telling them to hold back certain announcements for budget day. Ministers are expecting to be dazzled.
To understand what Osborne is expected to put right, one must first understand what Cameron believes has gone wrong. In the summer, everything appeared fine. The Chancellor had laid out his five-year deficit reduction package, which he expected to have to update only a little in subsequent budgets. Since then the economy has shrunk unexpectedly, oil prices have spiked, inflation has returned with a vengeance and living standards have contracted more sharply than they have for 90 years. The growth strategy has been drowned out by the ‘cuts’ message, much amplified by angry local authorities.
The Prime Minister wants growth to be his defining mission — but has found that the pro-growth policies he wished to pursue are being rejected by the system. Regulation, bureaucratic inertia and European interference are threatening the government’s chances of getting the economy moving again, and thus its prospects of re-election. Tory ministers complain that if European laws, the Human Rights Act or the Equalities Act don’t stymie their initiatives, then the civil service or the judiciary will. Even something as basic as giving teachers the power to tell pupils to turn out their pockets is — they are told — legally impossible.
It is difficult to understate the depth of ministerial frustration. One secretary of state is so fed up with his department’s refusal to answer his questions that he has asked a friend of his, an MP, to put in a Freedom of Information request. In all departments, the civil service is refusing, point blank, to discuss details about what the Labour government did — so Tory and Lib Dem ministers cannot even find out which mistakes they should avoid. The most common complaint from ministers is that they feel outnumbered: one reformer in a department set against change.
Ministers now pride themselves on their battle wounds, and have become suspicious of colleagues who are not being worn down in office. One told me recently the only ministers who had not been bloodied were the idlers. He added, only half-jokingly, that there was an inverse relationship between negative headlines and effectiveness.
Cameron used to think that there was nothing wrong with the civil service that the departure of a Labour government wouldn’t fix. Now, he is going public with his anger. When he attacked civil servants as ‘enemies of enterprise’, he upset the Cabinet Secretary, Sir Gus O’Donnell, who believes such frustrations should never surface in public.
Avoidable missteps, such as the painfully slow evacuation of British nationals from Libya and the forests debacle, have compounded these problems. When a British rescue team was sent back from Japan because the Foreign Office had failed to do its paperwork, it seemed to augment a familiar theme. One special adviser jokes that he can’t watch The Thick of It any more because it is now ‘reality television’.
The Cameroons are finding their lives in government made difficult by their failures in opposition. Had they listened to the Conservative jeremiahs warning them of the obstacles they would face in office, they would have been far better prepared. There is no better example of this than the European Union. Mr Cameron has spoken curtly about people who ‘bang on about Europe’ — but, in office, he has found to his horror that about a third of government activity is driven by EU Directives. It is as if Brussels is the third member in his coalition.
The constant deluge of EU rules has also thwarted Oliver Letwin’s much-vaunted attempt to follow a ‘one in, one out’ approach to regulation. For a government that places deregulation at the heart of its pro-growth strategy, this is a serious embarrassment. The British Chamber of Commerce estimates that government proposals will cost businesses some £22 billion — the precise opposite of what Cameron claims he wants to do.
Another problem that was both predictable and predicted is the Equalities Act. It is less than 18 months since Cameron ordered his MPs not to vote against Harriet Harman’s bill — because back then it was politically unthinkable to be against anything with ‘equality’ in the title. But, as he is now finding out, the Equalities Act is laden with anti-Tory traps. It requires ministers to check, before doing anything, that their decisions will not unfairly hurt those with a ‘protected characteristic’. This has left government policies open to judicial review, shifting power, as Harman knew it would, towards the left-leaning judiciary. Lawyers are the masters now. In each government department, the final word often rests with them.
Ministers live in fear of being warned that they are on ‘unsound legal ground’ — and they are warned all too regularly. They suspect, with justification, that the QCs on civil servants’ speed dial are usually from left-wing chambers. Things are so bad that in at least one instance, a minister asked the Conservative party for advice on whether a policy he wanted to pursue was legal or not. If Yes, Minister were remade for the 21st century, it would be the lawyer, not Sir Humphrey, who would kill off a new policy with the raise of an eyebrow.
‘You can, in theory, defy the lawyer,’ says one minister. ‘But if you spent tens of thousands of pounds on a legal action which you then lost, and it emerged that you were advised not to fight, you would be in an awkward position.’ The result is, again, a sense of powerlessness, even loneliness. It is felt across government.
There is an old joke among Conservatives: say in opposition that government does not work — then get elected and prove it. But Tory voters expect better. And this is where Cameron is relying on George Osborne. In theory, the Chancellor should have nothing to do with running Whitehall, and should restrict himself to budgets. In practice, Osborne is even more involved with government than Gordon Brown was when he was Chancellor. He attends the daily Downing Street morning meeting, and is usually the decision-maker — issuing instructions and handing out tasks. He remains in charge of the operation. He is still the Cameron project’s fixer.
It is Osborne who has been responsible for the recent shake-up of No. 10. Paul Kirby, a KPMG accountant who worked on secondment for Osborne in opposition, has been drafted in as No. 10’s head of policy development and delivery. Another Osborne-influenced appointment has been that of Andrew Cooper, a pollster, as head of political strategy. Revealingly, Osborne himself interviewed Cooper for the role.
The Chancellor has been making his presence felt across Whitehall by asking each department to submit to a ‘growth review’. Working alongside Vince Cable (the two are getting along surprisingly well at the moment), he summons ministers to appear before a committee and asks them to describe what they are doing to promote economic growth — or which obstacles to growth they are removing. It is all done with Cameron’s complete support and approval. But No. 10 is not the co-ordinator of government policy. Just as with Tony Blair and Gordon Brown, this role seems to have transferred to the Treasury.
Osborne has also adopted Brown’s old tactic of ‘dividing lines’ — urging ministers to come up with policies that Labour cannot match. He has been preparing his colleagues for post-budget rows by telling them, not to ‘say something which your opponent could just as easily say’.
Another Labour-era technique being employed by the Tories is the tactical use of special advisers. Cameron now believes he will soon have more such advisers than Tony Blair did — a milestone he is not looking forward to reaching, given how much he teased Labour for relying on spin doctors. But he is discovering that a reforming government needs political appointees to help ministers take on the system.
It took Blair two years to complain about ‘scars on my back’ from bureaucratic objections to reform. It has taken Cameron only nine months to make the point — and far less time to come to Blair’s conclusions. That is why the sudden urgency is, in way, encouraging: Cameron’s speciality is adaptability. Unlike most politicians, he is not wedded to his bad ideas.
But the growth agenda is not a mistake. It remains the government’s main mission. And Osborne’s task is not only to produce a pro-growth budget but to set in place a pro-growth apparatus in government. The sense of direction has not changed: only the sense of the obstacles they face.
Ministers have realised that change takes a long time in government. Declaring that something is government policy is only the start of a very long process. There is therefore no point in storing up bright ideas for next year’s budget. A reform not enacted now will have little impact before the expected election in 2015.
This, above all, explains the panic. It is not a fear of Labour, nor even a fear of soaring inflation, but a fear about how quickly they can enact reform. There is a sense that not only is this budget Osborne’s best hope to get the government back on track, but that it might be his last hope, too.