Osborne rules

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[/audioplayer]Against the heavy artillery fire of the Labour leadership battle, the struggle of the Conservative leadership contest goes almost undetected outside Westminster. It is no less intense, even though the Conservatives will not elect a new leader for at least three years. After a week of the parliamentary recess, there is no question about who is winning. This week, for the first time, George Osborne overtook Boris Johnson as William Hill’s favourite.

Not so long ago, Osborne was a mere limpet on David Cameron’s wetsuit, clinging on thanks to the patronage of his boss. Booed at the 2012 Paralympics while Johnson was cheered, the Chancellor seemed too tainted by the charge of austerity to contemplate ever becoming Prime Minister. His budget that year had unravelled, with hasty backpedalling on the pasty tax and VAT on static caravans, which, combined with the lowering of the upper rate of income tax to 45 per cent, had played to Osborne’s weakness: that he looks and sounds like a posh kid without Cameron’s paternalistic regard for the poor.

Yet now Osborne sits like an octopus over Westminster, his legs and tentacles reaching into every corner of government and the Conservative party. Another limb reached the Champs-Élysées last Sunday when, in his role as Cameron’s deputy, he presented Chris Froome with the winner’s trophy for the Tour de France.

Osborne is on a charm offensive. While Cameron rose to power despite a cold and distant attitude towards his backbenchers, the Chancellor has been assiduously courting new MPs since the election. Early on, they were invited for sandwiches at the Treasury. At one event, according to a new MP, he went around the room boasting of how many of his former advisers or political private secretaries had become ministers in the post-election reshuffle — friends such as Amber Rudd, the climate change secretary, Sam Gyimah, the childcare minister, and Greg Hands, now number two in the Treasury. Handwritten notes praising MPs on their Commons speeches followed, as well as an invitation for some to a barbecue at Dorneywood, the Chancellor’s country residence.

Like Gordon Brown before him, Osborne excels at using the power of the Treasury to consolidate his strength. His allies have a knack of picking up infrastructure projects. The constituencies of Liz Truss, in South West Norfolk, and Matt Hancock, in West Suffolk, both benefited from one of the few road projects to escape the axe in the last Parliament: the building of a dual carriageway from the A11 to Thetford. Priti Patel’s Witham seat is expected to undergo flood defence works, in spite of a miserly national budget. Harriet Baldwin, in West Worcestershire, recently boasted of having won £5 million to put right what she said was the historic underfunding of the county’s schools — sorted out with a cheque from Gyimah. Osborne has turned meetings of the Treasury support group — a band of backbenchers recruited to support the Chancellor in debates — into mini electioneering rallies. Before the election, 20 regularly attended; now 50 do, attracted by the promise of the Chancellor’s patronage. One MP happened to mention that he was struggling to find a minister willing to open a factory in his constituency. Osborne, who spent much of the election campaign in a hi-viz vest, was quick to oblige.

Those who cross Osborne find themselves outmanoeuvred or isolated. Nadine Dorries lost the party whip in November 2012, ostensibly because she decided to go on reality TV, but insiders knew her real mistake had been to infuriate Osborne by describing him and David Cameron as ‘two posh boys who don’t know the price of milk’. Andrea Leadsom, billed by anyone who’d met her as a rising star in the party, was repeatedly left out of reshuffles because she had the temerity to question Osborne’s handling of the Libor scandal in 2012. She was eventually made economic secretary to the Treasury — Tories suggested this was a case of Osborne keeping his enemies closer — and is now minister of state for the rather lesser Department of Energy and Climate Change.

There is also the grubby and ongoing business of belittling Boris Johnson, who until 7 May looked like a Conservative king across the water. The defining moment in the change of fortunes between Osborne and Johnson came in the Budget when the Chancellor promised money to repair a second world war RAF command centre in Boris’s constituency. It was a minor award, which hardly deserved inclusion in the Budget speech, but it rapidly became clear why it had, as Osborne thanked the local MP for bringing to his attention ‘the dilapidated state of his campaign bunker’ and added that it was a monument to the ‘days when aeroplanes flew freely over west London’.

The attack was two-pronged: as well as a subtle hint that Osborne will ensure that the government will approve a third Heathrow runway against Boris’s wishes, it repeated an invitation to backbench MPs which the Chancellor had made in private: if you need a little financial help with something in your constituency, come and see me, George’ll fix it.

Meanwhile, Theresa May has launched a Kill Boris operation of her own, turning her rejection of the use of water cannon on London streets into a piece of Commons theatre. May and Osborne have a common cause in turning backbench MPs against the Mayor of London. Johnson has huge appeal among Tory grassroots but, under the rules of the Conservative leadership election, ordinary party members will only have two candidates to choose from, selected for them by MPs. Osborne’s chances of succeeding to the leadership could depend on Boris’s name being omitted in favour of May.

It’s hard not to be impressed by Osborne’s Machiavellian skill, or the way in which, through a sophisticated network of political and journalist friends, he dominates the Westminster scene.

Osborne the statesman is not nearly as impressive. His success hinges on the fate of the British economy. The turnaround in his fortunes can be traced to the spring of 2013 when for weeks Britain seemed poised on the edge of a triple-dip recession. Ed Balls would have had a field day, yet when the data came through it showed that not only had there been no triple dip, but revisions of earlier data showed there had been no double dip either. Better still, by the end of the year Britain had the fastest-growing economy in the G8. It was a crushing blow to Labour’s line of attack: that Austerity Osborne had stalled the recovery.

Defying Balls, along with a host of economists who wrongly believed that austerity would lead to depression, will always be Osborne’s crowning achievement as Chancellor — on a par with Thatcher’s defiance of the 364 economists who wrote to the Times in 1981 imploring her to abandon monetarism.

On some counts, however, Osborne’s recovery has been less golden than is made out. He didn’t just promise to regrow the economy, he promised to rebalance it, away from the City. On this, he has failed. Between 2007 and 2012, the financial sector was static, worth £119 billion at current prices. But manufacturing hardly grew either, from £143 billion to £146 billion.

This week’s figures show manufacturing going into reverse. The jobs miracle has stalled, for the moment at least, with unemployment growing by 15,000 to 1.85 million in July. The trade gap is growing ever wider. In the three months to April, the UK imported £7.2 billion more goods and services than it exported.

Economic recovery has been far too reliant on an already bloated housing market, which Osborne stoked with his Help to Buy scheme, despite warnings that subsidising homebuyers without increasing supply of housing was bound to be inflationary.

Many cheered the rise in the inheritance-tax threshold without stopping to work out the inevitable consequence of an extra inheritance allowance, which is linked to property only. Osborne has created a huge incentive for older people to stay in homes that are too large for them, or even to upsize in retirement — inflating house prices further. This was a point observed by the Treasury itself in a leaked document written in March.

Osborne’s big idea is the Northern Power-house, a shimmering multi-centred city which is supposed to do for the north what London has done for the south. This sounds good but it is in danger of becoming like Cameron’s Big Society: no one is quite sure of what it is supposed to consist.

Osborne is much lauded for his ‘big tent’ politics; his hogging of the centre ground. His summer budget was widely seen as a triumph: a successful bid to occupy the political space vacated by Labour as it pushes itself to the left. Reporting of the budget, as the Chancellor must have intended, revolved around the lifting of the national minimum wage, which Osborne rechristened the national living wage. The move allowed him to position himself as the friend of working people and Labour, by contrast, as the party of the benefit-claiming classes. Yet closer inspection shows a budget which will leave many working people on low incomes worse off. Astonishingly, Labour has failed to pick up on this.

Political honeymoons tend to be short. It is remarkable enough that Osborne is having one at all, given that he has been Chancellor for five years. But sooner or later, Labour will wrestle the Osborne octopus and begin, especially, to prise his suckers from the claim of being a friend of the working poor.

History is on Osborne’s side: a long list of chancellors have moved next door to No. 10. By contrast, there is no recent history of mavericks such as Boris Johnson becoming Prime Minister unless one likens him — fairly improbably — to Churchill. Yet the chancellors of the past half--century who went on to become prime ministers — Jim Callaghan, John Major and Gordon Brown — suffered relatively miserable premierships. In the case of the latter two, this was in large part because of mistakes they made in the Treasury: John Major, as chief secretary, pressing for membership of the exchange rate mechanism, and Gordon Brown spending too much money in the hubristic belief that he had abolished boom-and-bust.

Osborne will find himself no less a prisoner of his time at No. 11. If he can reach 2020 without another economic crisis, he will have been luckier than Brown. There is a blond figure on the back benches who may be secretly hoping that the good times do not last quite that long.