George Osborne will stand up to deliver his budget on 8 July as a chancellor in his pomp: freed of those pesky Liberal Democrats; emboldened by the Tories’ decisive victory at the ballot box; and invigorated by the prospect of a job vacancy at No 10.
It may be the seventh Osborne budget, but Treasury insiders are already calling it his first Conservative one.
We can be all but certain that he will spell out a long-promised £12bn cut in the social security bill. He should also make good on a series of manifesto promises. Those include an increase in the personal allowance and an extra inheritance tax allowance for property, so that families can pass on estates worth up to £1m, tax free. There is also an aspiration to increase the higher-rate income tax threshold to £50,000.
Stripped bare, this already looks not just fiscally conservative, but highly regressive. The pain of £12bn welfare cuts is likely to fall predominantly on those at the bottom of the income scale, while the winners from the tax cuts are at the top.
Even the continued increase in the personal allowance, originally a Lib Dem policy, now mainly benefits middle and upper earners. As the Institute for Fiscal Studies pointed out during the election campaign, more than 40% of workers already earn too little to pay tax.
Yet Tory grandees, their sinews stiffened by the electoral annihilation of their erstwhile coalition partners, have been urging the government to go further, championing “true blue” policies, some of which were seen off by the Lib Dems.
Already, there’s plenty of evidence that this is a distinctively Conservative, even Thatcherite, government. The state-backed Green Investment Bank has been put up for sale; onshore windfarm subsidies scrapped; Royal Bank of Scotland put on the block; and for good measure a new trade union bill will impose even tougher rules on strike ballots.
Business secretary Sajid Javid was even forced to deny that he was considering reviving recommendations, made in a controversial report by venture capitalist Adrian Beecroft three years ago, to make it easier to sack workers.
Behind the scenes, Osborne is coming under intense pressure to go further: former chancellor Lord Lawson has joined calls for the 45p rate of tax, levied on those paid more than £150,000 a year, to be abolished, after Osborne chopped it from 50p in his 2012 budget.
But Osborne is ultimately a populist who knows that the Conservatives are vulnerable to the charge of being on the side of the rich. And he has felt the slap of public anger in the past.
Shortly after that 2012 “omnishambles” budget, also featuring taxes on pasties and caravans, he was forced to stand sheepishly at the Paralympic Games medal ceremony while the assembled spectators heartily booed.
The sour reaction to that cobbled-together budget was salutary for Osborne. That is why he made clear during the election campaign that cutting the 45p rate was “not a priority”. But that might not prevent him from throwing his backbenchers a scrap of red meat by promising to do it when he can.
As Stephen Herring, head of taxation at the Institute of Directors, said: “I’m sure there’s a vision that it should go back down to the pre-credit quake Conservative-Labour consensus, which was a 40% rate. It’s odds on that he will do it over the course of the parliament; but he’ll do it at the same time as he announces other tax cuts.”
Despite the cuts to come, Osborne is also likely to return to some of the more stirring rhetoric about Britain’s economy that flowed through his early “march of the makers” period. Encouraging talk of rebuilding and rebalancing the country’s economic model had become more muted as the recovery ground to a halt.
With recovery now well underway, Osborne knows that even as he administers another hefty dose of cuts, the public are likely to be tired of the iron chancellor act. He also knows that Britain has a severe productivity problem, which will limit economic growth unless it can be tackled.
So welfare cuts are likely to be styled as reforms; and accompanied with measures aimed at boosting pay – perhaps even a pledge on above-inflation increases in the minimum wage. This will be stitched together with an argument already rehearsed by the prime minister: that the state has effectively been subsidising low-paid jobs by topping up wages with tax credits.
There’s a nugget of truth here that will be hard for Labour to contest. Creating a more productive, better-paid workforce is precisely the aspiration Ed Miliband clunkily called “predistribution”, and “rewarding hard work” was the party’s pre-election pitch.
In all likelihood, whatever measures Osborne announces to boost pay will be piecemeal, and far from enough to offset £12bn-worth of cuts. But they will sound both tough and aspirational – and rhetorically at least, bring the Tories towards the political territory they’re keen to make their own, of backing working people.
Osborne is likely to flesh out more details of his “northern powerhouse” project, too, giving his new minister, Lord Jim O’Neill, formerly of Goldman Sachs, some new levers to pull.
Yet while the rhetorical weight is likely to lie elsewhere, if Osborne sticks to his pre-election promises, he will have to use his statement to implement a fresh round of austerity – £13bn of departmental spending cuts, or thereabouts, on top of the welfare cuts.
Osborne is a master at constructing political narratives, and he was brilliantly successful back in 2010 at redefining economic policy as emergency deficit-reduction. Five years later, he will want to frame the economic debate for the next half decade, by crafting a distinctively Conservative vision of Britain’s economy – and its place in the world.
Yet the news of the suspension of a series of rail upgrade schemes – immediately dubbed the “northern powercut” by think-tank IPPR North – underlined the challenges of reinvigorating the economy while cutting the country’s budget.
Tony Dolphin, the IPPR’s senior economist, said: “It does feel like he’s a chancellor who’s begun to identify the right problems; but he’s bereft of ideas, because he’s been so focused on how to tackle the deficit.”
This article was written by Heather Stewart, for theguardian.com on Thursday 25th June 2015 19.08 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010