Few chancellors have extended their reach across Westminster like George Osborne. After eight of his budgets, spending ministers were dancing to the Treasury’s tune across vast areas of government life. Schools, health, transport, energy, local government all operated under arms-length control by Osborne. HS2 and Hinkley Point – neither of which have actually happened – carried the Osborne imprint.
On his home turf, however, the bald record of his six years in No 11 reads like this: he was the hi-vis austerity chancellor who did not meet his own fiscal rules. But perhaps the targets were wrong in the first place. And perhaps the effort of trying to hit impossible goals contributed to the current political earthquake.
As the last of Osborne’s rules – the target of reaching a budget surplus by the end of this parliament – was quietly abandoned last week, note Theresa May’s call for “an economy that works for everyone”. Her list of complaints was long.
“Wages have grown but only slowly,” said May. “Taxes for the lowest paid went down, but other taxes, like VAT, went up. Fixed items of spending – like energy bills – have rocketed. Monetary policy – in the form of super-low interest rates and quantitative easing – has helped those on the property ladder at the expense of those who can’t afford to own their own home.”
For good measure, May added job insecurity, “unscrupulous bosses”, the divide in prosperity between generations, and “the gaping chasm” between wealthy London and the rest of the country. After that speech, it was obvious May would want a new chancellor.
Missing the targets was often a good thing under Osborne, many would argue. Liberal Democrat Sir Vince Cable, who served as business secretary in the coalition government, says Osborne’s moments of preference for pragmatism over dogma are “something to be celebrated”. Indeed, it was only when Osborne relaxed the pace of austerity in 2012, by giving himself more time to hit his fiscal targets, that growth began to pick up and the chancellor was able to escape the charge that the economy was flatlining.
By the time of his March 2015 budget – the last before the general election that saw the Conservatives confound the pollsters and secure a slim majority – Osborne was able to boast that “in the last year we have grown faster than any other major advanced economy in the world”. The growth was not much to shout about, but it cemented the Tories’ reputation for economic competence. On that score, Osborne helped to deliver the election victory for his party.
But the pain of austerity also surely contributed to the referendum result. Osborne’s promise to pile on spending cuts and tax rises in the event of a leave vote – dubbed the “punishment budget” – was a tactical blunder. Voters knew it would not be imposed and resented the threat.
Osborne’s permanent legacies will be fourfold. First, the creation of the Office for Budget Responsibility to report on the sustainability of the public finances. The move mirrored Gordon Brown’s grant of independence to the Bank of England to set monetary policy in 1997. It is similarly hard to imagine any government abolishing the OBR.
Second, banking reform. Though Osborne is often derided as too banker-friendly (witness this week’s revelation that he lobbied US authorities for soft treatment of HSBC), the Financial Services Act of 2013 was a major piece of legislation. The bankers squealed about being forced to erect ringfences between their retail operations and their investment banks, but they will have to do so. And the new capital rules for banks, overseen by the Bank, are seen to have passed their first serious test – the vote for Brexit.
Third, pension freedoms. Giving savers the right not to buy an annuity, and thus handing over-55s greater freedom to control their own savings, was a popular reform that will be almost impossible for a future government to reverse.
Fourth, the introduction of the “national living wage” for those aged 25 and over. The genesis of the policy is unclear – it looked like an attempt to shoot a Labour fox, conceived from short-termist political instincts. Economists are divided over its sense. If growth shudders to a halt in coming years, the price of meeting living wage pledges could be higher unemployment. But, again, the architecture will probably survive.
Yet few would paint Osborne as a visionary chancellor. His professed “march of the makers” never materialised and the UK economy looks as unbalanced as he leaves the Treasury as when he arrived.
The UK’s current account deficit hit a peacetime record of 5% last year and productivity in the economy has gone sideways.
Housing incentives have pushed up house prices – at least in London and the south-east – but the boom in housebuilding that was supposed to follow has been disappointing.
There was no serious reform of competition policy. Industrial policy, at times, has seemed to amount to little more than attempts to sweet-talk China and others into funding new nuclear power stations. Note that May talked about “more Treasury-backed project bonds for new infrastructure projects”. One suspects the love-in with Beijing is over.
For all the successful banking reforms, Royal Bank of Scotland is not in a state to be sold back to the private investors, as Osborne had planned to do; the shrunken share price makes such a move impossible.
The public anger of the tiny sums of tax paid in the UK by the likes of Google and Amazon has barely been addressed. When Osborne hailed “a major success” in securing £130m from Google, most people saw a trifling settlement that did not oblige the company to change its corporate structure. The misjudgment recalled Osborne’s famous “omnishambles” budget of 2012 that briefly proposed taxes on pasties and caravans.
Being generous, one could argue that two other big ideas – the “northern powerhouse” and the devolution of powers to local authorities – could yet change the economic and political landscape of the UK. It’s too early to say. Much depends on whether Osborne’s successors carry through his thinking.
In sum, Osborne’s tenure was defined by the drive to tackle the budget deficit. In his own terms, he semi-succeeded, despite the missed fiscal targets. He inherited a deficit of 10.3% of GDP and got it down to 4% in six years. Note, though, the public debt has risen by more than £500bn on his watch – that’s what happens when you run deficits for years.
He was an unlucky chancellor in the sense that growth in the global economy has mostly disappointed since 2010 while the eurozone – the UK’s biggest export market – has stumbled from crisis to crisis.
But political historians may be less concerned with deficit statistics. What damage was done to the UK’s social fabric by years of austerity?
And, once it was obvious that bond markets were not in revolt and that the UK was not going the way of Greece, was it a colossal mistake not to boost spending on public services?
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