George Osborne's real plan: erase every trace of Gordon Brown

Tax credits are in the crosshairs as the Chancellor unravels his predecessor's client state

11 July 2015

9:00 AM

11 July 2015

9:00 AM

To understand George Osborne, it is important to realise that he cut his political teeth at the height of the New Labour ascendancy. He remembers the humiliations that were visited on his party as Tony Blair carried all before him. But there is one moment from that period that Tories can look back on with satisfaction: their opposition to Britain joining the European single currency. In 1998, William Hague warned, in a speech drafted by Osborne, that the euro would become a ‘burning building with no exits’.

When this speech was written, Osborne couldn’t have imagined that those flames would be the backdrop to the first Budget of his second term as Chancellor 17 years later. But events in Greece have overshadowed this, the first Tory Budget for 18 years. For despite the fact that the measures Osborne announced were undoubtedly significant, including a national living wage, they do not compare with the dramatically increasing chances of Greece leaving the eurozone. If this were to happen, it would trigger a crisis which would have to end either with the break-up of the single currency or the construction of a transfer union which would move money from rich eurozone countries to poor ones.

Another key to Osborne’s political personality was his willingness to take on the job of shadowing Gordon Brown in 2005. Brown was at the height of his powers then. He had swatted away a succession of Tory shadow chancellors, and many in the shadow cabinet were rather afraid of him. David Cameron declined the opportunity to go toe to toe with Brown when Michael Howard offered the job to him, but Osborne jumped at the chance.

Osborne was successful by — in the words of one of his closest political allies — ‘not being afraid’. In office, he has been determined to unwind the Brown legacy. He was more aware than any other Tory of how Brown spent 13 years trying to create Labour voters through an expanded public sector, welfare and tax credits. Osborne has systematically set about reversing these structural changes. In the last parliament, public sector employment fell by more than 400,000 while the number of jobs in the private sector increased by two million. Osborne also turned the issue of welfare against Labour. Its initial opposition to his benefits cap, a £26,000 limit on what a non-working able-bodied household could receive in benefits, enabled Osborne to portray his opponents as being in favour of unlimited welfare. It is no coincidence that he has chosen in this Budget to lower the cap to £23,000 and to take it down even further to £20,000 outside London and the Southeast. Few things would make him happier than if Labour again opposed this measure.

But Osborne’s main target this time round was the Brown tax-credits regime. In his 2010 Budget, Osborne limited how far up the income scale they went. In this one, he has started to dismantle the whole system.

Given that tax credits cost almost £30 billion a year, it is obvious why a Chancellor seeking to balance the books would want to cut them back. But in the past few weeks, Cameron and Osborne have gone further than that. They have attacked the entire intellectual rationale for them. They have, publicly and privately, begun to embrace the view that tax credits have suppressed wages: that they have led to employers paying people less than they otherwise would have done. They are not the only ones convinced by this argument. Labour’s last chancellor, Alistair Darling, also suspects that tax credits have kept wages down. If this is the case, then there is a strong case for scrapping them altogether. To the Tory leadership’s delight, this is what Frank Field — the former Labour welfare reform minister who is now the chair of the work and pensions select committee — is urging the government to do. But even if one is convinced that wages would be higher without tax credits, there will be a transition period between tax credits being cut and wages rising. Osborne is trying to overcome this by the introduction of a new national living wage and by raising the personal allowance, the amount people can earn before they pay income tax. This also gives a mini tax-cut to everyone.

One thing Osborne remembers well from that period of New Labour dominance was how every Tory suggestion of a tax cut was immediately translated by Labour into a reduction in the number of nurses or teachers. He now has his own version of this tactic: every Labour commitment to more spending is turned into either a tax hike or an increase in borrowing. With his proposal for a legal requirement for a budget surplus, Osborne is trying to turn the screw further. If Labour accepted this, then the Tories would be able to claim that any plans for additional spending was equivalent to a tax rise.

But at the same time as putting Labour on the back foot, Osborne wants to create more Tories. One of the ways he aims to do this is by showing that Conservatism is not just for rich southerners. His ‘Northern Powerhouse’, a mixture of devolution to the cities of the north and infrastructure investment, is a crucial part of the pitch. It took a blow last month when the electrification of various railway lines had to be ‘paused’. I understand that Osborne was keen to avoid this, and had the Treasury ask how much more money was needed. The answer was that the whole project was so troubled that cash alone couldn’t fix things. This is a reminder of the awful management that still bedevils too many infrastructure projects in this country.

Owning your own home is one of the things that turns people Tory, and Downing Street is now prepared for a fight to get more homes built. Under the new rules Osborne is expected to propose, it will now be easier to overrule local objections to new housing being built. Osborne’s personal standing has never been higher. The political strategy that he pursued in the last parliament has been vindicated. The question about him now isn’t whether he can survive as Chancellor, but whether he ends up becoming Prime Minister.


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  • Mary_Carter
  • Richard Young

    ‘spent [sic]13 years trying to create Labour voters’.Wholeheartedly agree but why a pass on the biggest elephant in the room?……unfettered immigration.That has been Labours biggest self-administered undoing.And while the flood gates opened it was demanded we all stay shtoom.Undemocratic beyond measure.Go for them George.

    • Diane_Miller

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    • smoke me a kipper

      Labour haven’t been in power since 2010. By how much as immigration declined over the last five years?

  • Bring Back Free Speech

    Forsyth is trying to give the impression of a massive welfare overhaul. The reforms only apply to new claimants, a fact that Tory cheerleaders in the press prefer not to mention. Too little, too late. The results of Labour’s welfare policies will remain with us, and indeed get worse, as the door to the Third World remains wide open. As for celebrating the destruction of local control over housing, shame on you Forsyth. I hope an enormous council estate is built right next to you. The housing crisis has been entirely created by a Marxist refusal to keep our borders shut. People of British heritage (as opposed to people allowed into Britain) have 1,2 children on average. No housing shortage there.
    And what is being done to prevent terrorists living off bogus disablitliy claims? Absolutely nothing.

    • Ultimately the reforms will apply to everyone, those currently entitled will still get the bulk of what they get but a four year freeze on rises is a four year cut but obviously as time goes by there will be no existing claims as the children will have grown up, changes have already been made to new EU migrants in addition to this and non EU migrants dont typically get public funds anyway:


      The new rules on a third or additional child apply to everyone after 2017.

    • Brenda_Coleman
    • smoke me a kipper

      Marxist oppose EU and uncontrolled immigration. In fact the far left has the most consistent record in UK of opposing European project. From Bennn and Foot to Crow, and just this week Owen Jones writing in the Guardian advocating a No vote in the referendum.

      The soft left, along with soft right and liberal centre have consistently supported the European project. On other hand Communist and UKIP stand shoulder to shoulder in their opposition

  • Sean Grainger

    One of the big mysteries of the past 20 years is how — not ostensibly not apparently not seemingly but actually — highly intelligent people just don’t get the simple arithmetic of currencies. Whereas the besandled traders sitting cross legged on the Silk Route could do you a deal on anything with anything William Hague couldn’t cope with two of them. They are just numbers boys and girls. Even though I can whiz the cfj registers of a Hewlett-Packard 12C I don’t need them to remind me the pound was at 1.70 when the euro was gestated and even in that rogue currency’s great ‘crisis’ it still barely breaking 1.40. Go figure as your (and our) great Mr T says.

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  • MartinC

    Osborne could get a move on then by reversing Gordon Brown’s 1997 abolition of Advanced Corporation Tax (ACT) relief – thus allowing dividends from money invested in pension funds to be re-invested in said pension funds without taxation.
    When Gordon brown introduced it this measure cost private pension funds £5bn per year, today the figure is more like £8bn.

    For the same amount of contributions, private pensions are already small and wizened in comparison with the de-luxe gold-plated final salary offerings enjoyed in the public sector. It is time the taxation of private pension fund investments was stopped.