Labour pays price of George Osborne’s failure to cut deficit

Inside Westminster

“This is not an election pitch,” George Osborne insisted on the morning after his government-wide Spending Review (Reuters)

“This is not an election pitch,” George Osborne insisted on the morning after his government-wide Spending Review.

Although the Chancellor kept a straight face in a round of media interviews, he must have been smiling inwardly. If his review was not an election pitch, then I’m a banana.

This was the week in which Mr Osborne turned his failure to cut the deficit on the timetable he set out in 2010 to the Conservatives’ advantage. The Spending Review was all about setting the terms of trade for the 2015 election, and ensuring it is fought on the Tories’ home ground, not Labour’s. So the Chancellor tried to neutralise his party’s weak points by ring-fencing what the Blairites used to call “schools’n’hospitals”. The Tories’ failure to convince voters they would protect vital public services was probably the biggest reason why David Cameron did not win an overall majority in 2010, despite his pledge to “cut the deficit, not the NHS”. Ring-fencing the health and schools budgets will not be sustainable in the long run, as non-protected departments would take too much of the strain of the cuts that will still be needed after 2015.

But for Mr Osborne, that is a problem for another day; his priority is to win an overall majority. Labour have dubbed him “the part-time Chancellor” because of his role as Mr Cameron’s election campaign overlord. He was certainly doing both jobs this week.

As he moved the pieces around the political chessboard in a way his old enemy Gordon Brown would have been proud of, Mr Osborne tried to expose Labour’s own “trust problem” – on cuts. He wasn’t entirely successful. Tory strategists had hoped publication of the review would put Labour under pressure to say whether it would stick to the Coalition’s spending plans for 2015-16 and spell out what it would cut. Labour saw that one coming and so three weeks ago, Ed Miliband and Ed Balls made important speeches, saying the Coalition’s budget for that financial year would be Labour’s “starting point” if it forms the next government. Their move won the desired headlines about Labour sticking to the Coalition’s spending limit, even though Labour left itself some wriggle room. What Mr Miliband and Mr Balls actually said was that Labour would not borrow more to fund day-to-day spending by government departments, which leaves the door ajar to spend more by raising taxes. And Labour would increase borrowing to “invest” in capital spending, notably a huge housebuilding programme.

Mr Balls had previously been cautious about spelling out specific cuts, much to the frustration of Blairites, who warned that it made Labour look like an anti-cuts protest party. One reason for the shadow Chancellor’s reticence was the old maxim that if an opposition comes up with good ideas, the government of the day will steal them.

He was proved right on Wednesday when Mr Osborne became a political magpie and announced several measures Labour had floated: merging parts of the health and social care budget; ensuring that people on jobseeker’s allowance have English language skills and sign on weekly; single parents having to prepare for work when their youngest child is three and greater integration of local emergency services. In a last-minute change, Mr Osborne axed winter fuel payments for pensioners in European countries warmer than Britain. Why? Because Labour had just pledged to withdraw them from better-off pensioners.

The separate announcement of £100bn of infrastructure projects by Danny Alexander, the Lib Dem Chief Treasury Secretary, aimed to dilute the impact of Labour’s unique selling point in 2015 – a plan to “rebuild Britain”. A Labour insider groaned: “They are trying to shoot our fox.”

Mr Osborne looked more comfortable on his home turf than Labour. The continuing age of austerity means Labour will be playing away in 2015. Labour is instinctively happier talking about where to spend rather than where to cut but needs to change gear now, as Mr Miliband and Mr Balls acknowledge. Labour’s pitch will be to complete the unfinished business on the deficit in a more balanced way than the Tories. It won’t be an easy one.

There has not been the anger and civil disobedience we might have expected over the cuts. The public have bought into the Coalition’s deficit-reduction project, even if they have doubts about it being done fairly.

The Liberal Democrats have done the Tories a favour here. The cuts would have looked a lot more unfair if the Tories enjoyed an overall majority. More welfare cuts would have been announced this week: limiting child benefit payments to two children per family and curbing housing benefit for under-25s.

The Liberal Democrats insisted the £365m savings from the tougher rules for jobless claimants will be ploughed back into Jobcentres rather than pocketed by the Treasury. Ironically, it seems that Labour is paying the price of Mr Osborne’s failure to clear the deficit by the next election. If he had finished the job, Labour’s 2015 pitch would have been much easier. It’s not fair. But it’s politics.