Spending Review: What Osborne said – and what he meant

It was a speech as political as it was fiscal and economic. John Rentoul separates the substance from the spin


1. A nod to the Iron Lady

Opening with the Margaret Thatcher gambit. Never mind that Nobel prize-winning economists point out repeatedly that national finances are not like household finances, because maintaining aggregate demand keeps people in jobs, this is a simile that the Conservatives continue to flog, even if it does remind some of us of the worst bits of the 1980s.

"We are going to ensure, like every solvent household in the country, that what we buy, we can afford; that the bills we incur, we have the income to meet; and that we do not saddle our children with the interest on the interest on the interest of the debts we were not ourselves prepared to pay."

2. A dig in the ribs

A curiously political and surprisingly honest criticism of the Labour plan to halve the deficit in four years rather than to eliminate the structural deficit altogether – that it would mean going into the next election with more pain and austerity ahead.

"We have inherited from the previous government plans... that envisaged our national debt ratio still rising in the year 2014. Not a single penny of savings had been identified. Indeed, they were plans that envisaged the Chancellor... standing here in 2014 presenting a spending review that still had years of cutting public spending ahead of it."

3. Political point scoring

Identifying a Labour sore point and hitting it again: Gordon Brown and Ed Balls wanted to rule out a VAT rise in the election campaign, in order to create a dividing line; Alistair Darling – to whose approach Alan Johnson is sticking – refused, knowing that a re-elected Labour government might need to do it.

"In the Budget I set out the tax increases we were prepared to make, including on capital gains at the higher rate, pension relief on the largest contributions and... a permanent levy on banks. We also had to increase VAT, where fortunately we were able to benefit from the preparatory work of the previous government."

4. Unnecessary verbiage

Yes, even the Chancellor of the Exchequer has fallen victim to that blight on the English language, the phrase "going forward". Never mind the debt, that's the worst legacy of New Labour's public-sector-speak. Her Majesty must have been horrified to hear this.

"Her Majesty graciously agreed to a one-year cash freeze in the Civil List for next year. Going forward, she has also agreed that total Royal Household spending will fall by 14 per cent in 2012-13, while grants to the Household will be frozen in cash terms."

5. Shifting the burden

A nice way of selling what is actually a political sleight of hand: moving some of the costs of social care from squeezed local-council budgets to the NHS budget, protected by the Conservative election promise, which had to be made to counter the voters' perception that Tories don't really like socialised medicine.

"Grant funding for social care will be increased by an additional £1bn by the fourth year of the Spending Review. And a further £1bn for social care will be provided through the NHS to support joint working with councils – so that elderly people do not continue to fall through the crack between two systems."

6. A sense of deja vu

The Gordon Brown memorial pledge, which could just as well have come from the last Prime Minister's lips – the "We are the first Government in history to do X" being a formula of which he was fond – and the first bit of real red kidney-bean stew tossed to Liberal Democrat activists.

"This Coalition Government will be the first British government in history, and the first major country in the world, to honour the United Nations' commitment on international aid... Overseas development will reach 0.7 per cent of national income in 2013."

7. The banking dilemma

The impossible balancing act: anger at the banks vs wanting to keep the goose that lays golden tax revenues in London. As Jean Baptiste Colbert put it: "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing."

"We neither want to let banks off making their fair contribution, nor... drive them abroad. Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place... Our aim will be to extract the maximum sustainable tax revenues from financial services."

8. A welfare waterfall

The biggest single specific savings were announced in a gabbled list that few MPs could assimilate. Most Labour MPs were dimly aware that this might mean real hardship for some of their poorest constituents; the cleverer ones were conscious of Osborne's introductory point – that these were the sort of changes a Labour government should have made, but funked.

"We will... limit contributory Employment and Support Allowance for those in the Work Related Activity Group to one year... increase the age threshold for the shared-room rate in housing benefit... give local authorities greater flexibility to manage council tax... align the rules for the mobility and care elements of Disability Living Allowance."

9. Cold comfort

A clever political strike, trying to turn to the Coalition's advantage the Tories' embarrassment at having been forced to protect these benefits for pensioners because of David Cameron's cowardice during the televised debates during the election campaign in April.

"Winter Fuel Payments will remain exactly as budgeted for by the previous Government – as promised. I am also turning the temporary increase in the Cold Weather Payments... into a permanent increase. In my view, higher Cold Weather Payments should be for life, not just for elections."

10. Cherry picking

Translated: "In the next few weeks, various secretaries of state of spending departments will set out the really unpopular detailed consequences of the figures I announced in my Budget in June; meanwhile, let me just set out and take credit for selected nuggets of good news."

"The cap on regulated rail fares will rise to RPI+3 per cent for the three years from 2012... The Secretary of State will set out how more of the transport money will be allocated next week. But I want to tell the House today about some of the projects that will go ahead."

11. Laying a trap

The "I have received many submissions" device has long been a favourite of Chancellors. Here, Osborne gives it an extra twist: he has decided to go further than Labour's suggestion and cut unprotected departments' spending by 19 per cent – thus ensuring Alan Johnson had to start by responding to what seemed to be a spending review Labour could have announced.

"Mr Speaker, during the process of this Spending Review, I have received many submissions... including one from the party opposite that the average cut for unprotected departments should be set at 20 per cent over the coming four years... rather than the 25 per cent that I anticipated in my June Budget."

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