Steve Richards: The beginning of the end of the state

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The Independent Online

With a hint of mischief and a whiff of conviction, George Osborne claims his Budget is progressive. The term is a conveniently flexible one, but not without any meaning at all. It is not progressive to plan for spending cuts on a scale that takes the breath away. Parts of the Budget were astutely judged, but overall Osborne's debut veered more towards the reactionary, at times dangerously so.

This is a shame, as there is within the new Chancellor a partial progressive trying to get out. While the Budget is largely a loud scream against the state it is not wholly so. Osborne has given some serious thought to where government activity can be effective and where it is potentially stifling. He deserves credit for protecting spending on capital projects and targeting some of the undoubted excesses in other areas of current spending.

As his embryonic progressive instincts flickered into life, he acknowledged that in the early 1990s the Conservatives were wrong to cut the capital budget. This candour leads to an important insight. Spending on infrastructure is nearly always productive and not a "waste", boosting the economy as well as improving the quality of lives. Britain's infrastructure is still creaky and needs more spending rather than less. It appears the money will not be taken away and Osborne highlighted several regional transport projects that will still get the go- ahead. Amidst the gloom it looks as if parts of Britain will not sink back into the public squalor of the recent past. An axe is about to fall but it will not land entirely indiscriminately.

Video: Darling slams budget

Nonetheless, Osborne's basic premise sets him on a dangerous path, an assumption that balancing the books is necessary by the time of the next election. As far as the coalition is concerned, any debt is bad even if interest repayments are generously low and the consequent spending keeps the economy alive.

Although debt is falling faster than predicted, Osborne is restlessly impatient to wipe it out altogether and take a bow as a grateful electorate pay homage to his revolution in a few years' time. It is no exaggeration to talk in terms of a revolution. Osborne hopes to re-cast the state and to do so in ways that make it politically impossible for future governments to reverse. The state of the economy is not the only reason he acts in this way.

It is the proposed 25 per cent real-terms cuts in spending from most government departments that stand out. Treasury officials say that the cuts might not be so deep if they can reduce the social security bill even more drastically, but I doubt if the Government will meet its targets on welfare, let alone exceed them. Indeed, the cuts in some departments are bound to be deeper given that capital spending is protected, and Osborne seemed to suggest that Education and Defence would not be hit as hard. What will be left for most other departments to spend? This is the coalition's revolution. Parts of the state will almost disappear.

The spending review to be unveiled in October is a much more significant and challenging moment than yesterday's Budget. It is easy to announce the global sums. The impossible challenge comes between now and the autumn. No doubt ministers will hit upon genuine savings from the layers of bureaucracy that make the delivery of public services more expensive and time-consuming than it needs to be. But the huge job losses – expensive in the short-term – will not alone do the trick. There will have to be ruthless, life-wrecking cuts in front-line services.

The short-term political fall-out of the Budget will not reflect its partially unnecessary brutality. The Conservatives will get the enthusiastic support of most newspapers which have been calling for cuts for years. Some papers have not been happy since the departure of Margaret Thatcher. They will feel content again and Osborne will enjoy a good press, which in turn will have a positive impact on voters.

Osborne made much of the clarity of his Budget in comparison with Gordon Brown's convoluted, deliberately evasive speeches. It is easier to be clear when the arguments chime with the hopes of most of the mightier newspapers. Few follow raw politics. The media is the mediator of politics. Osborne's authority will grow amidst media approval, but next year, when the policies bite, will be a much bigger test of Conservative support and the Chancellor's resilience.

The coalition will also survive for now. Nick Clegg is the key player for the Liberal Democrats and he is wholly and genuinely committed to the Budget. Those who argue that Clegg is a patsy mis-read what is happening. He was fully involved in the discussions that led up to yesterday's speech and believes in the package as a whole. There are also enough specific proposals for him and his MPs to cling to: the bank levy; higher child tax credits; a triple lock that guarantees fair rises in pensions; and measures to ensure that some low earners paying no income tax at all. This is a significant package and one that would have been greeted with ecstatic cheers from Labour MPs if it had been delivered by Gordon Brown or Alistair Darling.

But the Liberal Democrats, opponents of a VAT rise and early spending cuts at the general election, are in a precarious position. One of its most perceptive senior figures tells me that he detects "deferred anger" within the party's ranks. Most MPs and activists will await the outcome of Clegg's constitutional changes, in particular the referendum on electoral reform, before expressing rage about economic policy.

While Labour fights a leadership contest and Lib Dems wonder whether they can change the voting system as a reward for their loyalty, Osborne needs to win the argument that his measures are "unavoidable" – a word that recurred in his speech as often as "progressive". The term is another convenient one, implying that there is no other course and therefore challenge is futile. Margaret Thatcher famously argued in the 1980s that there was no alternative to her policies. Osborne did not repeat the phrase, but "unavoidable" has precisely the same meaning and serves the same purpose.

Such an assertion is nonsense, as the US administration indicates with its more expansionist policies, and the bigger countries in the EU had demonstrated before they were panicked back into their ideological comfort zone. But in the honeymoon period of the coalition, and with Labour staging a never ending leadership contest, Osborne will have an easier ride as he makes the claim of unavoidability.

He will have a less easy ride in the months to come as he marches off on the only route he claims is available to him. The cuts will start to take effect when the Liberal Democrats hope to stage the referendum on electoral reform, possibly as early as next May. If the referendum is lost, the coalition will creak as much as parts of the shrinking public sector.

Until then the coalition will survive and Clegg can play his ace card – that to walk away so soon would display a lack of seriousness from a party that espouses coalition politics as a matter of principle. The economics is risky. The politics is fragile. The coalition echoes Thatcher in claiming there is no alternative. Alone and bewildered in opposition, Labour's challenge is to come up with one.