Can Osborne ditch cuts to tax credits without anyone noticing?

Unglamorous local government finance could be this Chancellor’s doom, as it was for Mrs Thatcher

John Rentoul
Wednesday 18 November 2015 18:36
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George Osborne said 'today is a historic day' for Liverpool
George Osborne said 'today is a historic day' for Liverpool

It is an odd way to conduct official business: the Chancellor announced on Twitter that he had “reached settlements with seven more departments”. What next? Is he going to broadcast a meeting with Theresa May, the Home Secretary, live on Periscope? Once upon a time, spending negotiations were one of the more secret parts of the Whitehall machinery. Now they seem to be conducted through social media.

Open government is of course a good thing, but we should be alert to the dangers. One is that a Spending Review conducted in the shadow of terrorist murders could be distorted. It was notable, for example, that Jeremy Corbyn asked about police funding at Prime Minister’s Questions yesterday, rather than repeating the question that David Cameron has refused to answer seven times about cuts to tax credits.

Police funding is important, and it was a good question. The Labour leader wanted to know where the money was coming from to pay for the increased staff for the security services that had been announced after the terrorist murders in Paris. He even got in a good “old politics” debating point when he asked, as the Prime Minister had a hurried word with his neighbour on the Treasury bench: “Does he want me to go on longer so the Chancellor can explain?”

But spending on the police should not be decided by whether there has been a recent terrorist shock. Cameron was right to point out that crime has fallen to its lowest level for about 40 years, and that it continued to fall for the past five years, when police budgets were steadily reduced.

We shall find out next Wednesday, when Osborne makes his Autumn Statement, which has been combined with the Spending Review, whether that argument has prevailed against the Home Secretary and the Police Federation, for once finding themselves making common cause.

We will also, however, discover the answers to questions that are even more important. On tax credits, the question is not so much whether the Chancellor, who has already pulled over and put his reversing light on, will make a three-point turn, but how he will try to pretend that he has been driving steadily in the same direction all along.

On Tuesday, the parties in Northern Ireland reached an agreement that should allow devolved government to carry on, which is a good thing. What was also interesting for the rest of the UK was that part of the deal was relief for cuts in tax credits. If a similar relief were applied to the rest of the country, it would be worth £7.8bn over four years. In other words, or rather in other numbers, that means Osborne might be prepared to take back more than half the planned cuts in tax credits.

The other big question for next week is what the Chancellor is going to do for the NHS. With the junior doctors about to go on strike on 1 December, he can hardly afford to look as if he is giving in to the British Medical Association, the most powerful trade union in the land. On the other hand, with the health service missing many of its targets for several months now, it desperately needs some of that unfunded £8bn a year that the Conservatives promised during the election campaign.

As Osborne prepares to deliver what is in effect his third Budget of this year (one, jointly with the Liberal Democrats, before the election, one afterwards and now another to correct the mistakes of the first two), we should bear in mind that his predictions for the next five years are still bound to be wrong.

At this stage in the last parliament, he was going to have balanced the books by now. Commentators pointed out that this would mean huge cuts in public spending outside the protected areas of the NHS, schools and foreign aid. He didn’t balance the books, and the cuts, although they were real, were barely noticeable for most people.

What happened? Economic growth slowed down and the Chancellor abandoned his long-term economic plan just as the Tories adopted the phrase as a mantra. This time it is possible that the economy might grow more strongly than people expect – and this week’s figures for earnings were good. In which case the Government could afford to soften the blow of tax credits cuts on the working poor and to find the extra money for the NHS that Simon Stevens, its chief executive, says it needs.

I wonder if it won’t also need to find a lot more money over the next five years, though, to ease the pain of many of the deep cuts that Osborne is likely to announce in unprotected budgets next week. I know that the police and planning departments and libraries were able to absorb cuts over the past five years that some people predicted were impossible or ruinous to the social fabric. But, as Ian Hudspeth, the leader of Cameron’s own local council, said, as we discovered last week, local government has already made most of the savings it can make to “protect frontline services”.

Indeed, Jonathan Reynolds, the Labour MP for Stalybridge, won the biggest cheer in the Commons yesterday, when he asked the Prime Minister, “as leader of the anti-austerity movement in Oxfordshire”, how his campaign to cut back-office functions and to spread best practice was going.

The unglamorous world of local government finance could be this Chancellor’s doom, just as it was Margaret Thatcher’s. After all, that is how social care, poor relation of the NHS, is paid for. We have to hope that the Chancellor has got his economic forecasts wrong once again – and this time by being too pessimistic – because otherwise, with all the wolf-crying and shroud-waving of the past five years, there is a danger that it will be too late to reverse cuts that start to do serious long-term damage.

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