Coffee House

For the Autumn Statement, stability: for the mid-term review, ambition

6 December 2012

6:52 PM

6 December 2012

6:52 PM

After months of squabbling and not-so-civil war, the coalition now appears to be functioning again. This is one immediate consequence of George Osborne’s Autumn Statement. The Chancellor was allowed to present a package to the House that had not been leaked earlier by coalition partners in an act of preemptive spin. This matters not only for the orderly proceeding of affairs of state but also because the Autumn Statement was the first of a two-part coalition effort to seize the political initiative. The second will come in the new year with the publication of its mid-term review.

Time is running out for further radical reform. The Autumn Statement was limited in its ambitions, and the mid-term review will be the last chance. Any policies announced much later than the start of 2013 are unlikely to have an impact before an election in May 2015. I understand that new policies on child care, education and social care are all part of the final negotiations on the package. One No. 10 source predicts that ‘the mid-term review will have more of a lasting effect than the Autumn Statement’.

It is hard to overstate the damage that the March budget (and the leaks which preceded it) inflicted on government relations. Until then, the coalition was run smoothly by a four-person council at the top: David Cameron, Nick Clegg, George Osborne and Danny Alexander. This ‘quad’ took all the key coalition decisions, and never leaked. But the budget changed that. The most politically sensitive decision the government has taken — the cut in the 50p rate — ended up on the front pages days beforehand.

When I asked one mild-mannered individual who had been present at the birth of the coalition and then returned to Downing Street after the budget what had changed in their absence, they replied, with a note of shock, that ‘people in there really hate each other now’. Much of that poison has been drained from the system by the smooth run-up to the Autumn Statement. Reaching agreement on policy was also easier than expected.

A couple of Liberal Democrat ministers — including one member of the Cabinet — would like to increase government borrowing further to fund a new stimulus package. But Nick Clegg and Danny Alexander have accepted that their credibility depends on sticking to the aim of balancing the budget in five years’ time. This might not be the most rigorous of targets; it is the fiscal equivalent of the St Augustine pledge: Lord, let me balance the books but not yet. But it does bind the coalition together. When the two parties first came together, they hoped to do this in 2015. Now the forecast runs to April 2018.


But the Lib Dems who want a fiscal stimulus can take comfort in the fact that Osborne’s imperatives have changed. One figure at the heart of government observes that ‘a year and a half ago, the emphasis was on cutting spending. Now, it’s growth.’ This subtle change in approach can be seen in how the Treasury is using the money from the sale of the 4G spectrum, which the government expects to raise £3.5 billion. The proceeds will not be used to reduce borrowing, but to fund time-limited tax cuts for businesses to try and boost investment.

Combine that with another cut in corporation tax (it will be 21 per cent from April 2014) and you see the outline of a private sector stimulus package. Importantly, the administrative savings in Whitehall that Osborne has ordered will not go to the Treasury. Instead, they are being funnelled into infrastructure projects.

The announcement that spending cuts will continue until at least 2018 means that the next election will not be about how to share the proceeds of growth but about balancing the books. Hardly the approach that Osborne envisaged back in 2010; then he dreamed of running a British version of Ronald Reagan’s 1984 ‘morning in America’ campaign. But it does allow the Conservatives to play the card that Labour is still in denial and wants to borrow even more. The Tories believe that this line will still resonate despite the coalition’s failure to bring the budget back into balance.

This attempt to frame the 2015 election campaign will inform the mid-term review. It is a sign of its importance that Cameron and Clegg have been involved in detailed negotiations about its content since before the party conference season. Indeed, a whole new Quad process has been created for it. All meetings on the subject are attended by Oliver Letwin and David Laws — which has changed the dynamics of it. ‘When it is six, it strengthens the Prime Minister and Deputy Prime Minister,’ I’m told. ‘And it weakens the Treasury.’

So important is the mid-term review that it has been delayed three times. Its focus will be on, in the words of one Downing Street source, ‘how you put the reforms in place to win the global [economic] race and what you do across the generations to help those who work hard and want to get on’.

Education continues to be the area where the government is moving fastest. Michael Gove has accepted the recommendations of the independent panel on teachers’ salaries and will do away with automatic rises and staff being paid based on length of time served. Heads will now be free to offer salaries based on merit. This is a full-bore assault on union power and stands in stark contrast to the relatively minor changes being proposed by the other pay reviews. I understand that there is considerable Liberal Democrat nervousness about this move, but that the Gove-Osborne axis has overridden these concerns.

In publicity terms, the coalition took a deliberately cautious approach to the Autumn Statement. There was no attempt to dominate the news agenda in the weeks leading up to it. No. 10 enthusiastically agreed to the Leveson report coming out the week before, as they knew it would dampen the media’s attention. The strategy seemed to have worked: the Chancellor was able to announce that the 3p rise in fuel duty had been cancelled and that the personal income tax allowance had been increased again. In Westminster, it will help repair much of the damage done to Osborne’s reputation by the March Budget.

So stability, for now. But the mid-term review is when the coalition will have the chance to demonstrate that it has not run out of ambition, ideas or momentum. Its radicalism (or lack thereof) will tell us whether the coalition will limp to the next election, or charge.

This is James Forsyth’s column for this week’s Spectator. To subscribe to the magazine, click here.

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Show comments
  • Vulture

    The Autumn Statement was an exercise in can-kicking worthy of the EU.

    IT did nothing to address the mountain of debt that is crushing our life out.

    Since the Coaliton is too cowardly to do it, it will have to be done the hard way ( ie. After the two Eds go, threadbare caps in hand, to the IMF in about 2018.).

    Sure the Coaltion is functioning – in the way that a life support system is. The patient is still brain dead.

  • Adrian Drummond

    No leaks this time. Is it just co-incidental that Chris Huhne is no longer in the cabinet?

  • HellforLeather

    themselves tzeddro

  • HellforLeather

    wolemsur refreshing

  • salieri

    “Time is running out for further radical reform.” What do you mean, “further”?

    • telemachus

      Is the shift of resources to the rich not evidence of dangerous radicalism
      The overriding ambition now has to be growth and get the young into work
      Nothing else matters

  • Archimedes

    Rachel Reeves yesterday on Newsnight, and today Chris Leslie on the DP have adopted an air of pragmatism, homespun logic, and the auspices of people above partisan debate. I’d hazard a guess that Labour have calculated that they have lost the press, and are quite happy to have a fight with them at the next election – provided the Conservatives are firmly lodged with them in the boat they plan to torpedo.

    Policy isn’t going to matter so much after Ed Miliband declares in an election debate that “the press don’t want us to win – because we want to regulate them!”, and the average punter will remember the Leveson inquiry and nod along thinking “Poor Ed, poor poor Ed. His policies must be right. The press does need regulation. Those nasty Tories and their friends in high places – manipulating and lying to us all”. The more Osborne manipulates the press – and he is King of the Press – the more it will all ring true.

    Maybe the next election will be fought on something as simple as trust.

    • Baron

      What? who is it, you reckon, the electorate will trust?

      Have a peep at the coffeehousewall, there the good doctor, once of this parish, shares his thoughts about the caliber of today’s politicians.

      • Archimedes

        It’s a question of trust more – I think you’re underestimating Miliband, though. I suspect he’ll be able to send a consistent message come the election, and voters will trust him for it.

        • Colonel Mustard

          And be fools for doing so since he fronts the same old gang.

    • TomTom

      Chris Leslie was Gordon Brown’s photocopier….he is a yo-yo with an American mother so he has his bolt-hole arranged. He is lightweight and dim and sells out his constituents for his career ambitions.

  • Daniel Maris

    The effects of the real economy on people’s lives, as opposed to the PR economy, will be the deciding factor. Even with an incompetent front bench team, Labour are going to win through.

    • MirthaTidville

      Yes you are right. What its going to come down to is who is the least `incompetent`…..Posh boys are the gift that just keeps on giving as far as Labour are concerned. When you speak to former `true blue` supporters they are all in favour of UKIP now, yet would return to the fold if Gove were in charge. Most people cant stand Cameron and Osborne.Both useless. Now if only Guido could find `that` e mail!!!!!