March 17, 2014 5:41 pm

UK Budget 2014: The wolf at Britain’s door is the Tories’ best ally

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
The cause of deficit-reduction keeps the coalition together and makes Labour look feckless

George Osborne’s real achievement as chancellor of the exchequer is that nobody very much cares about the Budget he will give on Wednesday. It must be the least hyped and anticipated for years.

What usually gives these events their import is the macroeconomic context and the chancellor’s grand judgments on overall spending and taxation, the raw materials of political life. For the first time since 2007, the context is more or less benign, with growth and employment performing better than expected a year ago and the fiscal deficit creeping down.

The important decisions of economic management were settled in Mr Osborne’s first Budget in 2010, when he committed the coalition government to a faster fiscal consolidation than the one favoured by the Labour opposition. Whether he was right to do this is a quandary to captivate economists forever. But the political debate fizzled out some time ago – and among voters it never got going in the first place.

So here is a Budget that will merely amend a strategy that was decided four years ago. There is no prospect of a meaningful change and no money for munificent populism ahead of next year’s general election. Some Budgets are not finalised until the night before their announcement; the fact that this one was settled a week ago testifies to its caution. There is likely to be a further increase in the starting threshold of income tax and, at a stretch, a small tweak to rates or thresholds further up the income scale to help the professional class.

This Budget is less about policy than storytelling. Mr Osborne wants to prepare the electoral message his party will take to the country next year. The question is what that message should be. Most Tories – including Lynton Crosby, their campaign strategist – want to define themselves as the party of tax cuts. The chancellor sees the attraction of this, and it is hard not to. Tax cuts are a simpler alternative to Labour’s roundabout ways of improving living standards, which include energy price freezes and other corporatist meddling. And they are congruent with the Tory soul. In a party prone to vicious enmities, every member would sing a low-tax song with discipline and gusto.

However, the Conservatives cannot stand as the party of tax cuts and as the party of fiscal discipline. These can be compatible in technical terms – any tax cut can be funded by a spending cut or tax rise elsewhere – but, in the impressionistic game of political campaigning, they are not compatible at all. If voters see the Tories on a platform of tax cuts, they will assume the whole “deficit” scare has been taken care of. Suddenly, the question nagging at them will not be “who will manage the economy responsibly?” but “who will do the most for me?”.

The first question suits the Tories, whom voters prefer on economic management by increasingly strapping margins. The second question suits Labour, with its immemorial identity as the big-hearted party. An election campaign does not consist of two competing answers to the same question but two attempts to set the question. If the Tories allow the question of the 2015 election to move from the first to the second, they are done for.

Austerity has not just failed to provoke anything like the national insurrection the Tories bargained for, it has turned out to be a net political asset. The cause of deficit-reduction keeps their coalition with the Liberal Democrats together, makes Labour look feckless in comparison and furnishes them with a clear and important reason to exist. Voters usually struggle to say what a government stands for in a sentence. This one they can capture in a word: cuts. Some voters spit that word out with disgust, others are willing to bear the cuts as long as they believe that public borrowing is the central problem of our age. If Tories openly entertain lower taxes, as though money is sloshing around the Treasury waiting to be used, that belief will weaken. Austerity will seem less like a monolithic inevitability and more like a choice, pregnant with further distributional questions about which reasonable people can disagree: what to cut, who to squeeze.

By all means, Mr Osborne’s Budget and the next Conservative manifesto should include some tax cuts. Capital gains tax is too high for a country trying to stoke entrepreneurship, and Tory backbenchers are not being hysterical when they say too many people have been dragged into the 40p rate of income tax. But the party cannot make tax cuts the theme of their election campaign. That would contradict the one big cause that has defined them these past four years, mire them in an unwinnable bidding war with Labour over which party can give the greatest amount of money away, and legitimise the inherently leftwing notion that living standards are somehow controlled by the government of the day.

Conservatives crave the sugar rush that would come from reviving their old identity as tax-cutters after a decade of fitful “modernisation”. But after a sugar rush comes the slump, and the remorse.

janan.ganesh@ft.com; Twitter: @JananGanesh

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE