A National Living Wage. That’s the headline George Osborne’s advisers wanted from this budget, and it’s likely he’ll get it. It’s an audacious raid on Labour territory, but it disguises a big concession.
The retreat isn’t about improving family finances. There, the depressing details undercut the nice headline. What the Chancellor has done isn’t introduce a Living Wage, but to mandate future increases in the minimum wage for over 25s, while slashing tax credits and in-work benefits for everyone.
To take just two examples, the withdrawal rate for tax credits will rise to 48%. For every extra pound someone on tax credits earns, they will lose 48p, not 41p. But there’s worse news. Currently, the ‘tax credit tax’ only begins to bite when you earn £6,420 a year. From next year, you start losing half your Tax Credits earlier, at £3,850. For thousands of working families, this Budget will mean lower incomes, not a pay rise. The ‘Living Wage’ is a confidence trick.
While it’s essential to point this hypocrisy out, the Budget also offers Labour a transformative opportunity, if we have the fiscal and political nerve to take it.
The gift lies in Osborne’s continuing failures in his quest for budgetary surplus. This is nothing new. When it comes to deficit reduction, the Chancellor hasn’t just missed his goal, he’s missed Alistair Darling’s. In March 2010, Alistair Darling projected borrowing of £74 billion in 2014/15. David Cameron called that “completely inadequate“. So when they took over in June 2010, the Government projected borrowing to be just £37bn in 2014/15. What was the result? Public Sector Net Borrowing for 2014/15 is £89.2 billion.
The essential question for Labour is how come Osborne’s failure to meet Darling’s target was accompanied by an ever-stronger belief that the Conservatives are the party of fiscal stability?
Bluntly, Osborne got away with missing his fiscal targets by billions because Labour cast him as an iron chancellor, relentless in pursuit of cruel austerity.
In setting himself a target Labour found it impossible to match, Osborne used Labour howls of outrage to protect himself from any critique of his failure to meet it. The more we complained at his aims, the less his actual record mattered.
Surprisingly, the Chancellor has decided not to try the same play again. Instead of outbidding Labour on deficit reduction and daring us to match him, he’s quietly moved the Tory fiscal plan closer to Labour’s.
Before the General Election, Labour promised to eliminate the current deficit by 2020. The Tories pledged to move the overall budget into surplus by 2018-19. Today, that ambition got put back again, with the fiscal path loosened significantly.
That the dramatic reduction in the ‘clear blue water’ between Labour and Conservative plans isn’t more politically prominent has little to do with fiscal policy and everything to do with political reputation. The lesson of 2015 is simple enough – forget the detailed plans; if the tone of political debate resolves down to the Tories being ‘for’ deficit reduction and Labour being ‘against’ it, nothing else really matters.
Yet by moving his fiscal policy baseline significantly closer to Labour’s stated position, the Chancellor has given Labour a huge chance to not make the same mistake twice. It should now be far easier for the Labour party to accept a non-partisan path of deficit reduction, while still proposing a political alternative that includes more investment in capital and infrastructure and a more equitable distribution of the ‘pain’ of cuts and tax rises.
A Labour leader able to exploit this opportunity would be able to destroy the perception of Labour being fiscally spendthrift, so more credibly objecting to Osborne’s choices in distributing the pain. In this budget, for example, the choice to cut inheritance tax while slashing disability benefit and support for working families.
Osborne is gambling that Labour won’t notice the chance he’s given us, or if we do notice it that we ignore it in favour of enjoying another five years of whining about the nasty Tories, pleasing ourselves but confirming public perceptions of our party and his.
The Chancellor’s past failure and future ambition means Labour has been given a huge chance to end our reputation as the party of fiscal irresponsibility. If we have the nerve, we can take the argument to Osborne and the Tories on our terms, because they are increasingly accepting ours.
To do that though, we will need a leader who actually seems to care about strong public finances even when it’s uncomfortable to say so.
If the last few years teach us anything, it’s that early definition matters in politics. If you’ve spent the last few months calling fiscal responsibility ‘swallowing Tory plans’ or allowing your friends to brief the media that it’s mere ‘Blairism’, you’ll never be able to reverse the impression you’re against it, even if you put in the occasional sentence about tough decisions in speeches. You’ll never be able to hold Osborne to account for his failure, or criticise his distributional mistakes, because he’ll be able to swat you aside as easily as he dealt with Ed Miliband and Ed Balls.
She may have been attacked (anonymously and not so anonymously) as ‘a Tory’ for clearly stating her desire for budgetary balance, but Osborne’s budget just proved Liz Kendall’s instincts on fiscal policy right. The Chancellor has had to accommodate himself to a more gradual path of deficit reduction, one ever closer to Labour’s stated policy, if not to our rhetoric.
To seize this gift, Labour needs a leader able to take advantage of it, one able to hold Osborne and the Tories to account on fiscal policy failures and incompetence, a stance which in turn opens up the political space to make a more convincing argument on everything from the Living Wage to cuts to Tax credits. That’s the route to a Labour victory in 2020 and the chance to change the country thereafter.
The question is, do we want to take that opportunity, or do we want to be comfortably outraged for the next five years, then lose again?