The Hidden Agenda: Could what George Osborne is planning threaten the unity of the UK?

Published on 19/06/2010 19:32

THE stuffy Commons air was heavy with anticipation. The gangways, benches and even the main entrance to the members' lobby beyond were all jammed with MPs eager to hear what the Conservative Chancellor would announce in this, the new administration's first Budget.

"We cannot go on avoiding difficult choices," the Chancellor declared before setting out a radical package of measures including a major shift in taxation from income to spending, the cornerstone of which was a substantial rise in VAT.

The date was 12 June 1979 and the speaker at the Despatch Box was Geoffrey Howe. The Conservatives had won the election just a month before and Howe's Budget was designed to help dig the country out of financial crisis. But it also had another purpose – to set a radical new course for Britain that came to be called Thatcherism.

Like Howe before him, George Osborne shadowed the Chancellor's job for five years in opposition before taking office and, like Howe, Osborne has had ample time to work out what he believes needs to be done to rescue an economy in crisis.

On Tuesday he will deliver his first Budget and the first by a Conservative Chancellor for 13 years.

Such has been the attention focused on the state of the public finances that everybody is expecting an "austerity Budget", a Budget of cuts and spending squeezes. But this week's Budget is likely to have another agenda, beyond the rhetoric about cuts. It will herald a social change that could be as transformative as was seen in 1979. While dealing with the deficit, Osborne will also take the opportunity to try to change the nature of British society.

The unofficial slogan of the Obama administration is: "Never waste a good crisis." The Tory-Lib Dem administration seems determined to learn this lesson. And the suspicion that Osborne will use the country's debt problems to push back the boundaries of the state have alarmed some of his opponents.

Labour MSP John Park is one who is expecting a Budget rooted in right-wing ideology. "My fear is that the Tories have deliberately overplayed the economic deficit so they can use it to roll back what the state does," he said. "They want to use the theme of sorting the deficit out to make sure the state doesn't have the role it had for the last 30 years. Some of my colleagues in Westminster have been stunned as to how unreconstructed some of these Conservatives are. They are coming out with very right-wing ideas and I think we will see this in the Budget. The country's finances will become an excuse, as they were in the 80s, for a Conservative government to roll back the state."

So what does it mean, rolling back the state? What might Osborne be tempted to do, under the cover of an 'emergency Budget' to tackle the country's deficit? And could there be unintended consequences for the unity of the United Kingdom?

For clues, it is worth looking back at David Cameron's 'big society' idea. "There is such a thing as society," he said in his keynote speech to the Tory conference last year, "it is just not the same as the state."

This is the rock on which this new Conservative ideology is based. It believes in using the voluntary sector, backed by the private sector, to take on some of the tasks currently undertaken by the state, from the edges of healthcare to community projects. It believes in cutting back the influence of councils, quangos, education authorities and government departments, stripping away the regulations which have fuelled the rise in bureaucracy and form-filling. In England, where the Westminster government controls health and education, it means giving people, rather than paid officials, the chance to take key decisions in their own areas, from the way their schools are run to the siting of new health centres.

This week's Budget really does provide the Conservatives with a once-in-a-generation opportunity to reduce the size of the state simply because there is so much public sector money that has to be cut and will be cut.

But will Osborne use that to go further to lay the foundations for a new ideological, 'private-good, state-bad' form of domestic politics?

Scotland's Finance Secretary John Swinney knows the Budget process well, having served in Westminster for many years before taking charge of the Scottish Budget at Holyrood. He is wary of the Geoffrey Howe comparisons simply because the public finances are in such a bad way.

"Don't forget," he said, "Geoffrey Howe was able to be radical because he had the money to do that. George Osborne doesn't have that flexibility. He doesn't have the money to be able to afford to take the sort of ideological leap that Howe did."

However, he added: "The one big uncertainty in this new administration is its ideology. Maybe we will see it come out in the Budget but my feeling is that we won't really get a good idea of where it is going until the comprehensive spending review."

One of his SNP colleagues, Alex Neil, disagrees and believes Osborne might set in train a new right-wing agenda which could go as far as the privatisation of the Queen's highway.

"I think they will look very seriously at a number of ideas. Last year NM Rothschild came up with a plan to privatise the trunk road network, that may be one of the things they look at," he said.

If Osborne uses the investment bank Rothschild for inspiration on roads policy, he may well use the right-leaning Reform think tank for suggestions in other areas.

Last week Reform published a package of measures for the Budget. It included a massive reduction in the size of the state, ending the consensus which says the NHS cannot be cut back, allowing the private sector to step in and take the load instead.

Reform also recommended a shift in tax policy, ending the VAT exemptions on children's clothes, food and the printed word; axing unnecessary subsidies to middle income earners like child tax credits and child benefits, in return for reduced national insurance contributions for all; a move towards more private provision for public sector pensions; and a later retirement age.

All these ideas will have been looked at by Osborne. He is being urged to be radical by the Right but is having to deal with a slightly different message from the City.

One Westminster insider said: "I know these people in the City and I know the message they are giving the Chancellor. It has only one theme: bring down the deficit, bring down the deficit. That's all they want and he has to make that his top priority. Will he actually be able to do anything more than that? We will have to wait and see."

But there is another dimension to all this that is unlikely to be at the front of Osborne's mind, but could come back to haunt him – and that is Scotland.

If, as expected, Osborne does not just squeeze public sector budgets but shifts the emphasis from the state on to the 'big society', he will widen the gap, in social, political and economic terms, between Scotland and England.

England will have a government which allows residents to set up their own schools, outwith local education control – just look at Michael Gove's announcement two days ago paving the way for this change.

The English will have foundation hospitals with significant parts of the back-office functions outsourced to private companies, they will have fewer quangos, weaker local authorities and communities where voluntary groups and residents' groups not only decide what should be done but get the funding to do it.

They may even have new trunk roads and motorways, paid for and run by private companies in return for tolls.

At the same time, Scotland will have its comprehensive education system administered by council-run education authorities, its uniform health service, funded from the centre and run by health boards. It will still have its free roads network, its free care for the elderly and no student tuition fees.

It really will be a tale of two countries. Some unions see strength in this diversity but for others, the more they start to look different and feel different, the deeper will grow the political divide between them.

Park says: "This is all going to lead to a different approach north and south of the border. In Scotland, the two main parties share the same basic belief in the role of the state in terms of state provision – although the difference between us and the SNP is that we recognise that it has to be paid for."

But he insists he does not buy into the idea that this will ultimately help the Nationalists. "If we get back in next year (at the Holyrood elections], we can use Scotland as an example to the rest of the country of what a Labour administration is doing and use that to help us get back into power in Westminster," he said.

Naturally, that is not the way the SNP sees it and, if the Nationalists don't already have next year's election campaign sorted out, they will after Tuesday's Budget.

They are already committed to turning the 2011 election into a referendum on independence, arguing that the unionists have stopped Scots having their say on the country's future. But what Osborne's Budget will do is give them a second strand to this argument. The Nationalists will say that if you want to avoid these cuts and avoid the ideological drive towards privatisation of state services then only independence can deliver that. The more England moves away from Scotland ideologically, the more the SNP will use it to push the case for independence.

Conservative MSP Derek Brownlee, who is leading his party's policy review north of the border, is sceptical of this analysis. He believes there is just as much chance that Scots will look over the border, see how well things are being managed and want the same for themselves.

"If people look to England, see they still have an NHS but it is performing better, more efficiently and with faster treatments, if they see there is still comprehensive education but it is more flexible and better than it was before, I think the majority of Scots would want the same. I don't share the general view of commentators that Scotland is inherently left-wing. I think most Scots are pragmatic and would want to go with what works. If they see it is working in England, they will want the same up here."

As for the Chancellor, he has given a brief glimpse of where he will take the country on Tuesday. He said: "My Budget is going to deal with the real issue: can Britain live within its means? I am absolutely confident that after the Budget, people will say that we can."

That is the sort of sentiment the country has not heard from a Chancellor for 13 years. It is the language of Conservatism carrying echoes of Thatcherism. But whether Osborne has the will, or the means, to take it to its ideological conclusion, no-one will know until Tuesday.

Decision time

THE contrasting options facing George Osborne are crystallised in the recommendations of two influential think tanks. On the right of the political spectrum is Reform, and on the left is the IPPR.

Reform:

&#149 Cut all public sector budgets, including the NHS budget, by as much as a quarter.

&#149 Curb all education spending that is not directly linked to learning.

&#149 Raise the retirement age and ease the burden on the taxpayer from public sector pensions.

&#149 Cut the top rate of income tax but raise VAT, ending the exemption for children's clothes, food and printed material.

&#149 End "middle class allowances" such as child tax credits for those on middle incomes.

Institute for Public Policy Research:

&#149 Raise income tax, using a staged 3p increase in basic and higher rates to raise 15 billion.

&#149 Leave VAT alone.

&#149 Don't just cut the deficit by cutting spending – that will hit the poorest in society.

&#149 Consider new taxes, including a carbon tax and a higher tax on banks.