Brian Monteith: Osborne statement will define political landscape

George Osbornes plan will affect his partys prospects going into the 2020 election. Picture: Getty

When the Chancellor of the Exchequer, George Osborne, stands up on Wednesday to deliver his Autumn Statement, together with the first comprehensive spending review since 2010, it is likely to define the political landscape for all parties over the next five years. With the exception of the referendum on the UK’s membership of the European Union, no other domestic political event will have such influence.

What Osborne announces and how people react will determine his own and his party’s prospects going into the next general election in 2020. The response of people to his planned cuts to public spending may yet throw a lifeline to the struggling Jeremy Corbyn who has been beset by a litany of avoidable political embarrassments. If Labour does not get its act together and present a coherent and plausible official opposition to Osbornomics, the reaction to the spending review will present other parties with an opportunity to eat into Labour support.

The Autumn Statement could give the Liberal Democrat leader, Tim Farron, the opportunity to say, “We told you so” to the British public that deserted his party in droves. The former leader Nick Clegg had argued in the general election that the Liberal Democrats were worthy of support if only to provide a much-needed moderating influence on Osborne and the rest of the Conservatives. Few listened to his plea.

If Labour is unable to pick itself up off the floor it will also mean that Ukip can target disillusioned voters looking for an alternative to the Conservatives that they feel Corbyn does not offer. And of course it will give fresh ammunition for the nursing of more grievances by the SNP in the run up to the Holyrood elections next May. We can expect to hear the usual mantra that applying the Barnett Formula to the new spending plans will mean a cut of £xbn in the Scottish budget. Fair enough, but John Swinney will by then have the power to raise taxes in Scotland to provide for different priorities – just as devolution has allowed for subsidised prescriptions, care for the elderly, tuition fees, eye tests, bus passes and bridge tolls, that are not available in England.

Scottish Conservatives must be waiting in trepidation, hoping that as well as softening the proposed cuts to working tax credit cuts Osborne does not announce any new initiatives that turn into political own goals because they have not been thought through for how they will play out in Edinburgh, Cardiff and Belfast. With all the campaigning and media focus, with the Chancellor saying he is in “listening mode” and with the Scottish Tory leader Ruth Davidson calling for a softer landing to the tax credit changes – there are all the ingredients for a staged pull-back that was always intended by Osborne. How he will fund it is another matter, for he will have to cut other benefits or announce tax changes to do it.

Unfortunately for the Chancellor in his plans to reduce spending, as in his EU renegotiations, everything has not been going his way. Last week’s announcement that the year-on-year borrowing for October had risen from £7.1 billion in 2014 to £8.2bn this year – the worst deficit in October since 2009 – put paid to the prospect of him making his target of reducing UK public sector borrowing by £20bn. Thus far public borrowing stands at £54.5bn for April to October, a reduction of £6.6bn compared to this point last year, but Pwc chief economist John Hawksworth argues that extrapolated data suggest the Chancellor will be £5bn shy of his targeted reduction.

It is earlier political decisions that the Conservatives have chosen to make – partly because they believed them the right thing to do and partly because they helped position the party differently from its past – that have given the Chancellor little room for manoeuvre. By insisting that there will be no cuts in the NHS, but that instead any savings made by efficiency gains will be ploughed back into the institution – together with a commitment to find a further £8bn increased spending on top – David Cameron’s government can sidestep accusations of attacking the NHS. Such an approach has worked well for him in two elections and will undoubtedly be maintained going into the next, whoever is leader.

Then there’s the commitment to maintain overseas aid at 0.7 per cent of GDP, although we can expect to see it used more creatively in future to assist with programmes that relieve problems of mass migration and strengthen security. Similarly, the defence budget, having been seriously pared back in the past will now be maintained at 2.0 per cent of GDP, with an announcement expected about increased investment on new F35 stealth fighter jets for the previously aircraft-less aircraft carriers that are due to be delivered by the end of the decade. Also protected is spending on school education for five to 16-year-olds.

These protections mean that other departments face larger cuts than would be the case if they were shared equally. The Institute of Fiscal Studies believes that average cuts in recurrent spending of 27 per cent will be the result for those departments affected – which of course means some will be facing much larger cuts, probably above 30 per cent.

There is one way the Chancellor could change his plans, he could repeat what he has done twice before and postpone the ending of the deficit and the arrival of the surplus in the 2019-20 tax year. This would mean going into the general election without being able to say that – after all the pain of endless spending cuts – he had finally got rid of the UK’s deficit. By then the Tories will have been in power for ten years and could hardly run a campaign on the slogan “let us finish the job” like they did this year. The deficit adds to our national debt that is nothing other than generational theft; our generation taking benefits paid for by the taxes of future generations.

The real answer is to admit that the state continues to do too much and address that by asking the question, what should the government’s role be? The TaxPayers’ Alliance has produced a long list of costed proposals, some of which appear not too difficult while others would undoubtedly cause outrage – the Chancellor must be ambitious by considering such ideas if he is to stay on course and hit his target by 2019.