Cameron may be forced to put friendship aside

David Cameron learned a lot of things from Tony Blair. One lesson he took was the need for harmony between the prime minister and his chancellor of the Exchequer – something that was missing from Blair’s government almost from the start with Gordon Brown. Eventually, there came close to being a complete breakdown of relations between the Downing Street neighbours. Yet, Brown’s power base was so secure that Blair did not dare to shift him from the Treasury.

Cameron was determined not to repeat this mistake. George Osborne and he had been buddies, were buddies and would remain buddies. There was another difference. Whereas Brown saw himself as the pretender to the throne, the man cheated of his rightful inheritance, Osborne has never been a prime minister-in-waiting. If Cameron fell under a bus or collapsed on the tennis court, Osborne would not be his successor. When James, Duke of York, told his brother Charles II of a plot against his life, the king said: “Nobody will kill me, James, to make you king.” Likewise with Cameron and Osborne.

Yet, the day may come – may indeed be near – when the bonds of friendship will have to be loosened and the Chancellor removed. Opinion polls still suggest that the Prime Minister is more popular than his party, but Osborne is almost certainly even less popular than the party, which is languishing at 31 per cent in the latest poll. He has failed – and is still failing – to deliver and the muttering on the back-benches, and probably within the government itself, is growing louder. Everyone fears that the Tories are heading for a heavy defeat in the next general election (the Eastleigh by-election has destroyed what confidence there was) unless the Chancellor can deliver an economic recovery.

We have had three years of austerity and no growth. Incomes have fallen and, despite the cuts, which have seen employment in the public sector drop back to its level in 2002, the national debt keeps rising and the deficit has not been reined in.

Osborne has a Budget to produce in a couple of weeks. Clamour for dramatic action is getting louder – even though, one must say, many of the favoured changes are contradictory, and some – such as cuts in the rate of income tax –and a raising of the figure at which people become liable for the 40 per cent rate, would have no immediate impact.

Nevertheless, the word from those close to the Chancellor is seemingly that he will deliver a “steady-as-she-goes” Budget, inspired by his confidence that the economy has started to turn and that real growth will be evident in the second half of the year. It seems that, from the Treasury window, those famous “green shoots” can be seen pushing through the earth. Others are less convinced. For them, the Chancellor is like the chap who jumped off a skyscraper and was heard to shout as he passed the 14th floor: “All right so far.”

One of the problems with Osborne, no matter how skilful he may be technically, no matter if his policy has been wise, is that he is a rotten politician and an unconvincing communicator. He made great play of the importance of the UK retaining its AAA credit rating and boasted of his success in keeping it. Now the rating agencies have downgraded us and he indicates that this doesn’t matter. He may be right, but why then attach so much importance to it in the first place?

In his attempt to repair the public finances, he raised the level of VAT to 20 per cent, thereby raising costs for business everywhere and reducing consumer spending even while that was already depressed by inflation, falling wages and the public sector pay freeze, which (in view of inflation) was really a cut. Reversing this VAT rise, and indeed doing more than reversing it, would give the economy a boost; but this would mean admitting he got it wrong in the first place.

His worst blunder was the decision to cut the top rate of income tax from 50 to 45 per cent. Arguably this made sense in terms of revenue-raising since it may have made some high-earners less determined to make use of legal tax avoidance schemes, and pay up. But, politically, it was daft. Tax cuts for the rich while everyone else is struggling? Try selling that to a sceptical public. “We’re all in this together,” he used to say. After that cut, the general perception was that the rich were less deeply in it than the rest of us. Tax cuts for the rich and a clampdown on benefits for the poor; what a gift to Labour.

Osborne is a public relations disaster for the Conservative Party. He looks like a superior smoothie, he speaks like a superior smoothie, and I would guess that every time he appears on television or the radio, he loses his party votes. Labour must be eager that he stays in the Treasury till the next election – which is, of course, a good reason to move him.

A change of economic policy – a move away from austerity – is needed by both the country and the Tory party – unless it is already resigned to losing the next election; but a change of Chancellor is every bit as necessary because Osborne is now an electoral liability. He is neither liked nor trusted nor respected. Yet, I suspect that Cameron may feel bound to him and fear that making a change at the Treasury would be interpreted as a sign of weakness, one which would encourage his many enemies in the party he still, if uncertainly, leads.

He will know that Harold Macmillan’s “Night of the Long Knives” when he sacked his chancellor, Selwyn Lloyd and six other Cabinet ministers was interpreted as evidence of a loss of nerve. Though it was intended to rejuvenate his government, it actually marked the beginning of its end.

So, the Prime Minister is in a dilemma. He is at one with his Chancellor. They are bound together. Osborne is his right-hand man. But it is Osborne who is pulling him and his government down.

Dare Cameron make a change? Dare he continue with him if the Chancellor fails to produce a magic rabbit from the Treasury’s hat? A “steady as she goes” Budget might mean only a steady, even accelerating, descent. Interesting times.