Osborne’s budget is a tribute to Machiavelli – and Brown

Reaction to George Osborne’s Budget has been mixed. From some sections of the press there has been predictable delight that the phrase ‘living wage’ has been re-defined to mean ‘higher minimum wage’ since this will cause problems for the currently next-to-moribund Labour party, and that is for these commentators the acid test of economic policy. Meanwhile the bits of the press that are more interested in how the economy actually works have taken a rather more nuanced view – the Economist’s UK edition cover features the phrase: ‘Politically astute, economically flawed.’ Indeed, the Economist’s leader column doesn’t pull its punches, preferring Gordon Brown’s tax credits for the low-waged to the slightly-boosted and rebranded minimum wage, and calling the inheritance tax cut ‘indefensible’, ‘irresponsible’ and ‘the daftest economic policy of the decade’. And the IEA’s Ryan Bourne has slammed the Budget in today’s City AM.

Most commentators have taken the view that Osborne’s manoeuvres have had the aim of setting the Chancellor up to move into Number Ten when David Cameron chooses to depart. But Mr Cameron is not the only predecessor that Mr Osborne has in mind. Janan Ganesh over at the FT describes the Budget as neither low-tax nor low-spend but ‘a counter-Brown Budget’. But while Osborne has been at pains to dismantle the tax credit system by which Brown attempted to reduce poverty while keeping the incentive to earn more, there are signs that he has learned from the former member for Kirkcaldy.

One of Gordon Brown’s favourite tricks (it was a trick of Tony Blair too, but Blair did it less obviously) was to unsettle his opponents by claiming their turf, thereby setting the weather (if you’ll allow the mixed metaphor). Cameron and Osborne have managed to shackle Labour by painting the party as interested only in the work-shy (and Ed Miliband’s great failure is that he allowed it to happen). This had the effect of tarnishing the Labour brand and has enabled the Conservatives to claim that they are the true party of the ‘hard-working’.

All this virtual shock and awe would impress Machiavelli, who wrote approvingly of the leader who, ‘was always planning great enterprises, which kept the minds of his subject in a state of suspense and admiration, and occupied with their results (The Prince, chapter 21).’ Zap! Northern Powerhouse. Zing! Another wallop to the BBC. Bam! Intervention in prices charged by social (but not private) landlords.

A number of problems here; we will concern ourselves with just three. There’s interference in pricing for social housing but not privately-rented housing, even though the market rate is set as it is because of massive market failure. Second, there’s a bunch of inconsistency which probably won’t catch up with the Tories. My own local MP criticises tax credits because they impose an eyewatering effective marginal rate of tax as they are withdrawn – but George Osborne’s reforms have made the problem worse. Expect not to hear much about that any time soon.

Of possibly more long-term interest for the Chancellor will be that he has borrowed another of Gordon Brown’s tricks: writing a budget that plays well in the following day’s headlines but which doesn’t stand the test of time. Osborne has already had his ‘Omnishambles’ Budget; Brown’s famous miscalculation came when he cut the standard rate of income tax from 22p to 20p but abolished the 10p rate in so doing. He got his grudgingly happy headline but at the cost of chaos when the implications became known.

So the Conservatives’ claims to be the party of the hard-working will sound hollow when the lowest paid find they have been cast as the undeserving – the rise in the minimum wage far outstripped by the fall in their tax credits. This may have the result of re-politicising this group: some Conservatives have claimed that tax credits were a ‘bribe’ from Labour, while Labour strategists often complained in their turn that they got very little political thanks from the beneficiaries. Either way, the lowest paid will be first to notice that the ‘living wage’ a la Osborne doesn’t live up to the previous definitions of the term. By that point the Labour party may have got its act together. Even if it hasn’t, expect some uncomfortable moments for Mr Osborne, around the time that he prepares to move next door.