Despite the pain, George Osborne will win this cuts battle

Budget medicine: Tory Chancellor George Osborne flanked by Lib-Dems Nick Clegg and Danny Alexander
12 April 2012

Imagine if the Tories had actually won on May 6. Installed in No 10 with a slender majority, David Cameron would be devoting too much of his time to ignominious parliamentary management, doomed to daily horse-trading with his own backbenchers to ensure that the new Government could get anything done. The economy would still need the stringent measures unveiled in George Osborne's first Budget. But those measures would already have been labelled (accurately enough) as "Tory cuts" — two words that detonate in the public mind as reliably as "Labour" and "spin" or "serial" and "killer".

The sombre features of Philip Hammond on yesterday's Andrew Marr Show were a reminder of what might have been. It was taken as read that Mr Hammond would be Chief Secretary to the Treasury in a Cameron government, its resident fiscal axeman. Instead, the coalition was formed and the job went to David Laws and then another Lib-Dem, Danny Alexander. As Transport Secretary, Mr Hammond now finds the axe torn from his hands and looming instead over his own unprotected spending department.

I do not for a moment wish to underestimate the outrage and pain that will be caused by the coming cuts: the public sector unions are patently preparing for a grievous round of industrial action. Perhaps newspapers will once again, for the first time in decades, carry a front-page item entitled: "Today's strikes". But the politics of this unprecedented fiscal strategy have been transformed by the equally unprecedented character of the Government launching it. It makes all the difference that it is the Lib-Dem Mr Alexander rather than the Tory Mr Hammond asking some departments to plan for 40 per cent cuts.

Let us call it the "Alexander Technique". In practice, the Lib-Con alliance has spawned a new movement in British politics: the Coalition Party. The verbal resonance of "coalition savings" is quite different from that of "Tory cuts": whereas the latter phrase is freighted with ancestral fear and memories of the Eighties, the idea of an alliance of parties combining to take unpleasant but necessary measures stokes the sense of national mission and shared sacrifice.

When Treasury sources told me after the Budget that departments would be sent "indicative scenarios" — a chilling phrase if ever there was one — I did not imagine that these scenarios would include contingency plans for 40 per cent savings. Those sorts of cuts differ in kind rather than degree from — say — the 10-20 per cent savings demanded of the education and defence departments (as severe as those efficiencies will undoubtedly be). Tell somebody he has to scale back his mortgage, his family's food bill, his spending on his car, his holiday budget by 10 per cent, and he will wince. Tell him that he has to slash 40 per cent from his monthly spending and he will have to change everything about the way he and his family live.

There are three reasons for this exercise: psychological, philosophical and political. First, the 40 per cent scenario plays the age-old game of expectation management. If, as Maurice Saatchi teaches us, satisfaction equals the difference between expectation and reality, there is at least a chance that the voters, braced for barbaric cuts, will be mildly relieved when the actual savings announced in the October spending review are less dreadful.

Secondly, the raising of the bar to 40 per cent forces departments to examine what they do in the most fundamental terms and what they spend in root-and-branch detail. Mr Hammond put it well yesterday: ministers would now have to "ask the difficult question: how many of the things we're doing have simply become established over years because we started doing them and we've never really stopped to think, Is this something we should be doing, do we need to be doing this, is it value for money for the taxpayer?'"

Third — and most important by far — the 40 per cent scenario heightens the tension within the Cabinet that Osborne quite deliberately established in his Budget. Health and international development are ring-fenced. Education and defence face cuts of between 10 and 20 per cent. The rest must plan for anything between 25 and 40 per cent. How to keep that figure closer to the lower figure? By supporting the Chancellor's strategy to slash the welfare bill, which has risen from £132 billion 10 years ago to £192 billion today.

All governments promise benefits reform but are invariably frightened off by the lobbies and pressure groups they encounter. In spite of his huge Commons majority, Tony Blair was deeply shaken in December 1997 by the rebellion of 47 backbenchers against his plans to cut benefits to single parents. The splendid Frank Field was brought in to "think the unthinkable" as Minister for Welfare Reform — and lasted less than 18 months. Having presented himself as a prospective "Nixon in China" — the Labour leader who could bring welfare spending under control — Blair barely scratched the surface. Nixon stayed at home.

Welfare reform is indeed politically nightmarish: the lobby groups are well organised and know how to make a minister look like a Dickensian monster forcing wee children up chimneys. Much more than the referendum on the alternative vote, this is an issue that could cause the coalition to fragment. But Osborne has now presented his Cabinet colleagues with a choice: present a united front on the welfare revolution and stand your ground when the going gets tough — or, if you prefer, make cuts in your own departments of up to 40 per cent. The choice is yours.

In truth, the remaking of the affable Mr Alexander as "Mr 40 per cent" has much more to do with the internal dynamics of the coalition than with softening up public opinion. My hunch is that Osborne will win this all-important internal battle. When you have them by the budgets, their hearts and minds usually follow.

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