Tory financial policies: too clever by half?

Yesterday, George Osborne, the British Chancellor of the Exchequer – our Minister of Finance – gave the first entirely Tory budget since 1996.

He’s been delivering budgets since 2010, of course, but up till yesterday that was always as Chancellor in a Coalition government where some of the sharpest parts of his edge were taken off by the need to conciliate the Liberal Democrats. Well, yesterday that restraint, such as it was, no longer held him back, and he could be a pure Tory. And he was.

One of the most impressive aspects of the Tories is that they’re devilishly cunning. They know how to get elected. That was all on show yesterday.

George Osborne setting off to deliver the budget

Labour has been hitting the Tory party for being far too closely tied with just a tiny portion of the population, specifically the wealthiest, most privileged people. It didn’t stop them winning the election, but Tories traditionally don’t have to put up with small majorities in the House of Commons. They’re the kind of party that wins big, and they didn’t this time.

A smart way out of the Labour criticism is to reposition themselves as a party for everyone, what’s known as a one nation party. And Osborne set about doing just that yesterday.

First of all, he announced that “Britain deserves a pay rise.” That’s a phrase the Unions have been using for quite a while. 

See what he did? He’s saying you don’t need a Union. A one-nation Tory party will deliver you what you need. Brilliant.

And then, at the end of his speech, the master stroke: he announced that he was introducing a “National Living Wage.” That’s something that the Left has been calling for some time. What’s more, Osborne wants it to reach £9 an hour by 2020 – but Labour had only promised to get the minimum wage, which this national living wage will replace, to £8 an hour by then. 

Talk about wrong-footing the Opposition. They must have felt as though their clothes had been stolen from them, while they were still wearing them.

Two body blows to the other side. Absolutely magnificent. At first sight.

Looking at things more closely, one has to start wondering whether Osborne has perhaps been a little too clever for his own good. You see, “Britain deserves a pay rise” suggests you’re going to deliver one. But in fact, he announced that the public sector pay rises would be restricted to a maximum of 1% a year for the next four years, which will represent a real-terms pay cut.

What about the move the “National Living Wage”? Well, those on the minimum wage today will indeed have a higher increase than that 1%, by 2020. Sadly, however, many of these low earners also receive tax credits at the moment, and they are to be phased out. The Institute of Fiscal Studies think tank calculates that the loss of the tax credits will leave 3 million families £260 a year worse off, despite the the living wage initiative.

So several million people who’ve been told that the country deserves a pay rise, will in fact suffer a pay cut. That may come back to haunt Osborne: he’s made a promise which he doesn’t look like keeping.

What’s more, by talking about a “living wave” he’s moved that notion into the mainstream. As it happens, he isn’t in reality talking about a living wage, just about an increase to the minimum wage. The living wage is a level of pay which should allow someone to live on it without taking a second job. The tax credits Osborne’s phasing out would be part of the living wage calculation. So he won’t be delivering it – though he he has legitimised the demand.

In other words, he’s set the bar high, and doesn’t look like clearing it. Which sounds like a hostage to fortune. 

Setting expectations among voters and then disappointing them? That may not prove to have been as smart as Osborne looked yesterday. If the Opposition can rally and hit back, he’s left them a great target to aim at…