Could tax credits row halt the Osborne bandwagon?

Is the Tory front-runners curse set to strike again?

In every Conservative Party leadership contest since the advent of political betting, the early favourite went on to lose. With David Cameron saying he won’t run again, the starting pistol has been fired on the next race and George Osborne is very much in pole position. The Chancellor could, however, be approaching his most challenging period.

Osborne’s claims for the top job are rock-solid. Not only was his stewardship of the economy a hugely significant reason behind the Tories’ gaining their first overall majority in 23 years, but he is widely credited for masterminding it. In response, his odds have shrunk from 9.4 (11%) when I tipped him in May, to just 2.76 or 36% today.

As Gordon Brown did for the previous Labour government, Osborne has used the Chancellorship to set the political weather – laying rhetorical and Parlimentary traps for his opponents, that ultimately create an election winning narrative.

Deep spending cuts, billed as ‘unavoidable’, made Labour’s inevitable opposition appear reckless and opportunistic. Cuts to welfare in the last Parliament were justified on the grounds of helping the ‘strivers’ via tax cuts, at the expense of ‘shirkers’ who were too lazy to work. That ‘strivers v shirkers’ narrative played a central role in the election, fuelled by the big policy difference – Osborne’s planned £12BN cuts to welfare.

It worked wonders for the Tories in the short-term but, now we know the detail, the debate has changed. Rather than just hitting ‘lazy’ unemployed people, £4.5BN will come from tax credits, which are received by 3.3M low-paid, working households. The neutral IFS estimate 3M families will be worse off. As if that looming threat wasn’t enough to hurt the government’s image, the Prime Minister promised not to cut tax credits in the final TV election debate.

Suddenly the issue has exploded in the media and parliament. Pressure is coming from across the political spectrum to amend the plan and compensate families set to lose out. So far, Osborne is standing firm but he has taken a huge risk with his image. Being a tough leader is one thing, being a heartless one that hits the poor whilst helping the rich via tax cuts is quite another.

There is another parallel with Brown, whose abolition of the 10p tax band had a similar damaging effect. A change designed to outflank the Tories on Budget day became an almighty row, forcing precisely the sort of rescue package Osborne is now being urged to create. It did profound damage to Brown’s credibility, from which he never recovered. Few ever discussed the subsequent climbdown – the damage was done.

With substantial further cuts looming to public services, Osborne could be in for a torrid couple of years. Many, maybe most, of these 3M families receiving tax credits won’t even be aware of the changes until a letter arrives through the door. Some excitable types even predict the fallout could rival the poll tax protests that hastened Margaret Thatcher’s demise.

Given that government ministers have all voted for and are committed to these cuts, there is one obvious beneficiary. Boris Johnson has fortunately been busy as London Mayor during the austerity era, giving him free rein to speak out. To position himself as the softer, kinder, more electable ‘One Nation Tory’. It is surely no coincidence that Osborne’s closest rival has been among those calling for a re-think or rescue plan.


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