Читать книгу Cameron at 10: From Election to Brexit - Anthony Seldon - Страница 22

May–October 2010

Cameron’s first twelve weeks in power are dominated by economic concerns. He and George Osborne had carved out Plan A over the preceding year and a half. They now have to enact it.

Since being appointed shadow chancellor in May 2005, Osborne had observed the operation of the Treasury carefully, looking with alarm at how he believed Gordon Brown had denuded it of some of its best people. In the long run-up to the general election, Osborne and his then chief of staff Matthew Hancock held conversations with Nicholas Macpherson and other senior Treasury officials. They regarded Macpherson as ‘Gordon’s man’, and their initial impressions were not positive. They wanted a more buccaneering permanent secretary heading the Treasury. Macpherson’s departure was one of three intentions that Osborne’s tight group shared amongst themselves; an Emergency Budget and a probable VAT increase are the others. Osborne wanted his top official to be Jeremy Heywood, who had served as principal private secretary to Conservative chancellor Norman Lamont from 1990–3. When Osborne invited him to dinner before the election, they chimed immediately. The doyen of the Civil Service, Heywood had served both Blair and Brown as the senior official at Downing Street. He knew the territory inside out.

Yet the more the Conservatives saw of Macpherson in their pre-election talks, the more they rated him. They were impressed by his grip and understanding. ‘Getting this transition right is the most important job I have to do in the rest of my career,’ Macpherson told them. He had been principal private secretary to the chancellor at the time of the 1997 general election and oversaw the difficult transition from Ken Clarke to Gordon Brown. No other figure serving in Whitehall had his direct understanding of Treasury transitions.

Soon after he becomes chancellor, Osborne begins to see Macpherson as an asset and an ally. Moreover, Cameron grows too dependent on Heywood’s advice at Number 10: he doesn’t want to lose him. Osborne is also disconcerted by some Treasury voices who counsel him against Heywood: they criticise him for effectively running a shadow Treasury operation in Number 10 under Brown. Alistair Darling’s strong advice to Osborne – the two men like each other – is to keep Macpherson.

Not since they prepared for power under Thatcher in 1979 has an incoming Conservative government had so much trepidation of the Civil Service. Osborne and Michael Gove, a close ally of Cameron’s and recently appointed Education Secretary, are the most wary: the former thaws, but very significantly, not the latter. Macpherson and Treasury officials throw themselves into the process of identifying spending cuts, and Osborne realises that Brown and Ed Balls were the authors of Treasury profligacy over the previous few years. Osborne’s team soon dub Macpherson ‘Mr Fiscal Conservative’. They retain doubts about Gus O’Donnell, Macpherson’s predecessor at the Treasury, who they know does not sympathise with their core economic judgement. Indeed, O’Donnell worries that Macpherson and the Treasury are so keen to show the new kids on the block their readiness to make cuts that they risk going much too far.

Osborne’s planning takes a further dent. He has anticipated Philip Hammond, the shadow Chief Secretary, becoming a kind of ‘super Chief Secretary’ after the election, taking over much of the work on spending and efficiency, and even day-to-day running, leaving him free to work with Cameron from Number 10 and to range widely across government policy.1 The team had been struck by how under New Labour, the post of Chief Secretary had become effectively Number 10’s spy in the Treasury, so great was the mistrust between Downing Street and the Treasury. The fact of coalition, and the need to find posts for senior Lib Dems, rules Hammond out, to his deep chagrin (he is given Transport instead). In his place, David Laws, hitherto Lib Dem education spokesman, is appointed. Laws is philosophically in tune with Osborne’s agenda, but he will not be freeing up Osborne to rove as Hammond would have done.

Laws is immediately struck by the closeness of the relationship between chancellor and prime minister, with constant messages to and fro about the cuts: ‘We kept getting detailed and clearly quite personal feedback on some parts of work. The PM stress-tested the whole thing in quite a lot of detail. I had imagined he would have outsourced it completely to George,’ he says.2 The political impact of changing the reimbursement rate of mortgage subsidies is typical of the issues that Cameron raises. ‘I’d been used to the Blair/Brown era, where Brown would say to Number 10, “I’m in charge, here’s a copy of what I’m going to say. Don’t give me any feedback.” Here was a relationship where David clearly had a lot of trust in George, but expected to be involved and where we had to demonstrate that the judgements that we were making were sensible.’3 Treasury officials are equally amazed at the intimacy and trust, as is Heywood himself, who has never seen a PM/chancellor relationship so close. From the very first days in power, it is apparent to all that this is going to be a very different era from the acrid relationships between Blair and Brown, and then Brown and Darling. Different too from the Conservative experience before 1997: witness Thatcher’s fraught relationship with Nigel Lawson, and John Major’s with Norman Lamont, both ending in departures of the chancellors.

The success of the government over the next five years will depend utterly on the two principals’ closeness. Cameron is akin to the older brother and Osborne the younger. Osborne is the metropolitan liberal thinker, a product of the edgy hothouse St Paul’s School; Cameron is more laid-back, more upper middle class and more cautious, a pragmatic Tory squarely in the tradition of Macmillan and Baldwin. Both are skilful tacticians, but Osborne is more attuned to presentational nuance, immediately sensing the advantages to the Conservatives of being in coalition with the Lib Dems and ensuring the economic strategy is the government’s leitmotif. ‘We’re not going to waste time having divisions between chancellor and prime minister,’ Hilton says on the eve of the general election. ‘George will be embedded at the heart of Number 10. They will be inseparable.’4 And so it proves. Both Cameron and Osborne know that where PMs and chancellors have got it wrong in the past, two factors have been responsible: disagreement over policy, as between Thatcher and Lawson, and rivalry for the top job, as with Blair and Brown. Both are utterly committed to avoiding the same mistakes. Both know who is the senior.

Osborne had spoken to Treasury officials before the election about a proposal to launch the Office of Budget Responsibility (OBR), an independent body to oversee the public finances. The idea was influenced by advice from economists Sir Alan Budd and Professor Kenneth Rogoff, which Hancock worked up in an announcement at the 2008 party conference – when it was drowned out by noise from the financial crisis.5 At the press conference on 17 May 2010 launching the OBR, Laws happens to mention that outgoing Chief Secretary Liam Byrne has left him a cavalier note, with a stark message: ‘I’m afraid there is no money.’ Byrne’s throwaway line immediately becomes a national story. Andy Coulson sends an urgent request for a copy of the original being demanded by the national newspapers. Laws confesses to Osborne that he had only mentioned it for light relief and what should he do? ‘If you don’t want to give the letter to Downing Street, don’t give it to them,’ Osborne tells him, so he doesn’t. Byrne’s message duly appears in the press, but not the letter itself, though it would eventually see the light of day, principally as an effective prop for Cameron during the 2015 general election campaign. In a similar spirit of collegiality to his new partners, Osborne offers Nick Clegg to put a stay on cutting an £80 million loan for Sheffield Forgemasters in his constituency, promised by Labour in March, to enable the company to continue manufacturing. Determined to show that he is sharing the pain, Clegg waives his offer. Clegg’s decision causes considerable upheaval in his constituency.

On 24 May, Osborne and Laws announce Plan A’s hors d’oeuvre, the initial £6.2 billion of immediate, in-year cuts.6 These had been foreshadowed in the Conservative manifesto, and the Treasury has been working on them during the campaign, so they are processed smoothly through the machine. The precise figure emerged after Darling’s last Budget in March 2010: it was needed to pay for reversing the jobs tax and to be seen to be ‘robust but not reckless’. One of the officials working on the cuts is Chris Martin, who later succeeds Heywood at Number 10, his deft work having impressed Osborne. Peter Mandelson, éminence grise to both Brown and Blair, cautioned against the risky strategy of announcing immediate cuts: but Cameron and Osborne are very sure they want to be upfront and explicit about precise figures in the general election.

Cameron and Osborne approve of the input of Laws over their first taster of cuts. Osborne misses Hammond, though finds Laws as ‘dry as a bone’ and ‘more fiscally conservative’ than any of them. Laws deals firmly with the unprotected departments including the Department for Communities and Local Government (DCLG), Culture, Media and Sport (DCMS), Work and Pensions (DWP), and above all with the Home Office. After long torrid discussions, Home Secretary Theresa May settles in the nick of time – at 11 p.m. on Friday 21 May.7 Laws dispels altogether any apprehensions that the Lib Dems cannot take the heat of delivering Plan A on the ground. ‘Lib Dem support for fiscal consolidation was important, because it broadened the legitimacy for the strong action that was taken and it underpinned the whole government,’ says a senior Treasury official.

Things are going well for Osborne. Treasury officials are seriously warming to their new chancellor. After thirteen years of being dictated to, some say bullied, by Brown and Balls, they now have a chancellor who is powerful, but also an agreeable colleague: ‘We were very excited by the new atmosphere. Osborne wanted to know what we thought and was genuinely interested. He was comfortable with us disagreeing with his arguments and being challenged on his thinking. It was pretty refreshing after what had come before,’ says one senior mandarin.

On 29 May, with discussions in full swing, David Laws resigns following revelations in the Daily Telegraph that he claimed £40,000 of parliamentary expenses to pay rent to his partner.8 This is a major blow to Osborne: he has lost Hammond and now Laws within the space of a month. Laws is promptly replaced as Chief Secretary by Danny Alexander, chief of staff to Clegg in the run-up to the general election. He had been appointed Secretary of State for Scotland after the election but serves for just seventeen days. Rather than a fatal blow to the coalition’s economic policy and to the cohesion of the two parties, it proves heaven-sent serendipity. Alexander soon proves as dry as Laws, some think even drier, and combines toughness with humanity. He rapidly forms a close relationship with Osborne and Oliver Letwin; a relationship which proves of enduring value – existential value, perhaps – to the coalition over the years.

Within hours of his joining, the Treasury inform Alexander that there is more scope for cuts, so eager are they to show the financial markets that the government is prudent and serious, while Alexander initially argues for fewer. They settle closer to the Treasury end of the argument. O’Donnell is rare amongst officials in cautioning against too big cuts because of his scepticism about government’s capability to deliver them. A series of meetings of the big four – Cameron, Clegg, Osborne and Alexander, later to be institutionalised in an arrangement unforeseen by the Coalition Agreement as ‘the Quad’ – finalises the decisions in the run-up to the Budget.

Osborne and his team are eager to get on with reforming the banking system. In their pre-election discussions with Macpherson, however, they decide to hold back from immediate implementation, and to produce a White Paper on financial reforms that leaves the door open. After discussion with Mervyn King and others, Osborne convinces Lib Dem Business Secretary Vince Cable that the Bank of England must have oversight of the banking system and that there is increasing recognition across the world that banks of last resort have to be in the same body as central banks. ‘The return of all those powers to the Bank was quite striking,’ says the former deputy governor Paul Tucker. ‘It was to become more powerful than it had been for eighty years. Constraints and good design were therefore imperative.’9 On 16 June, Osborne announces that he will set up the Independent Commission on Banking under the chairmanship of Sir John Vickers. The Treasury, nervous that the new government might be overly quick to regulate the City, thereby damaging its competitiveness, are happy with the delay.

The Conservatives had promised the Emergency Budget within fifty days. It comes on 22 June, after just forty-one days. The key announcement is the commitment to a clear deficit reduction plan over the life of the parliament, and the confirmation of what the figure will be. Officials in the Treasury and Cabinet Office continue to be struck by the readiness of the prime minister to be so supportive of the chancellor and Treasury. Back in mid-May, the Treasury had presented their proposals for the pace at which the deficit should be reduced, offering Osborne a set menu of cuts. The Budget presented on 22 June is almost identical to recommendations laid out in the Treasury’s initial papers.

The Quad proves its worth in the run-up to the Budget. Under normal conditions, the chancellor and the Chief Secretary, with the PM, are the figures who sign off on the details of the Budget: not even the Cabinet are told until the day the speech is delivered. But Britain now has a coalition, and the Chief Secretary is from another party, as is the deputy prime minister. The Quad therefore remains after the Budget, and reaches maturity during the Autumn Statement. It does indeed become the key buckle binding the coalition together.

Clegg worries that the cuts might compromise the delivery of public services: Alexander reassures him that quality will not be compromised.10 Osborne takes his Treasury team away to Dorneywood, the eighteenth-century Georgian house used by the chancellor, to analyse the proposals. They realise that they are about to be the authors of the toughest deficit-reduction plan ever enacted in peacetime Britain. It is unknowable how it will work out in practice, whether the country will accept it, and whether they are cutting too quickly or whether they should be going even further.

Savings are to be found mainly through cuts, but the Emergency Budget also brings in tax increases (80% of the deficit reduction is to come from cuts, 20% from tax increases). Prime amongst them is the plan to raise VAT from 17.5% to 20%. This is potentially very difficult. The Lib Dems are worried, as the change is regressive. ‘It’s difficult and damaging,’ Clegg tells Osborne, ‘but I can see that it has to be done.’11 Further debates take place on whether the VAT increase should come into force immediately: the decision is taken to delay it to January 2011, principally for administrative reasons. The Treasury is surprised by how political Osborne is. ‘It is clear that they don’t have much time for tax credits,’ says an official. Osborne and his team indeed regard Gordon Brown’s innovation as overly complex and riddled with perverse incentives. They decree that they will be much less generous. Housing benefit equally will be hit, the Treasury believes for political reasons again. The Conservatives are clear, however, that they will not touch pensioners.

Osborne wants to insert the controversial line into his speech, ‘when we say we are all in this together, we mean it’, a phrase he had used in October 2009. The Treasury accept that Osborne is serious about not hurting the poor more than the rich. Teams are tasked to model the impact of the policy changes, though they must rely heavily on guesswork. The day before the Budget, Osborne, Hancock, Harrison and Treasury civil servants work late into the night. Officials have a palpable sense that history is being made, and that they are now in a completely different era from New Labour.

That morning, 22 June, the newspapers make their predictions about the Budget. ‘The most draconian in thirty years’ is the view of the Daily Telegraph. ‘The most brutal Budget in a generation’ predicts the Financial Times. Osborne, normally the epitome of confidence, is apprehensive as he rises to give his speech. But public opinion has been moving his way. Polls by both Ipsos MORI and ICM in the forty-eight hours leading up to it show that the coalition has succeeded in shifting the public mood from opposition to spending cuts to a cautious acceptance.12 Osborne and his team are relieved too at the Budget’s reception, both amongst the commentariat and in the country. The ‘c’ word proves after all not to be toxic.

Long before Osborne delivers the Emergency Budget, officials deep inside the Treasury had been working away on the Spending Review, to be announced in the Autumn Statement. While the Budget outlines the overall figure for the reduction, the final detail about departmental cuts will appear in this Spending Review. As one senior Treasury official put it, these ‘spending decisions reframed the question of what the UK could afford’. It is a tightly controlled operation: besides Treasury officials, and the voices of Osborne and his aides, the other heavyweight input comes from Danny Alexander, who oversees much of the detail. Cameron and his team at Number 10 follow discussions closely, but with the exception of defence, they leave the work very much to Osborne and the Treasury team. Although the Budget cuts are agreed relatively smoothly, the Spending Review negotiations sees the first skirmishes in a five-year battle between Work and Pensions Secretary Iain Duncan Smith (IDS) and Osborne. IDS will not agree to any cuts unless £2.5 billion is ploughed back in to fund Universal Credit, the centrepiece of his reform agenda.13 It is a sticking point for much of the negotiations and Osborne only reluctantly agrees in September at the eleventh hour.

Welfare is highlighted in the Budget as it will be cut particularly heavily, by £11 billion – largely through changing the measure of inflation used for welfare payments from the retail price index (RPI) to the consumer price index (CPI) – a hugely significant change. The NHS, unlike welfare, is a protected area. In Opposition, the Conservatives had been unequivocal in maintaining that the country could trust them with the NHS, and that they would protect real-term increases in NHS spending. Cameron and Osborne knew the general election could not be won on the NHS, but it could be lost on it, and they had been adamant that the area was sacrosanct. Protecting the schools budget is more contentious; Clegg and Alexander argue strongly for it, as does Education Secretary Michael Gove. Osborne assents, even though there is not the same political need to favour schools as the NHS. International development is the final protected area, primarily at the instigation of Cameron himself. When challenged over the years about the commitment to spend 0.7% of national income on aid, Cameron is apt to get testy: ‘It is one of the few issues on which he will lose his temper. It is a mixture for him of genuine compassion with political positioning of his party.’ A debate takes place whether the 0.7% should apply immediately or be delayed to 2015: they compromise on 2013.

Tuition fees for university students are to rise, despite a clear Lib Dem pledge to oppose any such increase. Osborne recognises that it will be a significant hit for Clegg (he tells his Tory staff, ‘They are mad to let us do this’), and offers to pass on the proposal telling him the change is not imperative. Clegg rejects the offer, a momentous decision for the future of the Liberal Democrats, believing again that the change is part of the necessary punishment. Clegg, Alexander, Cable and Laws had all tried and failed to change Liberal Democrat policy on tuition fees. None of them realise fully what turbulence the judgement will cause their party across the country. Debate also takes place over defence cuts. Defence is an article of faith to the right of the Conservative Party. But Cameron and Osborne are determined to plug the black hole in the defence budget. Clegg and Alexander agree the MoD is overprotective of its spending, and inefficient.

August is normally a quiet month in the Treasury, but this August the teams working on spending cuts are buzzing with activity. They are spurred on by radical thinking from some of the department’s young Turks as well as a crowd-sourcing exercise, pioneered by Steve Hilton, which solicits thousands of responses from the public on where savings can be made. By early September, it is clear where the main cuts will fall. Officials remain pleased to be working for a chancellor who knows what he wants to do. Osborne may not have developed any overriding philosophy for his cuts programme, yet he is certainly steely in his judgements. He and Alexander have been struck by Macpherson’s commanding advice: ‘You set the tight overall budgets, and the departments will find the savings. You can rely on the departments to ensure that they will get the money to the front line.’ It emboldens them to cut more deeply. They are impressed by the Treasury’s determination to enforce its will across Whitehall.

Cameron and Osborne had decided in Opposition that they wanted to have a major review of Britain’s foreign and defence commitments. Defence spending, they thought, was excessive, capricious and unrelated sufficiently to Britain’s strategic requirements and economic capability, all of which was exacerbated by a very badly run department. After the general election they move swiftly to set up the Strategic Defence and Security Review (SDSR), to run alongside the Spending Review, announced on 12 May in the Coalition Agreement. They know they will have a fight on their hands and that the defence and diplomatic communities will resist cuts fiercely, but they refuse to accept that defence cuts would lead to a diminution of Britain’s role in the world.

Cameron becomes closely involved in the SDSR personally because, as PM, he takes his responsibility for defending the nation extremely seriously: he knows it is a very sensitive area politically for his party, and he has to handle Liam Fox, a senior figure and former leadership rival, with care; but not so gently that he doesn’t insist that the SDSR is managed not by the MoD but by the National Security Council (NSC), a new body set up after the election to co-ordinate defence and security policy, operating out of the Cabinet Office. Once the SDSR begins, Osborne grows still more impatient with the military, whom he regards as guilty of special pleading: without Cameron’s restraining influence, the cuts would have been even deeper.14 Nothing prepares either man fully for the can of worms that they are about to open. The three services fight and fight each other over men and equipment, with long battles over aircraft carriers, jets, tanks and other hardware. Cameron and Osborne use the SDSR process to centralise power and decision-making in the NSC structure, utilising the full force of their election mandate to drive change through. The MoD fights hard, with Fox regularly articulating the anger of the defence community at having to take so much of the pain. He is angry that the protected areas – Health, schools, and International Development – escape free.

The SDSR is announced alongside the Spending Review. The MoD will face cuts of some 8% in real terms: Cameron announces the department is too big, too inefficient and is spending too much money.15 The strategy must shift, he says, away from military intervention towards conflict prevention, with a new focus on unconventional threats. The army will be reduced by 7,000 to a front-line strength of c.95,000, the Royal Navy by 5,000, to 30,000, and the Royal Air Force by 5,000 to 33,000 by 2015.16 The SDSR generates enduring bad blood, less from the Foreign Office and intelligence communities than from the MoD, especially from Fox and chief of the general staff, David Richards. Number 10 is furious at the briefing from the MoD to sympathetic journalists and to backbench Tories with service backgrounds. The SDSR does, however, achieve its desired end of savings, even if it creates bitterness that spills over in years to come, and is widely criticised for being rushed and insufficiently strategic.

Reorganisations have been a traditional way that governments have found money at times of need. Cameron is insistent, however, that there are to be no changes to the machinery of government. He has an instinctive dislike of organisational change in Whitehall, believing that it will not achieve efficiencies. The decision is equally taken not to embark on a series of privatisations, as Margaret Thatcher had done so successfully during the 1980s.

On the domestic front, some ministers argue hard against the Treasury, notably IDS at DWP, and Theresa May at the Home Office. None come close to resignation because they all understand the need for cuts; but equally none think that their own department should be the one to be cut heavily. Caroline Spelman claims she has done well for DEFRA by settling earlier, while others, like IDS, claim their department has benefited from his fighting (his relationship with Osborne reaches a new low just prior to the Autumn Statement). Local government, overseen by Eric Pickles, takes a heavy burden of cuts – ‘too severe’, Danny Alexander later thinks. The Foreign Office has its budget cut by 24% and Whitehall diplomats are reduced, but it is less severe than it might have been. Senior officials say that ‘Cameron fell over himself’ to ensure William Hague, his de facto deputy, is well done by. When the process is eventually complete, Alexander is able to demonstrate that each department’s final settlement is no more than plus or minus 1% from the figures that had been written down in July.

At 12.30 p.m. on Wednesday 20 October, Osborne rises for the Spending Review, billed as ‘the biggest UK spending cuts for decades’.17 ‘Today is the day when Britain steps back from the brink, when we confront the bills from a decade of debt … it is a hard road, but it leads to a better future,’ says Osborne in his opening remarks.18 The key elements are the likely 490,000 public sector job cuts, the average cuts of 19% in departmental budgets over four years, and the intention to eliminate the structural deficit by 2015. A further £7 billion of savings are to come from the welfare budget in addition to £11 billion announced at the Budget, the retirement age is to rise from sixty-five to sixty-six by 2020, police funding is to be cut by 4% a year and council spending by 7.1% every year for four years.19 Osborne’s hand is seen in most of these decisions, including details such as his determination that the science budget is spared and the Francis Crick Institute, a research centre planned to be opened in 2015, should not be axed. Equally, he gives his assent for the Crossrail project in London, which was nearly cancelled.

Alan Johnson, Labour’s shadow chancellor, describes the Tories as ‘deficit deceivers’ and defends Labour’s record of bequeathing a debt interest level 15% lower than that inherited in 1997 despite a world recession.20 But while Osborne and his team are confident that the cuts are deep enough to reassure the bond markets, they are less certain about the social impact of their measures. To Lena Pietsch, Clegg’s press secretary, the Spending Review is the moment when the five-month honeymoon for the coalition government comes to an end: ‘To begin with, there was huge excitement and relief that the long election campaign was over. All of a sudden, the narrative became about cuts, anger, demonstrations. The atmosphere became very different by the autumn.’21 She is thinking in particular of the large and angry student demonstrations against the rise in university tuition fees on 10, 24 and 30 November. These are followed by a further protest when the reform passes through the House of Lords on 9 December.22 Although the Lib Dems feel the full brunt of the ire over tuition fees, the coalition’s long honeymoon is not yet at an end. Were the cuts too great? Will the apprehensions of Treasury officials come true? Or did Osborne miss the opportunity to cut still more deeply when he had the political capital and support to do so? The new government has passed its initial tests; the heat will come later.