Spending review: Osborne tries to sweeten the pill

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If you want to know if your job is safe, or exactly how much you might lose in tax credits, or whether your local authority will be able to rehouse you, you probably will not find out today.

The chancellor's statement was full of departmental spending totals but was short on specific cuts, though it is clear that welfare spending will be reduced by even more than anticipated in June's emergency budget.

It was really about drawing the big political battle lines between now and the next election.

Image caption,
Mr Osborne said the review would bring "sanity" to the public finances

The chancellor knows that most voters back the cuts overall but that opinion polls suggest they become nervous when the size and scale of them are made clear.

About three quarters of the burden of reducing the deficit will be met from cutting spending, and around a quarter by tax increases. This latter topic was barely touched upon on Wednesday but it will dominate the headlines when VAT goes up next year.

But the chancellor had another ratio in mind. He opted for approximately a 50/50 split between good and bad news.

Or, put another way, for every slap in the face he offered a helping hand.

So half a million public sector jobs are under threat. But he emphasised that headcount could be cut by "natural wastage" - rather than talking up redundancies.

He reduced the transport budget and told us rail fares would rise by three percentage points above inflation.

But some big projects - such as London's Crossrail, the Midlands' tram scheme, and the tarting up of the Tyne and Wear metro, would go ahead.

Council tax credit could go down and educational maintenance allowances - mostly spent on teenagers - would be "reformed" - but child benefit would not be cut off at age 16 after all.

It is not surprising the bitter pill was sweetened.

Privately Conservative backbenchers have been concerned that the government's hairshirt was beginning to bristle - too much talk of cuts, too little about the potential benefits.

As one prominent figure said to me: "When a supermarket cuts costs, it doesn't put a big banner in the window saying how many staff they have sacked, they tell you the price of milk has gone down."

The government's spending will still go up in cash terms.

It will only be cut when inflation is taken into account - though as Labour's Alan Johnson almost correctly pointed out, that will still be the biggest cut in "living memory" in real terms. (Older readers might just remember the austerity of the 1920s).

So given that real terms cuts will take place, a lot of attention was paid to symbolism.

The government knows that while the need for cuts is generally accepted, voters want these to be done in a way that is fair.

Defensive posture

The chancellor claimed that those with the broadest shoulders would bear the greatest burden - hence a freeze on the civil list for the Royal Family.

There would be investment in the next generation, with schools spending in England going up, not down.

Unproductive spending - welfare and waste - would take a far harsher hit.

But even the government's figures suggest the spending review would adversely affect those with incomes in the bottom 10% more than many of those further up the earnings scale.

The chancellor had two other political tasks to complete.

He wanted to emphasise that the government's course of action was "unavoidable" and not as Labour claims, an ideologically driven attack on the size of the state.

Image caption,
Cuts have already sparked protests

Hence the references to getting the country out of the "economic danger zone" - restoring confidence in the markets - and to pulling Britain "back from the brink" of financial disaster. This was essentially a defensive posture.

But he also subscribed to the view that the best form of defence is attack.

He tore onto Labour's territory, suggesting that his levy on banks would raise more cash than Labour's tax on bonuses.

And he suggested, with extra welfare savings and less spent on debt interest than anticipated, his departmental cuts would be less than Labour's would have been.

The opposition immediately saw this as a potentially toxic myth and started firing off emails to journalists saying they would cut by roughly half as much as the government.

The new shadow chancellor Alan Johnson had admitted that he did not have much of a background in economics. But he is a very experienced and capable parliamentary performer.

Lib Dem pledge

So he immediately pointed out that because Labour had accepted some of what the government is doing - on tax increases and welfare cuts - in fact Labour would hit departmental spending less than the government.

But he faced hoots of derision from the government benches when he acknowledged that the debt must come down and cuts were necessary - the coalition wants more detail from Labour on what exactly they would cut.

The shadow chancellor also conceded for the first time that Labour would back the government in ring fencing the NHS budget in England - a stance criticised by the previous Labour health secretary Andy Burnham.

Usually on similar occasions, the Lib Dems would have had a speech of their own setting out their approach to spending .

But as partners in a coalition, their frontbench was reduced to nodding in agreement when the chancellor spoke.

Some of their activists are likely to be uncomfortable with the scale of the cuts and Nick Clegg has written to his MPs explaining "our values and priorities are written through the (spending) review, like the message in a stick of rock".

A section of the chancellor's speech seemed to be devoted to answering the question "what's in it for the Lib Dems?" with a stirring eulogy to the pupil premium which was the centrepiece of the party's manifesto.

But George Osborne was devoting £7.5bn to a "fairness premium" - which would also encompass help for poorer pre-school children and for students - not the £10bn the Lib Dems had advocated to help more disadvantaged school pupils alone.

Fairness is of course often in the eye of the beholder - hence the brouhaha over the loss of child benefit for relatively well-off parents.

And both the Opposition and the interest groups will pore over the more positive aspects of the spending review to find out if a more negative narrative is being concealed.

For example Sure Start schemes appear to have protection in cash terms, not real terms. Police "visibility" was said by the chancellor to be a priority - not police numbers.

Equally many others - centre-right think tanks and some business leaders among them - will point out that any failure of the chancellor to hold his nerve on spending cuts would have unsettled the markets and made bigger reductions necessary later on.

It may take some time before the full consequences of the review are known. Downing Street stresses that this is the start of a four-year process and some departments are yet to work out what jobs to cut and which functions to discontinue.

Most uncommitted voters will probably reserve judgement until they know how they are affected and see whether the economy continues to pick up or slides back towards recession.

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