WHO says the life of a Chancellor of the Exchequer is an easy one? Not long ago, George Osborne was being touted as the likeliest Tory to replace David Cameron. This week, though, the political wind has shifted dramatically against the Chancellor. When he stands up to deliver his Comprehensive Spending Review on Wednesday afternoon, Gideon Oliver Osborne – the George was a later invention, so as to affect a more common touch – will have his work cut out.

Problem #1: the Chancellor has staked his reputation on cutting another £32 billion from an already denuded public purse. This will not prove easy to deliver. A lot of Tories have recently woken up to the fact that G. Osborne got his sums wrong regarding proposed cuts to working tax credits. On Budget Day last July, George swore on a stack of official Red Books that forcing firms and councils to pay a higher “national living wage” would protect most families from the consequences of his axing £4.4bn from the tax credit bill.

It didn’t take long for this nonsense to unravel. It soon became apparent that the timing, buying-power and distribution of any such wage increase was completely out of sync with the instant cuts imposed on family budgets. Some 3.3 million low-income, working families are in line to lose an average of £1,300 in credits.

The reduction of local spending power in inner city economies hurts Tory constituencies as much as Labour or SNP ones. A backbench Conservative revolt against the Treasury’s “back of a fag packet” calculations plus a negative vote in the House of Lords has forced the Chancellor back to the drawing board.

Problem #2: Osborne finds himself with less tax revenues than he expected. True, the British economy is still growing after a fashion. But only because consumers are getting themselves into more debt.

What Osborne has singularly failed to do is boost UK productivity significantly or “rebalance” the economy towards manufacturing and exports. At the same time the global economy is slowing and deflation is squeezing the ability of UK firms to raise prices or generate profits. Result: official figures in October show a marked deterioration in Treasury receipts for major taxes, including income tax, national insurance, VAT and corporation tax. Income from these revenue streams is now falling well behind target.

In fact, the Chancellor could end up having to borrow more than the £69.5bn he has pencilled in for 2015-16. Some City analysts are predicting Osborne might need to raise an extra £10bn. That would be very embarrassing. It would also put in jeopardy the Chancellor’s plan to eliminate the deficit completely by 2020 – needed to burnish his credentials as David Cameron’s successor.

Problem #3: the Paris terrorist attack has (again) highlighted the dangers inherent in Tory defence cuts. Now Osborne is going to have to make amends. The Tories a have a richly undeserved reputation for being strong on defence. The opposite is true. In 1981 Defence Secretary John Nott wielded a classic Tory budget axe to defence with his plan to scrap the Royal Navy’s aircraft carriers and a fifth of its destroyers and frigates. This was a cue to the Argentine junta to invade the Falklands. After the islands were recaptured, Nott had to resign in disgrace.

You might think a great admirer of Mrs Thatcher like George Osborne would have heeded the lesson of John Nott? On the contrary, in 2010 our Chancellor presided over an astonishing assault on the UK’s ability to defend itself. HMS Illustrious, the Royal Navy’s only carrier was mothballed and the RAF’s Harrier jump jets flogged off to the US Marine Corps.

Britain’s entire fleet of Nimrod maritime patrol aircraft were cut up, leaving the Russian navy free to sneak up the Scottish coastline undetected. Since the defence cuts were made in 2010, we have seen Moscow’s annexation of the Crimea and the rise of Daesh.

On Sunday, an embarrassed Osborne announced the Navy would get more American jet fighters to deploy on its new aircraft carriers.

Just as well – only having eight planes for two whole giant carriers seemed daft logic, even for our Mr Micawber of a Chancellor. I have deep misgivings about David Cameron’s rush to bomb Syria, but equally he and the Chancellor have been responsible for a catastrophic undermining of security – all in the name of saving pennies.

What budget options does Osborne have this Wednesday? From the ideological perspective, he has boxed himself in. He is committed to finding an extra £20bn of real departmental cuts, in addition to taking £12bn from the welfare budget, and squeezing £5bn from a crackdown on tax avoidance. Yet even the Tory leader Oxford county council – David Cameron’s own local authority – says all the “easy” cuts have all been made. NHS spending may be ring-fenced, with £8bn extra promised by 2020, but Osborne is under heavy pressure to avert a winter disaster by front-loading the money. That leaves him with three possibilities.

Firstly, to find sneaky new taxes or charges that fall on the poor and vulnerable. A clue to watch for on Wednesday: will the Chancellor fail to publish the chart that shows the impact of his measures on different income groups. Osborne doesn’t want to admit that his changes will increase inequality.

The second option is to delay achieving a budget surplus yet again – theoretically that would give the Chancellor an extra £10bn to play with. The problem is that this notional £10bn could disappear if tax receipts underperform and planned borrowing goes up in cash terms. But that is hardly a disaster. Currently, borrowing is running at around 4 per cent of GDP. As long as the UK’s economy is growing at roughly the same rate – which it is – then the burden of public sector debt remains the same. That should keep the City happy. However, my guess is that stubborn Mr Osborne will still try to shoot for a (modest) surplus, regardless of the practicality.

The third option is very worrying: namely, it is in the Treasury’s interest to give the Scottish Government greater responsibility for funding itself, while reneging on the commitment enshrined in the Smith Agreement that this would not be to the financial detriment to either side. Osborne is reluctant to agree a fair “fiscal framework” with John Swinney – one that preserves the core Barnett funding mechanism adjusted for new Scottish income tax powers. Instead, he and Ruth Davidson want to manoeuvre the Scottish Government into being wholly responsible for “topping up” the tax credit cuts by charging Scottish taxpayers, while mendaciously reducing agreed Barnet consequentials.

Should that be Osborne’s plan, the Scottish Government would be well within its rights to deny legislative consent to the Scotland Bill, until such time as the Conservative Government sticks to the letter of the Smith Agreement.

The latest opinion poll indicates the Chancellor’s popularity is waning: 44 per cent of people have an unfavourable view of him compared with only 25 per cent favourable. Boris Johnson’s numbers are almost the reverse, while Theresa May favourable are roughly equal to her unfavourables. Wednesday is make or break day for George Osborne.


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