Osborne Under Pressure as Revolt Hurts Image of Competence

  • Decision to scrap welfare cuts leaves 4.4 billion-pound hole
  • Duncan Smith resignation plunges Conservatives into crisis

George Osborne, the master strategist who helped engineer the Conservative Party’s electoral victory, may be losing his touch.

Britain’s finance minister defended his budget in Parliament on Tuesday amid growing questions about his political acumen -- and chances of succeeding David Cameron as prime minister -- after a cabinet revolt over his deficit-reduction drive.

With key proposals abandoned, leaving a 4.4 billion-pound ($6.3 billion) budget hole, his reputation for economic competence is faring no better.

“He’s taken a hit at the moment,” said Joe Twyman, head of political and social research at polling organization YouGov Plc. “The question is will that stick?”

The resignation of Iain Duncan Smith as work and pensions minister in protest at Osborne’s cuts to welfare for the disabled has plunged the Conservatives into one of their biggest crises since Cameron took office in 2010. The chancellor’s subsequent U-turn came too late to stop an increasingly acrimonious party rift that’s opened up over the June 23 referendum on Britain’s membership in the European Union.

Missed Targets

It’s the latest in a run of setbacks for Osborne, who has accrued more powers than any other minister except Cameron in recognition of his political nous. In recent weeks, the chancellor ditched plans to scrap pension giveaways for fear of angering wealthier voters; suffered a parliamentary defeat over plans to extend Sunday store-opening hours; and was threatened with rebellions over the taxation of tampons and solar panels.

He has already failed on two of three self-imposed fiscal targets. Instead of falling as promised, net debt is set to rise as a share of gross domestic product in the current fiscal year. Meanwhile, he is poised to breach his cap on welfare spending in each of the next five years.

Now his central ambition to deliver a 10 billion-pound budget surplus by the end of the decade is under greater scrutiny than ever. According to some economists, a legally binding commitment to balance the books by 2020 makes little economic sense and distorts tax and spending decisions. And it could have been achieved without touching benefits for the disabled.

‘Economically Irrelevant’

“Whether or not he just gets to budget surplus in 2019-20 is economically irrelevant,” said Paul Johnson, director of the Institute for Fiscal Studies in London. “If the deficit hasn’t completely gone by then it will, dreadful economic news aside, be nearly gone.”

Taking the unusual step of opening the final day of the budget debate in the House of Commons, Osborne acknowledged that the cuts to disability benefits had been a mistake but stopped short of delivering an apology, as demanded by the Labour opposition. The chancellor spoke hours after official figures showed he’s in danger of overshooting the 2015-16 budget-deficit forecast issued by his fiscal watchdog less than a week ago.

For Osborne, who has reveled in his image as an “iron chancellor,” the backlash has echoes of 2012 when he was forced to scrap taxes on charities, pasties and caravans following the unraveling of a budget dubbed an “omni-shambles” by Labour.

It makes it hard for the chancellor to continue targeting the 120 billion-pound working-age welfare bill to meet his fiscal targets. Last year, he had to abandon controversial cuts to income top-ups for the low paid in the face of widespread opposition.

‘Deeply Unfair’

Branding the latest welfare cuts “deeply unfair,” Duncan Smith said they could not be justified at a time when the government was lowering taxes for people on relatively high incomes. Cameron and Osborne, who both want the U.K. to stay in the EU, said that Duncan Smith -- a leading campaigner to leave -- is seeking to damage the government.

Whatever the reasons, the crisis further undermines Osborne’s hopes of becoming the next Tory leader. Once the frontrunner with bookmakers, Osborne is now behind London Mayor Boris Johnson, a leading “Brexit” campaigner.

No Apology

Labour’s finance spokesman, John McDonnell, repeated calls for Osborne to resign. Ladbrokes Plc narrowed the odds of him being replaced as chancellor to 2-1, or two pounds for every one successfully wagered, while his chances of being the next Tory leader slumped to 4-1. A YouGov poll published Tuesday showed 67 percent of voters, and 69 percent of Tories, now think Osborne is unlikely ever to become prime minister.

Cameron defended his chancellor in Parliament on Monday, saying his budgets had done much to improve the life chances of the poorest and cut borrowing. On Tuesday, Osborne pledged not to seek welfare savings beyond those already announced as he put off further decisions on his budget plans until his end-of-year fiscal statement.

“He’s painted himself into a corner,” said Wyn Grant, professor of politics at Warwick University. “His reputation for good political judgment will be hard to repair, as has that for economic competence."

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