U.K.’s Budget Master Plans for More Pain

Chancellor of the Exchequer George Osborne is the top contender for the prime minister’s job

George Osborne, U.K. chancellor of the exchequer, holds the dispatch box containing the first budget by a Tory-majority government in almost two decades, as he exits 11 Downing Street in London on July 8, 2015.

Photographer: Simon Dawson/Bloomberg

When the Conservative Party won an unexpected majority in U.K. elections in May, it didn’t just mean George Osborne would get to keep his job as chancellor of the exchequer. It also put the keys to 10 Downing Street within his grasp. “Three years ago, before the recovery, his political career was seen as pretty much over,” says Adam Ludlow, a senior consultant at political polling company ComRes in London. “Now that times are good, confidence in him is high.”

Since he delivered his July budget, Osborne has become most bookmakers’ favorite for prime minister when David Cameron steps down sometime before May 7, 2020. “This was more than just a budget—it looked like someone staking out his political territory and testing his leadership chances,” says Wyn Grant, a professor of politics at the University of Warwick.

Osborne’s budget proposed a drastic shrinking of the welfare state and the civil service—£12 billion ($19 billion) in cuts. They come on top of the reductions he pushed through in his first term as chancellor. Osborne told the House of Commons on July 8 that he was proposing “a budget for working people, a budget that sets out a plan for Britain for the next five years to keep moving us from a low-wage, high-tax, high-welfare economy to the higher-wage, lower-tax, lower-welfare country we intend to create.” He wants to increase the minimum wage from £6.50 an hour for workers over 25, to £7.20, starting in April 2016, tax large companies to pay for the training of apprentices, and lower taxes for low earners. Yet the budget takes a bite out of welfare benefits that poor Britons rely on.

It’s hard to believe that this is the same man who was booed by the crowd at the 2012 London Paralympics, at the height of his first austerity program. Many saw it as a disaster for the working class and the handiwork of someone whose father is a wealthy baronet—an aristocrat with no feeling for the needs of ordinary Britons. The news that he couldn’t remember the last time he’d eaten a Cornish pasty, a popular meat pie, made him seem comically, dangerously out of touch.

In 2012 the promised Tory economic revival was nowhere in sight. Polls showed the Labour Party gaining, and Cameron and Osborne looked likely to be one-termers. When growth stalled at the end of 2011 and 2012, Osborne turned the spending taps back on. A range of infrastructure projects, put on hold by Osborne in 2010, got rolling and boosted the economy in time for the election. In 2015 the British economy will grow 2.7 percent, according to the International Monetary Fund. That compares with o.6 percent in 2012, the worst year for the economy under the Tory-led coalition.

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Within hours of the Tories’ victory on May 8, Cameron awarded Osborne, the party’s chief political strategist, the honorific title of first secretary of state, making him de facto deputy prime minister. Within weeks he was standing in for Cameron in the weekly sparring sessions with lawmakers, which the PM describes as the toughest part of his job.

Cameron revealed before the election that he won’t stand for a third term. He may resign after the referendum on Britain’s membership in the European Union, promised by the end of 2017: No one is really sure. Besides Osborne, potential candidates for Conservative Party leadership include London Mayor Boris Johnson, who was, until Osborne’s budget speech, the bookmakers’ favorite.

Osborne has been reshaping his personal image. He’s lost weight by fasting two days a week. His new haircut became the focal point of an interview with Channel 4 News. He’s trying to show he understands the needs of working people. During the election campaign last spring, he visited bakers on a night shift, workers on building sites, and assembly lines at factories.

With a Tory majority, Osborne will likely get his budget passed. The proposed cuts in spending will hit working families on lower incomes the hardest. And while he’s sought to cushion the blow by pairing lower benefits with the minimum wage hike, some economists say that won’t be enough to make up for the loss of tax credits and other benefits such as additional welfare payments for every child in a family. The proposed budget limits those payments to two children. The Institute for Fiscal Studies, an independent research group, estimates the cuts in benefits will leave 13 million families with £260 less a year in their pockets on average.

If this pain delivers jobs, Osborne could be the next prime minister. “George Osborne has always been particularly close to and particularly loyal to Cameron,” says Nigel Lawson, Margaret Thatcher’s chancellor of the exchequer. “I’m sure he’s Cameron’s preferred successor. But both he and the government are going to be judged first and foremost on the state of the economy.”

—With Rob Hutton

The bottom line: Osborne has the lead in the race to be Conservative Party chief and possibly the next prime minister of Britain.

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