Good morning. The dust is settling on the spending review, and it has survived first contact with the IFS: there's no sign of it falling apart so far. Conservative MPs who in the past have been swift to criticise the Chancellor are keeping their counsel. Mr Osborne is setting the terms of the debate even if, as Fraser Nelson says, he doesn't seem to quite realise it yet.
But the black hole in the British finances remains - andthe IFS have said that the Government may have to raise £10 billion in tax rises after 2015 to achieve its delayed objective of closing the deficit. The think tank's preferred method is stealth: the process of "fiscal drag" whereby tax bands remain unchanged, drawing more people into higher-rate tax. It's been done before, and you can detect at Westminster a sense of inevitability that whoever is in power after 2015 will have to jack up taxes yet further. It's worth pointing out though that the Treasury is making confident noises about being able to achieve yet more savings in the years after 2015/16 on the scale needed. The stealth taxes scenario is just one - albeit influential - think tank's idea.
Of course some of this could be avoided if only we could get some consistent growth. This is what Danny Alexander's statement on “investing in Britain’s future” yesterday was all about. The FT (£) has a useful summary of the measures, with steps to improve roads and railways the most prominent, though it's worth remembering that, in real terms, spending on infrastructure fell in 2015/16.
As ever when something goes well, a lot of politicians want to take credit. But also worth noting one of the unsung heroes: Sharon White, the Treasury's director general of public spending, is credited in The Guardian as being the brains being the spending review.
A LITTLE HOUSEKEEPING
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IT WAS ONLY A BURGER...
"Shamburger"-gate continues. The Sun reveal that George Osborne's claim that Byron delivered to Whitehall was not quite true:
"Burger and lies". Of course, the real issue, as I tweeted when he said it in his Commons statement, is to take a man's money then joke about his weight was a dangerous thing for George Osborne to do. No wonder that Eric Pickles has got a little revenge by tweeting a photo of himself having a salad for lunch with the accompaniment "Putting final touches to the LGA speech".
Remember that double-dip recession? Turns out it didn't actually happen: the economy remained static in the first quarter of 2012, rather than declining by 0.1 per cent. It doesn't sound a big difference, but the symbolic importance can't be underestimated. There is further bad news for Labour as GDP is now estimated to have fallen by 7.2 per cent in the post-2008 recession, compared to 6.3 per cent as previously thought. Perhaps that's what led to Ed Balls jumping a red light as he left Parliament.
Dave has one overwhelming challenge from the EU leader summit in Brussels: to ensure the rebate he successfully protected in Februaryremains. If the rebate is cut, as France and Italy would like it to be, Britain would have to contribute an extra £300million towards farm funds for the new member states. A reminder, if one were needed, that reforming the EU is a fight worth winning.
The question “are you serious?” would not just be one the voters asked of Boris: it would demand an answer of a party that thought an entertaining new leader would be enough by itself to win them over.
Imagining Boris as leader is certainly a fun game. But he will be acutely aware of becoming another Heseltine - a charismatic blonde the party never gets past flirting with.
LABOUR'S FALKIRK MESS CONTINUES
Labour's unseemly brawl over the selection of their candidate for Falkirk only intensifies. Len McCluskie is now threatening to take legal action in the ongoing row, reports The Guardian. Peter Mandelson's wish that trade unions "should publish and be transparent about the process by which they decide which candidates to nominate and support", as he writes for Progress, seems rather ignored.
TWEETS AND TWITS
Chris Bryant doesn't think Boris will be PM.
@ChrisBryantMP: The Ashcroft poll basically tells us what we already knew about Boris: good for politics as show biz, dangerous if he ran the country.
BREAKING NEWS: This morning has been dominated by reaction to the Comprehensive Spending Review. On the Today programme, Ed Balls was unable to say whether or not Labour supported the mandatory seven-day wait before people can claim benefits, saying it was too early to tell whether the move would have positive effects and save money.
George Osborne has just been speaking on Today about the CSR: "This is not an election pitch – this is about moving the economy from rescue to recovery." He rejected the claim that the Conservatives were unconcerned with the plight of the poorest: "We have gone out of our way… to protect those who are most vulnerable, to make sure this is evenly-spread."
ALEXANDER TAKES THE STAGE
Good morning. Danny Alexander takes the stage today to unveil the £100bn infrastructure bonanza that the Coalition hopes will be one of the highlights of the spending review. The good news is that the British Geological Survey's well-trailed report on Britain's bumper supplies of shale gas is published this morning - what a remarkable coincidence. The bad news is that HS2 is going to cost another £8 billion; and the truth is that capital spending isn't budging much, so a lot of this may be necessary, but it's window dressing: the benefits, economic and political, will be for others.
The Chief Secretary is widely feted as one of the government's heroes. The word in Whitehall is that he has consistently impressed with his thoughtfulness and his capacity to mix collegiality with steeliness. Aprofile in the FT (£) this week had an official describing him as "the perfect chief secretary", which could be read in a number of ways; others say he is a Lib Dem Thomas Cromwell and de facto Tory. Today, expect lots of micro detail on roadworks, a new pricing and regulation system for energy extraction, support for HS2 and another push for nuclear. The fear is that it will all sound worthy, and tiresomely familiar.
George Osborne will see the newspaper reaction this morning and think: it could have been a lot worse. Infact (barring the "Shamburger" splash in The Sun) he will be pretty pleased. We splash with "Osborne wields welfare axe" and the news that foreigners claiming benefits will be forced to attend English classes or they will lose the right to state support, a focus shared by the Mail and the Times. To The Guardian, it was a case of "The cuts that keep on coming". The FT's focus is on the £8.1 billion overspend on HS2, while The Independent brand the welfare changes "The Wonga coup".
We reaffirm the sobering truth that "Mr Osborne’s package will do nothing to dent the country’s indebtedness: by the end of this parliament, overall public spending will still be 44 per cent of GDP. The big decisions about how we live within our means, and the most brutal cuts, have been put off until after the next election." Nevertheless, debate over state spending "is no longer being conducted on Labour’s terms." The Mail are unusually complimentary, depicting Mr Osborne as "the laddie's not for turning". To The Times (£), yesterday was a reminder of the need to unpick the "triple lock" on pensioners, but they warn that "Bigger, bolder and essential reforms have been delayed until the next Parliament." The Guardian fear that "growth is likely to come from the housing market and rising personal debt. The future, in other words, will look a lot like the bad old past." And the FT (£) lament that "the government has been far too timid in reversing the excessive cuts in public investment that it inherited from the previous government. Yesterday’s statement did too little to change that."
Rather forgotten in yesterday's Conservative-Labour fight were the Liberal Democrats. Yet, writing in the FT (£), Janan Ganesh believes that they could hold the key to the future of the welfare debate:
Labour’s best hope is that Mr Clegg, who frustrated Tories by refusing to countenance immediate cuts to welfare in this spending round, will insist on a relatively generous cap. His decision will do much to decide the next election.
While other departments are enacting efficiency savings, the same does not seem true for HS2. The £11.5 billion of cuts were almost cancelled out by the £8.1 billion increase in the budget for HS2 to a total of £42.6 billion, reports the FT (£). As £100 billion of infrastructure spending is set out until the end of the decade, we can't afford other projects to suffer from a 25 per cent overspend.
SCHOOLS FUNDING CHANGES
George Osborne announced a plan to amend the situation whereby some schools received more funding per pupil than others. Mr Osborne said he wished to introduce a national funding formula to "fix the historic and unfair differences in funding between schools in different local authorities", reports The Times (£). Under the current system, schools in Leicestershire will receive £4,428 per pupil in 2013-14, while those in Tower Hamlets will receive £8,051, as the FT (£) notes.
George Osborne's love of fast food is mocked by The Sun, who brand him "Shamburger". The burger Mr Osborne tweeted on Tuesday evening as he was finishing work on the Comprehensive Spending Review came from Byron and, with fries, cost £9.70. But Mr Osborne seems to be a good sport, describing the front page as an "occupational hazard" of the job on Daybreak this morning.
TWEETS AND TWITS
Andrew Selous has since removed this tweet. I wonder why?
@Andrew_SelousMP: Strongly support the loss of benefits unless claimants lean English.
Unprotected departments are taking another whack, but AME spending remains perilously high and growth isn't doing anything to bolster tax revenues and reduce the need for the automatic stabilisers. As Jeremy Warner keeps reminding us, the public finances remain critically bad and we are just a crisis away from disaster. Mr Osborne hopes today will go some way to restoring his political credibility. We'll see. One thing the CSR seems to have done is bolster the Coalition. The relative ease with which the deals were done suggests the partnership will last the distance; indeed, the same goes for Nick Clegg's acceptance that avoiding further cuts in welfare and pensions is "unrealistic". But from tomorrow, for the Treasury and Mr Osborne, it's back to work. This spending review is a footnote.
Ed Miliband has just spoken to the press giving a preview of his response in the Commons today:
What we see again today is the British people paying the price for this government’s failure. The government tell us the economy is healing but actually it is getting worse for ordinary families. What we actually need is a fairer plan to get growth moving, living standards rising and the deficit down.
ANOTHER U-TURN FROM DAVE?
There are signs of another U-turn from Dave, this time on the idea of migrant bonds. The PM's allies said that Dave had "not signed off" details of the policy, reports the FT (£), amid concerns it could undermine his "open for business" message. Neither Dave nor Nick Clegg have agreed either the scope or the size of the mooted migrant bonds. Others in the Cabinet understood to have voiced concerns include Vince Cable and David Willetts. To the FT (£), the idea is a flawed policy that will hobble Britain in the global race.
Those who suspected that yesterday's announcement of a marriage tax break was a cynical attempt to get Conservatives to canvass for Dave in 2015 have some fresh ammunition this morning. A senior Lib Dem source told the Mail: "Cameron and Osborne made no effort at all to get the marriage tax break in the Queen’s Speech." Internal Tory pressure on marriage tax breaks is growing, with Tim Loughton compiling a letter urging MPs to take a stand, while a Private Member's Bill is also being introduced to bring in proposals for a marriage tax break.
THOSE YOUNG TORIES
The economic situation has destroyed many old certainties in British life. One is that the young hate the Conservatives: a recent YouGov poll had 31 per cent of 18-24 year-olds supporting the Tories, compared with 27 per cent supporting Labour. The Guardian seem very worried, running a special report on the development (not online). Perhaps they are impressed by Dave's efforts at a school sports day run with other dads yesterday: running barefoot, he finished in the top half, fresh from chairing a Cabinet meeting. Another Tory who is down with the young is Mark Harper, he of table dancing in Soho fame. Unfortunately Mr Harper fell off and broke a bone in his foot, as yesterday's Standard reported; but he is now "cracking on" with his ministerial duties.
SIR MERVYN BOWS OUT
Sir Mervyn King yesterday made his 103rd and final appearance before the Treasury Select Committee, warning of the "tremendous pressure" banks are putting on politicians when faced with recommendations from banking supervisors at the Prudential Regulation Authority. He also warned that financial markets had "jumped the gun" in predicting a return to normal interest rates. Sir Mervyn's farewell has prompted assessment of his reign, with the FT (£) having a useful debate about his legacy. Chris Giles praises him as a man who "held his ground, defended the operational independence of the BoE and performed this extremely difficult public service without complaint", while Philip Stephens thinksSir Mervyn "bears particular responsibility for underestimating the risks in the good times, failing to act quickly enough when they turned bad, and then advocating a too-far-too-fast approach to necessary fiscal retrenchment." Iain Martin takes a similar line, writing that, for all his affability, Sir Mervyn "is a central banker whose lovingly crafted theories turned out to be hopelessly misguided."
LABOUR STILL BRAWLING
The battle to replace Eric Joyce is becoming increasingly vicious. The local Labour party in Falkirk has put in "special measures" after claims some unions were packing membership lists to influence the vote. A Labour spokesman said an inquiry "found sufficient evidence to raise concern about selection", as the Mirror reports (not online).
TWEETS AND TWITS
David Drew won't be raising a toast to Sir Mervyn King:
@DavidEDrew: So farewell 'Montague' King worst Governor of BoE since Norman in 1920s not helped by Osborne thinking he"s Churchill's reincarnation#down
Good morning. It rather feels like the calm before tomorrow's Comprehensive Spending Review storm: it's almost eerily quiet out there. There isn't even that much suspense: we know a lot about the CSR already. One thing that it almost certainly won't contain are marriage tax breaks, much to the chagrin of the Conservative Party base. So the “firm commitment” to help married couples within the next two years by David Gauke, the Exchequer Secretary to the Treasury, is significant - even if we think it is rather overdue. The details remain to be thrashed out, but the suggestion is that wives or husbands who do not work would be able to transfer part of their tax-free allowance to their spouse if their partner was a basic rate taxpayer.
It might seem a small move, but it has a wider importance. Dave is out to rekindle the flame with party activists before the next election - he knows he can't win without them. The likelihood of a couple of "old guard" ministers winning promotion in the next reshuffle can be seen in a similar light.
One danger for Dave - that there be a coup against Nick Clegg - seems to have passed. As I reveal in my column today, Dave was sufficiently worried about a "moment of peril" for Mr Clegg this summer that an analysis was drawn up of how he could legislate if the Lib Dems withdrew from coalition (full details here). With Mr Clegg's position shored up after his party held onto Eastleigh, Dave might now have a different worry: complacency.
Coalition politics is verging on the uneventful.The danger is less of fratricide than on underestimating Labour. Mr Balls's apparent willingness to suggest that the growth in pensioners' spending was unsustainable was a bold play that could cause problems for the Tories. As I write:
On this occasion it is Mr Balls who has changed the terms of debate. Mr Osborne acknowledged as much on Sunday; Downing Street is now wondering whether to welcome the opportunity to do something painful but necessary, or play to Tory sectional interests.
BMA DIGS IN
The British Medical Association have reacted angrily to the suggestion that more hospital doctors could work on weekends, describing the idea as “a luxury the NHS cannot afford” and launching a vote of no-confidence in Jeremy Hunt. It's another reminder of how well-organised the BMA are in response to any suggestions that the NHS can be reformed. As we argue, the NHS deserves better than "trade-union-style political posturing" from its doctors. It is a view shared by The Times (£), who say that, with demographics as they are, a default "conservative position against change is no longer viable."
OPPOSITION TO MAY'S MIGRANT BONDS
Theresa May's idea of a £3,000 bond to stop "high risk" visitors from staying in the UK faces a backlash, reports the FT (£). Indian businesses have accused Britain of discrimination, as the pilot scheme, due to be launched in November, would include India. Meanwhile, it is understood that the Lib Dems have not signed off on details of the bond, though Nick Clegg is understood to be supportive. Not all Lib Dem MPs are happy, with one saying "it’s not exactly liberal, is it?”
COALITION EDUCATION ROW
Nick Clegg has prevented Michael Gove's attempts to find education savings by cancelling the extension of free nursery education. Mr Gove believed £380 million could be saved, but Mr Clegg objected, taking the issue to the Quad. Mr Gove will now have to find efficiency savings in the way in which new academies and free schools are commissioned, as The Guardian reports. For Mr Clegg, free nursery education for children from the poorest families is a flagship issue, and a comedown would have been politically problematic.
PENSIONERS THINK THEIR BENEFITS SHOULD BE CUT
There's a surprising poll in today's Independent: 56 per cent of those aged 65 and over agree that pensioners should “be no more immune to the impact of Government spending cuts than other members of society”, compared to 49 per cent of the population as a whole. But before anyone thinks a panacea to the budget problems has been found, the facts are sobering. Means-testing pensioners' benefits would only save around £1 billion a year, as Tim Wigmore blogged.
MILIBAND TO ATTEND SYRIA MEETING
Ed Miliband will today attend a meeting of the National Security Council to discuss the situation in Syria, reports The Times (£). It is only the second time that Mr Miliband has been invited to the NSC. Downing Street have already denied that the meeting is a precursor to sending arms to the Syrian rebels.
THERE IS NO MONEY
David Laws has publicly released Liam Byrne's now infamous note, as he told ITV. Here it is in full:
Dear Chief Secretary, I’m afraid there is no money. Kind regards – and good luck! Liam.
Mr Laws also said that the note could be used in any future election campaign: a further reminder of the work Labour need to do on their economic credibility.
TWEETS AND TWITS
Diane Abbott's affection for Michael Gove doesn't extend to the Health
tries to steal a little of Mr Osborne's thunder:
@HackneyAbbott: Jeremy Hunt seems to be confused about why he's lost the confidence of NHS staff, groups, patients and the British public #Huntcrisis
Good morning. There's a hint of anti-climax in the air. All that talk of blood on the walls, pain in the Star Chamber, and political violence turned out to be over-done. The CSR settlement was completed in an atmosphere of calm and with a striking degree of collegiality. If anything, I detect a sense - certainly in the Treasury - that more could have been achieved, as I recorded in my blog last week. Today's FT (£) quotes an Osborne aide: "The cuts aren't that big - it's entirely manageable", which sums up the view. The final piece was the deal with BiS. Beware the spin that suggests Vince Cable's department has got off lightly. The Treasury insists "it's not a sweet deal". I'm told their deal is "pretty deep", with cuts the same level as the Home Office and more than the MoD. According to one account Mr Cable's position was more about a political argument in favour of more borrowing to fund his capital ambitions - and tilt towards Labour's Plan B.
We now get the lull before publication on Wednesday, which is a dangerous time as parties and ministers jockey to shape the narrative in their favour. The Chancellor needs the story to be one of competence, of a necessary job being done with a minimum of fuss. He also needs it to advance the case for his political recovery, as Matthew d'Ancona argued yesterday. The more the process of securing cross-Whitehall savings is managed with a degree of ease, the easier that is. But with debt still climbing, the peril must be that it starts to look too easy, not serious enough. The Chancellor can't afford accusations that he is giving his colleagues an easy ride.
Unsurprisingly, it was Mr Cable who proved most difficult. He accused the Treasury of "amateur dramatics" in handling the final stages of the negotiations, as the FT (£) notes. Mr Cable has sought a budget that allows him to tell a "convincing story on growth". One aspect of this would be an increase in infrastructure spending. Amid criticism that figures show infrastructure spending in the first quarter fell 50 per cent on the previous quarter and nearly 40 per cent on the previous year, as reported in the FT (£), Mr Osborne will commit to a new focus on infrastructure in the CSR. Danny Alexander last night tweeted "On thursday I will set out our infrastructure plans to build the recovery".
It all means that George Osborne has no need to use his instrument of political torture, the Star Chamber, as I predicted last Thursday. Despite all the talk about the stubbornness of the National Union of Ministers, the Treasury has been remarkably successful in extracting the £11.5 billion cuts it wanted, helped by agreeing efficiency cuts with Philip Hammond to avoid further troop reductions. For unprotected departments, this averaged eight per cent - which is why an unlikely coalition including Vince Cable, Philip Hammond and Eric Pickles all attempted (unsuccessfully) to reclassify parts of their budget as "health spending".
We applaud the developments, noting that, "By sheer force of financial necessity, we appear to be moving to a situation in which the debate has a rather different and rather more important focus: namely, what exactly the state can afford in the first place." The Times (£) is of the view that, "it is not only 2015 that will be an austerity election, it is likely that 2020 will be too." Meanwhile Philip Stephens in the FT (£) thinks that the best spending cut of all would be to shut down the Treasury.
Mr Osborne has reason to be buoyant now, as his tweet last night - "With thanks to all my cabinet colleagues and hard work of Treasury team, today we've settled all departments ahead of the spending round" showed. But even more will be asked of ministers in next year's CSR.
Until the next election, universal benefits for pensioners are safe. But that won't last much longer, with Mr Osborne's comments yesterday that he would "look at" the affordability of these benefits after 2015 meaning that all three main parties are now committed to reviewing universal pensioner benefits. Interestingly, I'm told that Labour would have already committed to means-testing free TV licences, but the party is unconvinced over whether the administrative costs of doing so would outweigh the savings.
For Labour, a little difficulty on the economy remains. It is not clear exactly how Ed M's promise of "ruthless" control of government spending (that was Saturday) ties in with Ed B's admittance that Labour would borrow more for capital projects (that was Sunday). The Mail cannot be alone in thinking: "Truly, the thought of the two Eds side-by-side in Downing Street, embarking on yet another debt binge, is terrifying."
Dave may have found a way to improve relations with the backbenchers. How? Return to the old guard. The new reshuffle will send a message (too late, some would say) to the pre-2010 intake that they are still in the ministerial running: indeed, some MPs could return as ministers after a 16 year interval, while Sir George Young will survive as Chief Whip. Not all would want to serve, but names that could be considered include John Redwood, Stephen Dorrell, David Davis and Sir Malcolm Rifkind.Read more on my blog.
And even if he ignores the 2010 intake in the reshuffle, Dave's appeal with the younger generation is assured. Just look at him riding his scooter in Regent's Park in the Mail.
GOVE WARS, PT 387
Forget the CSR, the real news is that Michael Gove's new history curriculum is nearing completion. Such is the controversy caused by the draft curriculum released in February that David Cameron and Nick Clegg have now been sent a rewritten curriculum for their approval,reports The Times (£). The new version is more global in outlook, and aims to avoid the "defect of explanation or interpretation" that Mr Gove admitted featured in the first draft. But if Mr Gove thinks the unions are now his friends he should think again: teachers in nearly 3000 schools plan a day of strikes on Thursday in protest at pay and pension curbs, reports The Independent (not online).
INTERNATIONAL AID DEFENDED
In a week when the wisdom of protected budgets attract more scrutiny than ever, someone had to defend the international aid budget. That someone is Andrew Mitchell. Writing for us, Mr Mitchell explains his pride in Britain using 0.7 per cent of national income on aid. Through measures like cutting the number of countries receiving bilateral aid from 43 to 27 and branding donations with a Union flag, an aid strategy "that is both moral and pragmatic" has developed, Mr Mitchell argues. Well-argued as his case is, I suspect a good deal of Mr Mitchell's party will still require convincing to keep aid protected in the next manifesto. Mr Mitchell himself may have little say in that: I am told his ministerial comeback, if it comes, will have to wait until after 2015.
TWEETS AND TWITS
Danny Alexander tries to steal a little of Mr Osborne's thunder:
@dannyalexander: With all budgets settled, we have delivered the savings we need. On thursday I will set out our infrastructure plans to build the recovery