Nearly half a century on, historians still debate whether Roy Jenkins’s cautious 1970 budget cost Harold Wilson the election that year. Britain had come back from crisis and humiliation — the 1967 sterling devaluation — and sunlit uplands were hoving into view. But Jenkins was determined to stick to his long-term economic plan and eschewed short-term populist measures. Labour lost.
George Osborne is a keen student of history and a political chancellor. He knows the budget this week, his sixth, will play a key role in the election campaign. A successful budget, which leaves voters with a warm glow, could provide the springboard for the Tories to pull away from Labour. A damp squib — and he has had one or two of those — and this budget could be his last.
Wednesday’s budget is important. Although our YouGov poll shows the Tories and Labour neck and neck on 34%, the momentum is with the Tories. In the past three weeks the party has led in seven YouGov polls, against three for Labour. Peter Kellner, YouGov’s president, projects that the Tories will win 297 seats on May 7, with 262 for Labour. A successful budget could be enough for David Cameron to run a minority government or continue in coalition with the Liberal Democrats.
What does Mr Osborne need to do to put some additional oomph in the Tory campaign? He has to marry a commitment to restoring the public finances to full health with short-term sweeteners. He has to demonstrate that the recovery is safe in his hands and that its benefits are being shared out. He also has to shoot a few Labour foxes.
The chancellor is not where he had hoped to be on the deficit. Over the parliament he has borrowed £100bn more than he intended in 2010. He did not expect the budget deficit to have been eliminated by now but his 2010 plans implied it would be about £50bn lower this year than it is. Politically, that works both ways. Had he “finished the job”, voters might decide that the country was safe again for Labour.
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Mr Osborne is seen by voters as well ahead of Ed Balls, his Labour opponent, on economic competence and will not want to squander that. He also needs to address a Tory Achilles heel which is that the party is too close to the rich and has not done enough for those on lower incomes.
The evidence suggests, in fact, that the top 10% have been hit most by the income tax changes of the past five years. Raising the personal income tax allowance to £10,000 has been one of this government’s big achievements. Whether the further increase to be announced by Mr Osborne convinces the lower-paid that the Tories are on their side — increasing the national insurance threshold would be more effective — remains to be seen, but there can be no going back on the policy now.
The chancellor must also address an important issue for Tory supporters: defence spending. This should be the easiest of winners for the party but has been clouded by a failure, from the prime minister down, to commit to the Nato target of spending 2% of gross domestic product (GDP) on it.
There are many arguments against a 2% of GDP target, all of which fall easliy from the lips of Treasury officials. It is arbitrary, institutionalises waste and encourages dodgy accounting: putting things into the defence budget that do not belong there. But those criticisms also apply to the commitment to spend 0.7% of national income on overseas aid and they were known when Mr Cameron signed up to the 2% target when he hosted the Nato summit in Wales last year. It has become a totem of whether Britain is serious about defence in a dangerous world. A way must be found to deliver it.
Finally, and importantly, the chancellor has to convince voters that he can indeed finish the job of fixing the public finances — delivering a budget surplus — without crippling public services. Signs of improvement in government revenues and the benefits of a fall in oil prices may allow him to demonstrate that public spending need fall only to its level as a percentage of GDP of the early 2000s, when Gordon Brown was chancellor, to deliver a budget surplus.
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Mr Osborne has other shots in the locker. He has reduced public spending from nearly 46% of GDP to just over 40% without destroying services. Employment is up nearly 2m on his watch and low inflation and rising wages are delivering an increase in living standards. He has also reached out directly to northwest Labour councils with his “northern powerhouse” initiative.
Cuts in welfare spending are popular with voters, including those on lower incomes, and he needs to spell out how they can be delivered. Above all, he must demonstrate that Labour’s scare stories on public spending are just that. Then he could indeed give the Tories a winning platform.