Cameron at 10 Page 8
Osborne wants to insert the controversial line into his speech, ‘when we say we are all in this together, we mean it’, a phrase he had used in October 2009. The Treasury accept that Osborne is serious about not hurting the poor more than the rich. Teams are tasked to model the impact of the policy changes, though they must rely heavily on guesswork. The day before the Budget, Osborne, Hancock, Harrison and Treasury civil servants work late into the night. Officials have a palpable sense that history is being made, and that they are now in a completely different era from New Labour.
That morning, 22 June, the newspapers make their predictions about the Budget. ‘The most draconian in thirty years’ is the view of the Daily Telegraph. ‘The most brutal Budget in a generation’ predicts the Financial Times. Osborne, normally the epitome of confidence, is apprehensive as he rises to give his speech. But public opinion has been moving his way. Polls by both Ipsos MORI and ICM in the forty-eight hours leading up to it show that the coalition has succeeded in shifting the public mood from opposition to spending cuts to a cautious acceptance.12 Osborne and his team are relieved too at the Budget’s reception, both amongst the commentariat and in the country. The ‘c’ word proves after all not to be toxic.
Long before Osborne delivers the Emergency Budget, officials deep inside the Treasury had been working away on the Spending Review, to be announced in the Autumn Statement. While the Budget outlines the overall figure for the reduction, the final detail about departmental cuts will appear in this Spending Review. As one senior Treasury official put it, these ‘spending decisions reframed the question of what the UK could afford’. It is a tightly controlled operation: besides Treasury officials, and the voices of Osborne and his aides, the other heavyweight input comes from Danny Alexander, who oversees much of the detail. Cameron and his team at Number 10 follow discussions closely, but with the exception of defence, they leave the work very much to Osborne and the Treasury team. Although the Budget cuts are agreed relatively smoothly, the Spending Review negotiations sees the first skirmishes in a five-year battle between Work and Pensions Secretary Iain Duncan Smith (IDS) and Osborne. IDS will not agree to any cuts unless £2.5 billion is ploughed back in to fund Universal Credit, the centrepiece of his reform agenda.13 It is a sticking point for much of the negotiations and Osborne only reluctantly agrees in September at the eleventh hour.
Welfare is highlighted in the Budget as it will be cut particularly heavily, by £11 billion – largely through changing the measure of inflation used for welfare payments from the retail price index (RPI) to the consumer price index (CPI) – a hugely significant change. The NHS, unlike welfare, is a protected area. In Opposition, the Conservatives had been unequivocal in maintaining that the country could trust them with the NHS, and that they would protect real-term increases in NHS spending. Cameron and Osborne knew the general election could not be won on the NHS, but it could be lost on it, and they had been adamant that the area was sacrosanct. Protecting the schools budget is more contentious; Clegg and Alexander argue strongly for it, as does Education Secretary Michael Gove. Osborne assents, even though there is not the same political need to favour schools as the NHS. International development is the final protected area, primarily at the instigation of Cameron himself. When challenged over the years about the commitment to spend 0.7% of national income on aid, Cameron is apt to get testy: ‘It is one of the few issues on which he will lose his temper. It is a mixture for him of genuine compassion with political positioning of his party.’ A debate takes place whether the 0.7% should apply immediately or be delayed to 2015: they compromise on 2013.
Tuition fees for university students are to rise, despite a clear Lib Dem pledge to oppose any such increase. Osborne recognises that it will be a significant hit for Clegg (he tells his Tory staff, ‘They are mad to let us do this’), and offers to pass on the proposal telling him the change is not imperative. Clegg rejects the offer, a momentous decision for the future of the Liberal Democrats, believing again that the change is part of the necessary punishment. Clegg, Alexander, Cable and Laws had all tried and failed to change Liberal Democrat policy on tuition fees. None of them realise fully what turbulence the judgement will cause their party across the country. Debate also takes place over defence cuts. Defence is an article of faith to the right of the Conservative Party. But Cameron and Osborne are determined to plug the black hole in the defence budget. Clegg and Alexander agree the MoD is overprotective of its spending, and inefficient.
August is normally a quiet month in the Treasury, but this August the teams working on spending cuts are buzzing with activity. They are spurred on by radical thinking from some of the department’s young Turks as well as a crowd-sourcing exercise, pioneered by Steve Hilton, which solicits thousands of responses from the public on where savings can be made. By early September, it is clear where the main cuts will fall. Officials remain pleased to be working for a chancellor who knows what he wants to do. Osborne may not have developed any overriding philosophy for his cuts programme, yet he is certainly steely in his judgements. He and Alexander have been struck by Macpherson’s commanding advice: ‘You set the tight overall budgets, and the departments will find the savings. You can rely on the departments to ensure that they will get the money to the front line.’ It emboldens them to cut more deeply. They are impressed by the Treasury’s determination to enforce its will across Whitehall.
Cameron and Osborne had decided in Opposition that they wanted to have a major review of Britain’s foreign and defence commitments. Defence spending, they thought, was excessive, capricious and unrelated sufficiently to Britain’s strategic requirements and economic capability, all of which was exacerbated by a very badly run department. After the general election they move swiftly to set up the Strategic Defence and Security Review (SDSR), to run alongside the Spending Review, announced on 12 May in the Coalition Agreement. They know they will have a fight on their hands and that the defence and diplomatic communities will resist cuts fiercely, but they refuse to accept that defence cuts would lead to a diminution of Britain’s role in the world.
Cameron becomes closely involved in the SDSR personally because, as PM, he takes his responsibility for defending the nation extremely seriously: he knows it is a very sensitive area politically for his party, and he has to handle Liam Fox, a senior figure and former leadership rival, with care; but not so gently that he doesn’t insist that the SDSR is managed not by the MoD but by the National Security Council (NSC), a new body set up after the election to co-ordinate defence and security policy, operating out of the Cabinet Office. Once the SDSR begins, Osborne grows still more impatient with the military, whom he regards as guilty of special pleading: without Cameron’s restraining influence, the cuts would have been even deeper.14 Nothing prepares either man fully for the can of worms that they are about to open. The three services fight and fight each other over men and equipment, with long battles over aircraft carriers, jets, tanks and other hardware. Cameron and Osborne use the SDSR process to centralise power and decision-making in the NSC structure, utilising the full force of their election mandate to drive change through. The MoD fights hard, with Fox regularly articulating the anger of the defence community at having to take so much of the pain. He is angry that the protected areas – Health, schools, and International Development – escape free.
The SDSR is announced alongside the Spending Review. The MoD will face cuts of some 8% in real terms: Cameron announces the department is too big, too inefficient and is spending too much money.15 The strategy must shift, he says, away from military intervention towards conflict prevention, with a new focus on unconventional threats. The army will be reduced by 7,000 to a front-line strength of c.95,000, the Royal Navy by 5,000, to 30,000, and the Royal Air Force by 5,000 to 33,000 by 2015.16 The SDSR generates enduring bad blood, less from the Foreign Office and intelligence communities than from the MoD, especially from Fox and chief of the general staff, David Richards. Number 10 is furious at the briefing f
rom the MoD to sympathetic journalists and to backbench Tories with service backgrounds. The SDSR does, however, achieve its desired end of savings, even if it creates bitterness that spills over in years to come, and is widely criticised for being rushed and insufficiently strategic.
Reorganisations have been a traditional way that governments have found money at times of need. Cameron is insistent, however, that there are to be no changes to the machinery of government. He has an instinctive dislike of organisational change in Whitehall, believing that it will not achieve efficiencies. The decision is equally taken not to embark on a series of privatisations, as Margaret Thatcher had done so successfully during the 1980s.
On the domestic front, some ministers argue hard against the Treasury, notably IDS at DWP, and Theresa May at the Home Office. None come close to resignation because they all understand the need for cuts; but equally none think that their own department should be the one to be cut heavily. Caroline Spelman claims she has done well for DEFRA by settling earlier, while others, like IDS, claim their department has benefited from his fighting (his relationship with Osborne reaches a new low just prior to the Autumn Statement). Local government, overseen by Eric Pickles, takes a heavy burden of cuts – ‘too severe’, Danny Alexander later thinks. The Foreign Office has its budget cut by 24% and Whitehall diplomats are reduced, but it is less severe than it might have been. Senior officials say that ‘Cameron fell over himself’ to ensure William Hague, his de facto deputy, is well done by. When the process is eventually complete, Alexander is able to demonstrate that each department’s final settlement is no more than plus or minus 1% from the figures that had been written down in July.
At 12.30 p.m. on Wednesday 20 October, Osborne rises for the Spending Review, billed as ‘the biggest UK spending cuts for decades’.17 ‘Today is the day when Britain steps back from the brink, when we confront the bills from a decade of debt … it is a hard road, but it leads to a better future,’ says Osborne in his opening remarks.18 The key elements are the likely 490,000 public sector job cuts, the average cuts of 19% in departmental budgets over four years, and the intention to eliminate the structural deficit by 2015. A further £7 billion of savings are to come from the welfare budget in addition to £11 billion announced at the Budget, the retirement age is to rise from sixty-five to sixty-six by 2020, police funding is to be cut by 4% a year and council spending by 7.1% every year for four years.19 Osborne’s hand is seen in most of these decisions, including details such as his determination that the science budget is spared and the Francis Crick Institute, a research centre planned to be opened in 2015, should not be axed. Equally, he gives his assent for the Crossrail project in London, which was nearly cancelled.
Alan Johnson, Labour’s shadow chancellor, describes the Tories as ‘deficit deceivers’ and defends Labour’s record of bequeathing a debt interest level 15% lower than that inherited in 1997 despite a world recession.20 But while Osborne and his team are confident that the cuts are deep enough to reassure the bond markets, they are less certain about the social impact of their measures. To Lena Pietsch, Clegg’s press secretary, the Spending Review is the moment when the five-month honeymoon for the coalition government comes to an end: ‘To begin with, there was huge excitement and relief that the long election campaign was over. All of a sudden, the narrative became about cuts, anger, demonstrations. The atmosphere became very different by the autumn.’21 She is thinking in particular of the large and angry student demonstrations against the rise in university tuition fees on 10, 24 and 30 November. These are followed by a further protest when the reform passes through the House of Lords on 9 December.22 Although the Lib Dems feel the full brunt of the ire over tuition fees, the coalition’s long honeymoon is not yet at an end. Were the cuts too great? Will the apprehensions of Treasury officials come true? Or did Osborne miss the opportunity to cut still more deeply when he had the political capital and support to do so? The new government has passed its initial tests; the heat will come later.
FIVE
Bloody Sunday Statement
15 June 2010
Tuesday 15 June, just five weeks into the premiership, sees Cameron’s first major test of his statesmanship, and of his oratory. It comes on unfamiliar territory. The premierships of his three predecessors, John Major, Tony Blair and Gordon Brown, had been deeply embroiled in the affairs of Northern Ireland. While welcoming the progress that had been made, and taking a great interest in Northern Irish affairs, Cameron is keen to avoid the Province dominating his premiership, preferring to let his Secretary of State take the lead. He is anxious to see politics in Northern Ireland move on, beyond the Blair/Brown era when prime ministers had ‘to spend hours in crisis talks with Northern Ireland politicians, making endless visits, or staying up all night in country house retreats hammering out the latest deals’.1 Besides, relations with Northern Ireland had been changing. From 1972 to 2007, the Northern Ireland Secretary effectively acted as the prime minister of Northern Ireland. But in 2007, thanks to the work principally of Blair, devolution to Stormont was restored. The Northern Ireland Office (NIO) retained oversight of national security, policing and justice. The latter two areas were ceded in April 2010, in the dying days of Brown’s premiership. A devolved assembly in Belfast, with local ministers running affairs, meant Cameron’s wish was likely to come true – assuming the Stormont institutions remained stable and there were no further terrorist outrages. He had mentioned Northern Ireland in just one of his five annual party conference speeches as Opposition leader, in 2008, and then only in passing.
‘When it comes to the union with Northern Ireland, I am very much a traditional Conservative,’ he remarked during those years. He has little interest, still less patience, in the antics of those who emphasise sectarian divisions. What he wants ideally is for Northern Ireland politics to be reintegrated into mainland Britain, believing that a continuation of their own party system in Northern Ireland has disenfranchised voters in the province from full participation in British political life. In an effort to normalise politics in the province, Cameron agreed an electoral pact between the Conservatives and the Ulster Unionist Party (UUP) ahead of the 2010 general election. The pact failed to deliver any seats, not least because of the Democratic Unionist Party’s (DUP) success in replacing the UUP as the major unionist force in Northern Ireland.
One major piece of unfinished business remains in Northern Ireland. In 1998, Tony Blair had announced an inquiry into the still controversial events of Bloody Sunday which had occurred on 30 January 1972, when twenty-six protestors and bystanders were shot by British Army soldiers, half of them fatally. The inquiry was under the chairmanship of Lord Saville: a tribunal at the time of the shooting had been discredited as a whitewash. Publication was delayed until after the 2010 general election. Officials in the NIO are now concerned that the new government will bin the report because Labour set up Saville, and Conservatives have been critical of its length and cost. ‘What are you going to do with Saville?’ officials ask nervously of Owen Paterson on his first day as Secretary of State. ‘We will publish it in good order, as rapidly as we possibly can,’ Paterson replies.2 Cameron had been impressed with how Paterson, who was on the right of the party, forged good relationships on all sides in the Province as shadow Secretary. Nevertheless, the republican community in Northern Ireland have a wealth of negative impressions about the Conservatives, and dread their return to power. They believe it will be hard for a Conservative government to admit that the republican community had been wronged.
Cameron knows how much hangs on his response. He discusses Saville’s inquiry with his foreign affairs private secretary Tom Fletcher on 20 May on his first trip to Northern Ireland to see the party leaders. The visit is uncontroversial. ‘Belfast pretty solid,’ records Fletcher in his diary.3 A week later, Cameron hosts a garden party in Downing Street to thank CCHQ staff who had helped on the general election. The imminent Saville Report is much in the air. Cameron walks over to Jonathan Cain
e, a trusted special adviser whom he and Llewellyn had embedded in the NIO. ‘I think I’ll have to make an apology, don’t you?’ Cameron confides to Caine. ‘I think you will. What is important is how you frame that apology,’ the adviser replies.4 There is another potential problem. The Ministry of Defence (MoD) are wary that the Defence Secretary, Liam Fox, no friend or ally of Cameron’s, might seek to appease the right wing of the party. Fletcher requests guidance from the MoD on their likely response to Saville. They indicate that they will not brook anything that sounds like an apology. Fox is emphatic on this point at a meeting with officials two weeks before publication. Number 10 signals back to the MoD that the prime minister will be standing his ground.
Three weeks pass, during much of which Cameron is busy on the economy and domestic policy. At 3.30 p.m. on 14 June, ten copies of the Saville Report arrive at the NIO, then housed at Millbank on the north bank of the Thames. The summary alone is crystal clear: every single person shot had been unarmed, and the killings were unjustified.5 It is a lot to take in: it is the first time that anyone outside Saville’s own team have seen the report, with the exception of the lawyers who have been through each page with a fine-toothed comb looking for national security concerns. NIO officials divide it up into sections to read it over and prepare the government’s response, working out the possible questions that will demand precise answers. At 4.30 p.m., the full report and summary arrive at Downing Street. Cameron is just off a plane from his first visit as PM to Afghanistan. He already has one fight on his hands with the MoD over bringing British troops home. He picks up the summary.