When the financial crisis hit, Osborne and Cameron were wrong-footed. They thought they were dealing with a failure of the banking system rather than a more general economic crisis. Osborne criticised Brown’s government for creating ‘an economy built on debt’, saying of the public finances that ‘the cupboard is bare’, but he deliberately eschewed using the word ‘austerity’, because of the negative connotations of the term for the Conservatives.8 He released a document called Reconstruction: Plan for a Strong Economy, which outlined his thinking, although it was soon to be overtaken by events.9 The Conservatives held their annual 2008 conference in Birmingham. On 1 October, Cameron announced he would work with the Labour government ‘in the short term to ensure financial stability’. During the conference, Osborne travelled to London with his aide Rupert Harrison to meet Alistair Darling and Financial Services Authority chief executive Hector Sants. He also spoke by phone to governor of the Bank of England Mervyn King and bank leaders in the City, realising he faced a fast-moving situation where only the authorities really knew what was happening.10 Brown and the Labour government held the initiative and knew it. On 8 October, they announced a £500 billion bank bailout package to restore market confidence. Just days before, the Bush administration in the US had announced the Troubled Asset Relief Programme (TARP), allowing for $400 billion to purchase troubled assets.11
Yet Cameron’s and Osborne’s relationship was cemented during these difficult weeks. A close team had begun coalescing around Osborne, consisting first and foremost of Rupert Harrison. Harrison began working for the shadow chancellor in 2006, recruited from the respected independent think-tank the Institute for Fiscal Studies. He is an intriguing character. Eight years younger than the chancellor, he is the possessor of a powerful and capacious mind. After having been head boy at Eton, at Oxford he switched from Physics to PPE, excelling at both. He went on to complete a PhD in economics at University College London. Harrison’s influence on policy grew steadily in Opposition and his role would be pivotal when he became Osborne’s chief of staff in 2010. He dislikes the comparison, but his relationship with Osborne is uncannily similar to Ed Balls’s with Brown. Balls and Harrison have the much profounder technical understanding of economics and both are more intellectually assured than their masters. They are trained economists and highly effective operators in the Treasury and Whitehall at large. Both spend much time talking to Treasury officials before and after their chancellor has expressed his opinion, and both are skilled drafters of their speeches. They liberate and empower their bosses. There are differences. Harrison is a silky courtroom barrister where Balls is a backstreet fighter. Balls dominated the Treasury because of Brown’s dysfunctionality; under Brown, it was a cliquey and conspiratorial place. The Treasury under Osborne is more open, collegiate and empirical. Osborne, unlike Brown, is happy to be challenged in front of officials, and Harrison for one does so regularly. Osborne, like Brown, is an historian, but unlike him, never claims to be an economist. Balls and Harrison are the principal éminences grises of the Labour and coalition governments respectively. Brown had tried hard to make Balls chancellor in June 2009, while Osborne would come to rely equally heavily on Harrison at the Treasury.12
Matthew Hancock was another key member of Osborne’s team, serving as his chief of staff until 2010. A former Bank of England economist, he joined shortly after Osborne’s appointment as shadow chancellor: ‘I can do the politics, I want someone to do the economics,’ Osborne told the young aide.13 They were joined in April 2006 by Rohan Silva, a Manchester and London School of Economics-educated former Treasury policy analyst, and in 2009 by Paul Kirby, a partner at KPMG. This high-powered team also included Eleanor Shawcross, another economist. Letwin remained a constant source of counsel to them all, self-effacing and intellectually brilliant. A group of former Conservative chancellors – Geoffrey Howe, Nigel Lawson, Norman Lamont and Kenneth Clarke – were only too happy to provide discreet ballast and experience to the young team. They were to prove notably important in the decision Cameron announced on 18 November 2008, to ‘decouple’ the Conservatives from their decision fourteen months earlier to match Labour’s spending plans, which Brown was using, Keynesian-style, to drive the country out of recession. ‘Matching Labour’s plans seemed a very smart move at the time,’ admitted an Osborne aide, ‘but by late 2008 they were anything but sensible.’ Letwin felt strongly: ‘For Labour to be going on a spending spree in response to the downturn, deploying fiscal not monetary tools, was a basic strategic error. I felt deeply it was a terrible decision for Labour.’14
Six days later, on Monday 24 November, Labour delivered its Pre-Budget Report (PBR), as the Autumn Statement was then known. The top rate of income tax for those earning over £150,000 was raised from 40% to 45%, ditching Labour’s manifesto pledge not to do so. A temporary cut in VAT from 17.5% to 15% was to come into effect on 1 December, in time for Christmas shopping, to stimulate the economy. This was to form the centrepiece of a £20 billion fiscal stimulus package to last for thirteen months. Bigger shocks followed. Darling announced that the £43 billion borrowing requirement forecast in his March 2008 Budget had been revised upwards, to £118 billion. He said the Budget would not be brought back into balance until 2015, that the economic situation was even worse than had been feared, and that public sector debt would rise from 41% to 57% of GDP by 2013/14. These figures did not even take into account the bank bailouts. To Osborne, Darling’s statement was the opportunity to regain the initiative. ‘I knew we were right to focus on the rapidly rising deficit. He just read out these numbers and everyone was completely stunned. That’s when we felt we were on the front foot and picked the right issue.’15 He decided to oppose the stimulus and made a series of increasingly strong statements in late 2008 and early 2009 damning Labour for its response to the recession. By Christmas 2008, confidence in the Conservative camp was rising as it became clear that Labour’s package was not giving the British economy the stimulus that it needed. Cameron and Osborne had now committed themselves against spending their way out of recession. They had yet to say that spending had to be cut. This was to come.
The second plank of Plan A was put in place in the spring and early summer of 2009. Cameron was planning to give a speech at the Conservative Spring Forum a few days after Darling’s Budget on 22 April. The speech, on spending plans, had already been written. But he was so incensed by what Darling said, he came back up to his office ‘extremely angry, thrashing around the place and kicking the buckets. He suddenly realised how everything was going to be fucked up because of the figures. I’d never seen him so angry at the way that Labour had mucked up the spending,’ an aide recalls. He sat down to work almost immediately rewriting his forum speech. ‘He’s rarely happy talking about economics,’ says the aide. But on this occasion he produced a draft which he regarded as really important. In his words can be traced key parts of what was becoming Plan A.
Osborne and Cameron had yet to announce if they were prepared to make cuts if they won the general election, because they were fully aware of the damage it could do to the Tories if they became known as the party of cuts. But for much of the first half of 2009, they goaded and taunted Brown and Darling into saying whether Labour would introduce cuts (known as the ‘c’ word). In his April Budget, Darling announced that income tax for top earners would rise again to 50%, and that borrowing would rise to £175 billion in the next two years.16 But on cuts, not a word.
On 10 June, shadow Health Secretary Andrew Lansley went on Radio 4’s Today programme and admitted that, if the Conservatives were elected, 10% cuts might be necessary to all departments except Health, International Development, and Education. Fatally, he omitted to mention that the Conservatives would just be matching what a leak suggested Labour would itself be doing.
‘That’s it! We can beat them on this,’ a jubilant Brown yelled out to his team in Downing Street when he heard what Lansley had uttered. At last he thought he’d found a clear Labour agenda for the
future, a ‘eureka’ moment. Brown thundered across the despatch box at PMQs later that day: ‘This is the day when [the Conservatives] showed that the choice is between investment under Labour and massive cuts under the Conservative Party.’ Brown claimed that ‘wide, deep and immediate’ Tory cuts of 10% would be introduced ‘in order to fund a £200,000 tax cut for the 3,000 richest families’, a reference to the inheritance-tax reform Osborne had unveiled to wide acclaim at the Conservative annual conference in 2007.17 Brown’s team were deeply torn about the honesty of this claim, as well as the gulf opening up with his increasingly disillusioned chancellor, whom the Conservatives thought Brown had appointed as a mouthpiece, only to discover he had appointed a heavyweight with a mind of his own.18 His discovery further fuelled Brown’s desire to replace the independent-thinking Darling with his right-hand man and protégé, Ed Balls.
Cameron and Osborne went into a tight enclave to debate how to respond to Brown’s latest attack. The outlet they selected was an article in The Times under Osborne’s name, to appear on 15 June. In the first draft, Harrison had avoided using the word ‘cuts’, but Osborne insisted the dreaded ‘c’ word must be mentioned, rewriting the piece himself.19 Rather than avoiding the language of ‘austerity’, as Tories had in the past, Osborne wanted to come out into the open and say the plan really was for ‘cuts’. ‘We have fought shy of using the “c” word – cuts,’ he wrote. ‘We’ve all been tip-toeing around one of those discredited Gordon Brown dividing lines for too long. The real dividing line is not “cuts vs investment”, but “honesty vs dishonesty”.’ The reference to honesty was a calculated tactic to undermine Brown, whose integrity was being called into question, and by implication Labour’s.20 ‘We should have the confidence to tell the public the truth that Britain faces a debt crisis; that existing plans show that real spending will have to be cut, whoever is elected,’ wrote Osborne in The Times.21 In September, a leak from the Treasury suggested that a future Labour government would itself make spending cuts of 10%.
Plan A’s third and final plank was put into place in the autumn of 2009 with the announcement where the cuts might actually fall. For several weeks, working in the shadow chancellor’s Parliament offices, Harrison, Hancock, Kirby and Philip Hammond (the shadow chief secretary) had been reviewing the spending options for a future Conservative government and where any cuts could take place. Their thinking was fed through to Osborne and Letwin, and then up to Cameron himself. The media, sensing they had both main parties on the run, brought immense pressure to bear on them during the summer and early autumn to be specific about cuts. Brown admitted at the TUC annual conference on 15 September that there might have to be some cuts, but failed to mention them in his party conference speech two weeks later, with the gulf between the realism of his chancellor and the obduracy of the prime minister becoming more and more apparent. Darling had become very much in tune with his officials at the Treasury. For the ten years 1997–2007, Brown had ruled the roost with these same officials, and he was furious.
Osborne was determined to craft an economic message to the 2009 party conference in the autumn that would stand up to any challenges, and show that he was serious about taking the necessary risks. The public, as well as the media, had to be shown that he meant business. The Conservatives enjoyed a strong poll lead in the summer of 2009, and he believed that lead would be challenged all the way through to the general election in 2010 unless he set out his stall very firmly. Nick Robinson, the BBC’s wily political editor, got under his skin more than anyone, needling him to be precise about the Conservative plans.
Final decisions on the conference speech were taken only in September, and Osborne’s voice proved decisive. His team came up with a package of cuts aimed to save £23 billion over the life of the next parliament. The key elements were public sector pay to be frozen, the state pension age to rise, and the cost of Whitehall to be cut by a third over the life of the parliament.22 To ensure the proposals were seen to be fair, Osborne memorably later said ‘we could not even think of abolishing the 50p rate on the rich while at the same time we are asking many of our public sector workers to accept a pay freeze to protect their jobs’.23 Cameron and Osborne had adopted a high-risk strategy. ‘We threw away the rulebook and came up with all sorts of measures that you’d never normally advertise in advance of a general election,’ recalls Osborne.24
In the speech in Manchester, Osborne announced that the Conservatives would deal with the bulk of the deficit over the life of the parliament. Mervyn King had already suggested this timeframe: Osborne deliberately used it, without King’s knowledge, as it seemed sensible to align the Conservatives with the Bank’s thinking. He committed the Conservatives to ‘in year’ cuts in 2010, and laid out structural reforms that autumn to abolish the Financial Services Authority, to have more supervision of banks, which led to the setting up of the Prudential Regulation Authority in the Bank of England, the establishment of the Financial Policy Committee (also in the Bank of England), and to take all regulation into a new body, which was to be the Financial Conduct Authority. As he walked off the stage at the end of the speech, Osborne was reported as telling aides, ‘Now let’s see if I’ve cost us the election.’25 Ever the risk-taker, he relished the daring he had shown and the headlines which spoke of his decisiveness. Martin Kettle writing in the Guardian called the speech ‘smart, well delivered and in some respects really quite brave’.26 The Telegraph leader writers praised his ‘hard-headed realism’.27
Plan A was thus virtually all in place by Christmas 2009, five months before the general election, crafted in these three separate stages. The high command appeared united on the economic message, the party seemed content, large parts of the commentariat were won over. But at this point, the status quo became unbalanced. Hilton, who had come back from a sojourn in California, was not pleased. ‘What the fuck is all this focus just on cuts and negativity? It’ll cost us the election,’ he said. He eyeballed Cameron and told him that the narrative around the ‘Big Society’ and modernisation that the party had built up over the previous four years would be jeopardised unless the message of the long election campaign beginning in January 2010 wasn’t more positive. He argued forcefully to shift the focus from spending, which he thought a media-imposed narrative, and he was dyspeptic about the influence of communications director Andy Coulson. Coulson in return had no time for Hilton’s luftmensch theorising about localism and social action, which he thought lacked popular resonance with the core voters whose support the Conservatives would need if they were to win the election.
Worryingly for Cameron’s team, the Tories’ poll ratings had started to dip by Christmas, despite Osborne’s economic strategy receiving continuing support in large parts of the press. Cameron’s camp was divided. On one side stood Osborne and Coulson, and on the other, Hilton. Letwin, along with Llewellyn and Fall, was trying desperately to bridge both camps. It was a hopeless position.
January 2010 started badly. Cameron wanted to set the tone for the New Year with his appearance on BBC’s The Andrew Marr Show on Sunday 10 January. Hilton wanted Cameron to apologise for the uninspiring start to the campaign made by all the parties, with poster launches, attack dossiers and an obsessive focus on the cuts and say, ‘This is the electorate’s campaign. Tell us what you want to talk about and we will do so.’ Coulson exploded when he heard, and heated discussions followed. A torn Cameron did not follow Hilton’s advice. Embarrassingly, Cameron then became embroiled in a media furore over whether photographs of him on billboards, put up across the country, had been digitally enhanced.28 At the end of the month, at the World Economic Forum at Davos, he tried pulling back from an overly harsh economic message by saying that any first-year cuts in spending would not be particularly ‘extensive’. A few days later, on the BBC Politics Show, he said that cuts would definitely not be ‘swingeing’; rather, the government would simply want to take a nibble out of the deficit to make ‘a start’.29 Private polling had been showing the C
onservatives that their advocacy of deep cuts early on was politically highly risky.30 The impression of dissonance appeared all the greater when a defiant Osborne said on The Andrew Marr Show that ‘early action’ was required to avoid a ‘Greek-style budget crisis’.31 Cameron was uncomfortable and worried. Osborne punched back strongly in February in the annual Mais lecture, an important fixture among economic policymakers. Entitled ‘A New Economic Framework’, drafted by Harrison, it laid out more clearly than ever the entire Conservative vision of a tight fiscal policy on tax and spending, an active monetary policy to assist borrowing and investment, supply-side reform to bolster economic activity, and a rebalancing of the economy from consumption towards exports. Osborne argued ‘we have to deal with our debts to get our economy back on its feet’.32
Dissonance in Cameron’s camp continued all the way up to the general election. The Conservative manifesto title, Invitation to Join the Government of Britain, echoed Hilton’s mass participation idealism, and contained many ‘Big Society’ modernising ideas. But it equally spoke of the need to ‘deal with Labour’s debt crisis’ and said that savings of £12 billion could be made without impacting front-line services. The dual message was confusing, epitomised by an election poster that said they would ‘cut the deficit but not the NHS’.33
Cameron wasn’t sure which way to turn. The campaign was a mess, with Osborne’s and Coulson’s voices being heard on some days, and Hilton’s on others. Cameron’s heart inclined him towards Hilton, whose passion and message chimed deeply with his own, but his head drew him towards Coulson and Osborne, because he knew instinctively that the public finances required stern measures. The memory of Margaret Thatcher’s fiscal rectitude weighed heavily with Cameron and Osborne, as it did with the right-of-centre press whose support they wanted to maintain. Cameron couldn’t find his mojo or any passion during the election campaign, epitomised by his lacklustre performance in the TV debates against Brown and Clegg. He knew he had squandered the first debate, the only one he felt that really mattered. He felt terrible, that he’d let everybody down. He only found his stride again when he woke up on 7 May, the day after the general election, with one idea in his mind: a ‘big, open and comprehensive offer’ to the Lib Dems.
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