Osborne’s plans are outlined to Cabinet on Tuesday 2 December. The centrepiece is his reform to stamp duty, a measure the Treasury has favoured for a long time, but has been judged too expensive. No money will be due for the first £125,000 of a property purchase and then 2% will be levied on the portion up to £250,000, which will reduce the burden for first-time buyers in particular. An attraction for Osborne is that the move counters Labour’s mansion tax attack, which the Lib Dems don’t at first grasp. It is a mark, nevertheless, of the continuing effectiveness of the coalition that no leaking occurs about a sensitive change that would have affected market transactions had it come out. It is to be paid for in two main ways: cutting down on tax avoidance by banks, and by the so-called ‘Google tax’, which is designed to discourage large companies diverting profits outside the UK to avoid tax.
The Autumn Statement sets out the long-term investment intentions, to allocate money through to the end of the next parliament, so they could announce some goodies ‘ahead of the general election’. Osborne goes over the other measures in the Statement, including increasing the 2014 growth forecast to 3%, up from the 2.7% predicted in March. He announces 500,000 new jobs will have been created in 2014, and that the UK is now the fastest-growing economy in the G7. The deficit, he says, has been ‘cut in half’ since 2010, and he promises to generate a surplus by 2018–19. Conservatives (if not Lib Dems) around the Cabinet table bang their fists in approval when he finishes the preview. ‘We may not have won the election, but it has given us a chance,’ says one euphoric Tory present.13 Vince Cable, a constant thorn over the past four and a half years, introduces a discordant tone, asking how both parties have signed up to such draconian cuts, warning against the setting of unrealistic targets, and the risk they court of broken promises. One person present describes it a ‘jaw-dropping moment’, seeing it less as an attack on Osborne than a full-frontal assault on his own party leader, Clegg. Cameron gives Clegg a look as if to say ‘He’s off again’, to which Clegg responds with a knowing roll of his eyes – ‘See what I have to put up with?’14
The Autumn Statement is delivered to Parliament on Wednesday 3 December. Osborne’s propensity to showmanship now gets the better of him. ‘Our policy of continuing the spending cuts in the first two full years of the next parliament, at the same pace as we achieved in this parliament, now produces £4 billion less spending,’ he tells the Commons.15 His aim is to lock shadow chancellor Ed Balls into a vote on signing Labour up to the government’s plan on deficit reduction. But the Office for Budget Responsibility, presided over by an exasperated Robert Chote, is sceptical of the figures. He has grown uncomfortable with the government’s spending projections, and debates whether they are realistic. He chooses to draw similarities between public spending now and the 1930s. Osborne and Harrison have not anticipated this toxic historical comparison. Suddenly, the headlines are all about the Conservatives’ spending intentions entailing a ‘return to the 1930s’ and ‘The Road to Wigan Pier’, a reference to George Orwell’s bleak account of poverty in the north of England. Osborne protests at the ‘hyperbolic coverage’, particularly on the BBC.16 But the damage is done. The frustration is now directed at the chancellor: ‘Labour’s arguments about the deficit were failing because the economy was beginning to work, and their cost-of-living argument was failing because of the oil-price fall. Suddenly George has handed them an opening,’ says an insider. ‘The Autumn Statement probably went less well than we had hoped because of the 1930s stuff,’ admits one of Cameron’s team. It is no understatement. No unforced cock-ups is an article of faith in Lynton-land. Even the issue of immigration – as seen in the next chapter – at last looked as if it had been addressed. Unlike in the autumns of 2012 and 2013 when the skates were under the government, the Conservatives have been the dominant force this autumn. But as the parties leave Westminster for their final Christmas of the parliament, Osborne’s error of judgement hands the initiative back to Miliband.
THIRTY-SIX
Controlling Immigration
November 2014
‘Enough! I am giving the speech this Friday,’ says an irritable Cameron to his team on Monday 24 November. ‘We cannot keep talking about it. We have done nothing else for six weeks: I am fed up with the delay. We need to get back to talking about the economy.’ The prime minister is rarely this agitated. ‘It was a very difficult time in the building’, one insider acknowledges. Others describe it as the most uncomfortable period in Number 10 of the parliament. A crazy cocktail of toxic issues are raising the temperature to boiling point.
On 9 October, Tory defector Douglas Carswell wins the Clacton by-election with 59.7% of the vote, becoming UKIP’s first elected MP. The result sees the biggest increase in share of vote for any party in the history of by-elections.1 The by-election in Rochester and Strood caused by the defection to UKIP of Mark Reckless will be held on 20 November, placing even greater pressure on Number 10. They order a massive effort by CCHQ. Number 10 is under constant fire from Conservative backbenchers and from the press, who are pushing for a definitive statement on immigration and a declaration of the renegotiation strategy ahead of an EU referendum. The general election is less than six months away. The polls are hardly improving: in mid-November, Labour and the Conservatives are almost neck and neck, with Labour on 33%, and the Conservatives on 32%.2
Before the summer recess, Cameron’s team debated whether he should make a speech on immigration and the line he might take. The original plan was for a speech in July, which would help to develop a policy on free movement. Farage has managed to shift UKIP’s focus from the EU to immigration. Number 10 came up with the idea of restricting benefits to bona fide migrant workers, but a two-week rethink allows the policy to leak to both the Lib Dems and Labour. It results in a speech by Clegg on 5 August calling for tighter controls on migrants from new EU countries, saying that the electorate has ‘lost faith’ in the government’s ability to manage immigration, and that ‘everyone who wants to settle in Britain should speak English’.3 It is strong stuff from the party that has consistently dogged Cameron’s attempts to tighten immigration.
As soon as Cameron’s team return from the Birmingham party conference in early October, they reopen the subject. What might Cameron say to neutralise this toxic issue? The fault line which emerges is the one that has so often divided the Conservative leadership throughout history: free trade versus protectionism. The supporters of the latter want to ‘shoot the UKIP fox’ with a very strong pronouncement on immigration. Key amongst them are Craig Oliver, fired up by the red tops, Lynton Crosby, Oliver Dowden and newcomer Max Chambers, who joined the Policy Unit in spring 2014. Among ministers, Oliver Letwin and Michael Gove are strongly in this camp. Gove has yet to adjust to his new role as chief whip, and the polemicist in him gets the better of his judgement as he briefs the press that a cap on EU immigration is possible. It further ratchets up expectations of what Cameron can achieve in future EU negotiations, and adds to the tense atmosphere inside Downing Street.
On the free-trade side stand Osborne and Rupert Harrison, as well as Jo Johnson, head of the Policy Unit from April 2013. The Treasury traditionally favour free trade, seeing immigration as a net gain for the economy, far more so than a source of social or political anxiety. On their side too are the officials in Number 10, who the hardliners think are being obstructive. Llewellyn is strongly on the side of officials, although steered by the pragmatic realisation that Cameron’s scope for manoeuvre on restricting EU immigration is very limited. Llewellyn is the supreme Euro realist in Number 10, holding the line against the hardliners: he is also the bridge between both polarised groups. One pragmatist puts it bluntly: ‘A cap is not legal. The Europeans will never agree to it, and there is no point in even talking about it.’ ‘It was one of the very rare occasions where there was serious tension between the civil servants and the political staff,’ says another insider. It is the only major occasion when Cameron’s briefing-lite personal aides brief
against each other. As always, Kate Fall tries to find a middle ground and discover what the prime minister really wants to do and how it can be delivered. Officials warn with increasing force that if Britain pushes the EU too hard it will never achieve its objectives. How did Number 10 manage to get into this invidious position? Is a cap feasible? Is a middle ground even possible?
To understand these questions, we need to go back to before the 2010 general election. In the 2005 election, immigration had featured prominently in the Conservative campaign. ‘Every piece of polling told us that it was incredibly important,’ Crosby recalls.4 But once Cameron became leader later that year, immigration was downgraded. He was determined to move the party away from the emphasis that Michael Howard had given the issue. But it still ranked highly with sections of the electorate. In January 2010, with the general election approaching, Cameron told Andrew Marr ‘we would like to see net immigration in the tens of thousands rather than hundreds of thousands’. Immigration should return to the levels in the 1990s: ‘I don’t think that is unrealistic.’5 Net immigration in 2009 was 196,000: reducing it to tens of thousands will be a tall order. The Conservative election manifesto promised an annual limit on non-EU economic migrants to the UK, prioritising those deemed of most value to the economy, who are to pay a bond on entering the country, which will be repaid on leaving. Hilton was anxious that immigration should not become a focus in the 2010 election campaign. ‘There was a view that we had to avoid doing anything which could be construed as “nasty”. So we played down the issue,’ recalls a senior figure in the campaign. In the Coalition Agreement, the Lib Dems reluctantly accept the Tory ambition to cut immigration, by demanding the end of child detention at immigration removal facilities in return.6
The annual net immigration figure for 2010 marks a steep increase to 252,000, a record. Cameron immediately comes under pressure to make a speech on immigration reduction, his first on this issue as prime minister, which he does in the run-up to the May 2011 local elections. Labour’s record on immigration he says had been a ‘complete mess’.7 He has learnt that 2.2 million more people came to live in Britain under Blair and Brown than left to live abroad. ‘That is the largest influx of people Britain has ever had,’ he says, ‘and it has placed real pressures on communities. Not just pressures on schools, housing and health care … but social pressures too.’8 The Lib Dems, who are ideologically opposed to controls on immigration, are not happy with his new macho line. Business Secretary Vince Cable fights hard to ensure firms are not hampered by caps placed on migrant workers, and to prevent a tightening of student visa applications: but Cameron’s attitude is hardening. He has come to believe immigration is out of control, and is far more attuned to concerns about the preservation of a traditional British way of life than Conservatives like Osborne. He finds a soulmate in Theresa May: no one else in Cabinet feels as strongly as they do about controlling immigration. ‘I am the only person in this government who supports the Home Secretary on immigration,’ he is apt to say.
In 2011, the influx of EU nationals is not a major concern, with European and British net migration roughly in balance. Cameron thus focuses on reducing non-EU migration. He turns his fire on stamping out ‘shammed, forced marriages’, tightening the rules on student visa applications, and scrutinising carefully the welfare system which he says ‘for years has paid British people not to work’.
Still the numbers continue to rise. So further tightening follows in 2012. Employer-sponsored visas are introduced to help limit the inflow of skilled workers. British nationals wanting to bring in non-EU spouses are required to have an annual income of over £18,600, which affects more than 30,000 people.9 More stringent checks are placed on foreign student visa applications, and bogus colleges are closed. These measures combine to make a significant impact from the middle of the parliament, with net migration from non-EU countries beginning to fall.
But at almost the exact moment non-EU immigration comes under control, the problem shifts to EU migration, which from 2013 begins to creep up again. Within Whitehall, two explanations are given. The Treasury attributes it to the continuing eurozone crisis, which makes Britain, with its improving economy, a much more attractive destination for jobs. The protectionists, including many around the prime minister, instead blame Britain’s generous and non-contributory benefits system. The Home Office criticises ‘less legitimate organisations’ for finding ways of bending or breaking the rules, as well as businesses and universities for finding ways around existing procedures and controls.
On 25 March 2013, Cameron delivers a speech on immigration in Ipswich. His aim is to cast a further spotlight on the link between welfare benefits and immigration, and to propose changes to existing benefits law. It is ill-prepared and poorly received. Shadow Home Secretary Yvette Cooper attacks the negative image of migrants he gives, saying that ‘most people who come to this country work and contribute’ and that his proposals lack any credible plans to tackle illegal immigration or indeed labour market exploitation.10
Much of the EU immigration is from southern Europe, but it is immigration from the new accession countries that captures the headlines. Bulgaria and Romania entered the European Union in 2007. Transitional controls on immigration from both countries introduced in 2007 are due to expire on 31 December 2013. With UKIP and the right-wing press stoking up fears of hordes of migrants arriving, Cameron feels he must take further steps. Pressure from the hardliners within Number 10 results in the PM writing an article in the Financial Times in November 2013 attacking immigration from the EU.11 Jon Cunliffe, the British permanent representative to the EU, is delegated to talk to Council president Herman Van Rompuy to explore the scope for limiting ‘benefit tourism’. ‘Even if the EU doesn’t believe that benefit tourism matters, it stills matters in the UK, because every time the right-wing press talks about it, it becomes a huge problem for the government,’ Cunliffe tells him. ‘I can’t touch it. It won’t get through the European Court of Justice,’ says Van Rompuy. To add insult to injury, he adds, ‘Anyway, there is no such thing as benefit tourism.’
An immigration bill is introduced by the Home Secretary in October 2013, aimed at deterring health tourism by requiring temporary migrants to contribute to the NHS, and restricting access to bank accounts for those who live in the country illegally. But it runs into a morass of challenge from all sides – Labour, Lib Dems and backbench Conservatives. The bill, described by Matthew d’Ancona as a ‘shambles’, receives Royal Assent in May 2014, which has the effect of boosting support for UKIP, rather than detracting from it.12 After 2013, the focus shifts to border controls, and Britain’s decision whether to opt out of police and criminal justice measures adopted by the EU Council of Ministers. Britain would have to opt out of all 130 measures, which would have excluded it from being part of European security co-operation, and then decide which ones to opt back into. Michael Gove is at the forefront of those arguing Britain should opt out all together, but the police and security services are concerned that this will carry significant risks. Theresa May feels strongly that it is not in the national interest to opt out of all them, and they decide to opt out of most of the measures. Labour cleverly exacerbates Conservative divisions by forcing a vote on the concurrent and controversial European Arrest Warrant. Cameron has to make an undignified early return from the Lord Mayor’s Banquet to take part in the vote, which the government ultimately wins. It all creates an impression of confusion, especially as it comes on 10 November, a mere ten days before the Rochester and Strood by-election.13
These multiple pressures provide the background for Cameron’s long-heralded immigration speech in November 2014. After saying in his conference speech that Britain will ‘get what [it] needs’ on free movement of people within the EU, Cameron further builds up expectations when he reveals his immigration speech will unveil ‘the toughest system on welfare for EU migrants anywhere in Europe’.14 Leaks from Cameron’s team suggest he might say that Britain will secede fr
om the EU if it does not change the rules on free movement of people. The Daily Telegraph reports that at least six Cabinet ministers will vote to leave the EU if the current regime is maintained.15 Gerald Howarth, the former defence minister, describes immigration as ‘the number one issue in the country … Our view is that we need to restore to the UK Parliament immediately control over our borders … We believe that it is not acceptable for our European partners to tell us how to control our borders.’16 Some senior party advisers argue strongly that they are out of touch with the country on immigration. ‘It used to be the case in Britain that if you worked hard, got a good education, got a job, found a husband or wife you can get on in life,’ says one of them. ‘But immigration means there are now kids with fifteen different languages in one class and the teacher can’t educate them. There is a disillusion and frustration, and a sense that none of the current politicians understand it.’
Further disarray occurs when Cameron goes to talk to the right-wing No Turning Back group on 15 October 2014, who are demanding an uncompromising line on EU migration. Cameron intends the meeting to be a way of building trust and confidence, but the group is full of irreconcilables, and damaging leaks later appear of what he said.17 Number 10 suspect the hand of the right-wing former minister John Redwood. In mid-November, on his way back from the G20 summit in Brisbane, Cameron talks to Tom Scholar, his most senior adviser on the EU in Whitehall. Scholar’s advice is bleak: word back from the staff of other European leaders suggests they will say ‘we won’t back you’ if Britain pushes for a cap on EU immigration. Most worryingly, Scholar advises that Angela Merkel will not support a cap. Cameron’s team debate whether this is the final decision of EU leaders or mere positioning. ‘It is a fine judgement,’ says one. But the legal advice to Number 10 is clear: any attempt to impose a cap will be ‘shot to pieces’, because it would be very likely to require EU treaty change. An influential briefing by the Open Europe think-tank, ‘What are David Cameron’s options for limited EU migration?’, is published in November. It further boxes him in, by saying that achieving unanimity on any EU treaty change required to limit migration would be next to impossible.
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