After Cameron was elected party leader in December 2005, seven months after Osborne’s promotion to shadow chancellor, they rapidly became the closest of allies: the closest indeed that British politics has seen at the top since the Second World War. They both yearned for credibility at a time when their youth and inexperience provoked so many questions. So in September 2007 they took a decision deliberately to imitate what New Labour had done before the 1997 general election, when Blair said he would match Tory spending plans, and promised to maintain Labour’s spending plans if elected. Osborne’s predecessor as shadow chancellor, Oliver Letwin, said Osborne ‘took the decision early on deliberately to avoid an argument with Labour on public spending, in an attempt to neutralise the issue’.7
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