FOUR
May–October 2010
Cameron’s first twelve weeks in power are dominated by economic concerns. He and George Osborne had carved out Plan A over the preceding year and a half. They now have to enact it.
Since being appointed shadow chancellor in May 2005, Osborne had observed the operation of the Treasury carefully, looking with alarm at how he believed Gordon Brown had denuded it of some of its best people. In the long run-up to the general election, Osborne and his then chief of staff Matthew Hancock held conversations with Nicholas Macpherson and other senior Treasury officials. They regarded Macpherson as ‘Gordon’s man’, and their initial impressions were not positive. They wanted a more buccaneering permanent secretary heading the Treasury. Macpherson’s departure was one of three intentions that Osborne’s tight group shared amongst themselves; an Emergency Budget and a probable VAT increase are the others. Osborne wanted his top official to be Jeremy Heywood, who had served as principal private secretary to Conservative chancellor Norman Lamont from 1990–3. When Osborne invited him to dinner before the election, they chimed immediately. The doyen of the Civil Service, Heywood had served both Blair and Brown as the senior official at Downing Street. He knew the territory inside out.
Yet the more the Conservatives saw of Macpherson in their pre-election talks, the more they rated him. They were impressed by his grip and understanding. ‘Getting this transition right is the most important job I have to do in the rest of my career,’ Macpherson told them. He had been principal private secretary to the chancellor at the time of the 1997 general election and oversaw the difficult transition from Ken Clarke to Gordon Brown. No other figure serving in Whitehall had his direct understanding of Treasury transitions.
Soon after he becomes chancellor, Osborne begins to see Macpherson as an asset and an ally. Moreover, Cameron grows too dependent on Heywood’s advice at Number 10: he doesn’t want to lose him. Osborne is also disconcerted by some Treasury voices who counsel him against Heywood: they criticise him for effectively running a shadow Treasury operation in Number 10 under Brown. Alistair Darling’s strong advice to Osborne – the two men like each other – is to keep Macpherson.
Not since they prepared for power under Thatcher in 1979 has an incoming Conservative government had so much trepidation of the Civil Service. Osborne and Michael Gove, a close ally of Cameron’s and recently appointed Education Secretary, are the most wary: the former thaws, but very significantly, not the latter. Macpherson and Treasury officials throw themselves into the process of identifying spending cuts, and Osborne realises that Brown and Ed Balls were the authors of Treasury profligacy over the previous few years. Osborne’s team soon dub Macpherson ‘Mr Fiscal Conservative’. They retain doubts about Gus O’Donnell, Macpherson’s predecessor at the Treasury, who they know does not sympathise with their core economic judgement. Indeed, O’Donnell worries that Macpherson and the Treasury are so keen to show the new kids on the block their readiness to make cuts that they risk going much too far.
Osborne’s planning takes a further dent. He has anticipated Philip Hammond, the shadow Chief Secretary, becoming a kind of ‘super Chief Secretary’ after the election, taking over much of the work on spending and efficiency, and even day-to-day running, leaving him free to work with Cameron from Number 10 and to range widely across government policy.1 The team had been struck by how under New Labour, the post of Chief Secretary had become effectively Number 10’s spy in the Treasury, so great was the mistrust between Downing Street and the Treasury. The fact of coalition, and the need to find posts for senior Lib Dems, rules Hammond out, to his deep chagrin (he is given Transport instead). In his place, David Laws, hitherto Lib Dem education spokesman, is appointed. Laws is philosophically in tune with Osborne’s agenda, but he will not be freeing up Osborne to rove as Hammond would have done.
Laws is immediately struck by the closeness of the relationship between chancellor and prime minister, with constant messages to and fro about the cuts: ‘We kept getting detailed and clearly quite personal feedback on some parts of work. The PM stress-tested the whole thing in quite a lot of detail. I had imagined he would have outsourced it completely to George,’ he says.2 The political impact of changing the reimbursement rate of mortgage subsidies is typical of the issues that Cameron raises. ‘I’d been used to the Blair/Brown era, where Brown would say to Number 10, “I’m in charge, here’s a copy of what I’m going to say. Don’t give me any feedback.” Here was a relationship where David clearly had a lot of trust in George, but expected to be involved and where we had to demonstrate that the judgements that we were making were sensible.’3 Treasury officials are equally amazed at the intimacy and trust, as is Heywood himself, who has never seen a PM/chancellor relationship so close. From the very first days in power, it is apparent to all that this is going to be a very different era from the acrid relationships between Blair and Brown, and then Brown and Darling. Different too from the Conservative experience before 1997: witness Thatcher’s fraught relationship with Nigel Lawson, and John Major’s with Norman Lamont, both ending in departures of the chancellors.
The success of the government over the next five years will depend utterly on the two principals’ closeness. Cameron is akin to the older brother and Osborne the younger. Osborne is the metropolitan liberal thinker, a product of the edgy hothouse St Paul’s School; Cameron is more laid-back, more upper middle class and more cautious, a pragmatic Tory squarely in the tradition of Macmillan and Baldwin. Both are skilful tacticians, but Osborne is more attuned to presentational nuance, immediately sensing the advantages to the Conservatives of being in coalition with the Lib Dems and ensuring the economic strategy is the government’s leitmotif. ‘We’re not going to waste time having divisions between chancellor and prime minister,’ Hilton says on the eve of the general election. ‘George will be embedded at the heart of Number 10. They will be inseparable.’4 And so it proves. Both Cameron and Osborne know that where PMs and chancellors have got it wrong in the past, two factors have been responsible: disagreement over policy, as between Thatcher and Lawson, and rivalry for the top job, as with Blair and Brown. Both are utterly committed to avoiding the same mistakes. Both know who is the senior.
Osborne had spoken to Treasury officials before the election about a proposal to launch the Office of Budget Responsibility (OBR), an independent body to oversee the public finances. The idea was influenced by advice from economists Sir Alan Budd and Professor Kenneth Rogoff, which Hancock worked up in an announcement at the 2008 party conference – when it was drowned out by noise from the financial crisis.5 At the press conference on 17 May 2010 launching the OBR, Laws happens to mention that outgoing Chief Secretary Liam Byrne has left him a cavalier note, with a stark message: ‘I’m afraid there is no money.’ Byrne’s throwaway line immediately becomes a national story. Andy Coulson sends an urgent request for a copy of the original being demanded by the national newspapers. Laws confesses to Osborne that he had only mentioned it for light relief and what should he do? ‘If you don’t want to give the letter to Downing Street, don’t give it to them,’ Osborne tells him, so he doesn’t. Byrne’s message duly appears in the press, but not the letter itself, though it would eventually see the light of day, principally as an effective prop for Cameron during the 2015 general election