George Osborne warns coalition to resist pressure to lower living costs

Chancellor says ad hoc market interventions to slow price rises should not detract from need for economic growth

George Osborne has warned the coalition it would be making a strategic error if it shifted its campaign agenda on to Labour turf by trying to match Ed Miliband’s proposals for market intervention to halt the decline in living standards.

The chancellor is pressing the government to maintain its focus on the return of economic growth, including efforts to reduce unemployment, and not ad hoc market interventions to slow price rises. In internal conversations on how to respond to Labour’s agenda-setting promise to freeze energy prices, he has argued that voters will make decisions based on their view of the parties’ perceived economic competence; he also believes economic growth, including rising house prices, will feed into voters’ economic optimism in time for the 2015 election.

Miliband returned to the theme again in a speech on Tuesday in which he attacked “the insecure low pay Wonga economy” created by the coalition and promised the battle over living standards would be central to the next election.

Osborne and senior Liberal Democrats have been urging the coalition not to respond with gimmicks to lower the cost of living. But Downing Street, under daily political pressure from the apparent success of Miliband’s offer to freeze energy prices for 20 months after the election, is increasingly prone to look for counter offers.

The environment secretary, Owen Paterson, yesterday wrote to the water companies asking them to show restraint when it comes to raising prices, a stance ridiculed by Miliband.

Liberal Democrat strategists also believe the coalition should remain focused on the return of economic growth because, along with promises to continue to raise the personal tax threshold, it is the best way to win over voters.

Osborne’s aides have privately likened the strategic electoral battle to the way in which the Tories in opposition made the political weather in 2007 with a promise to increase the inheritance tax threshold. The prime minister, Gordon Brown, struggled for months to come up with a response, which he ultimately failed to do.

Tories say recent promises on train prices, green energy levies and water bills have been in preparation for weeks and are not a rushed response to the apparent success of Miliband’s energy price populism. They also insist they have also been looking at whether the statutory minimum wage could be raised, another policy area Miliband has tried to claim as his own.

The Conservative backbencher Mark Field became the first Tory to question whether the party was making a strategic error by drifting away from a purist growth stance. He said: “I think the real danger is that we’re getting off what should be our strong point, that growth is back in the economy – I think the foreseeable future, in the next six to nine months, I think we can anticipate some very good GDP figures. But this good news story isn’t necessarily going to work itself into pockets of people in Britain for the next few months.

“I think this plays into this Labour line that this is a recovery for the rich, or that any economic upturn is limited just for the south-east of England.”

He said the immediate coalition response to Miliband’s proposals should be to describe them as unworkable and then to accuse him of a lurch to the left. But he added: “When this issue gets a bit of traction we then try and fight back with ideas of our own. I just think the danger the Conservatives face at the next elections is if we’re trying to outmanoeuvre Ed Miliband at every turn.”

In a compliment to Labour, Field added: “What struck me was the similarity of what Ed Miliband was saying with the appeal of Nigel Farage, a sort of rather populist appeal, putting himself in place of standing up for the little man in place of big powerful government. This looks like a government being too un-nimble on its feet while the instigation of a populist message seems to go down quite well.”

Miliband’s latest proposal is to give employers a 12-month tax rebate of 32p for every extra pound they spend to take their staff wages to the level of the living wage, as opposed to the statutory minimum wage. In a speech in Battersea, south London, Miliband said he was struck by how little the government had to say in response to his ideas on market intervention. He also insisted it was not Marxist to suggest markets sometimes require rules.

The Labour leader said: “The next general election will offer a big choice. A choice about whether we tackle the cost of living crisis or shrug our shoulders.”

Miliband said: “We have a prime minister who thinks we can detach our national economic success from the success of Britain’s families and businesses. He doesn’t seem to realise that there is no such thing as a successful economy which doesn’t carry Britain’s families with it. And he obviously doesn’t get that the old link between growth and living standards is just broken.” © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

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