George Osborne is describing the dark days of spring 1997 in No 10 Downing Street. “You just know when the power is draining away. We would phone up, say, the boss of the TUC and say: ‘The prime minister would like to see you today to discuss such and such,’ and they would reply that he was too busy because he was lunching with Blair.”
The shadow chancellor is strap-hanging on the underground, on his way to Crewe to campaign in the by-election. It’s odd to hear him speak so openly about the bleakest era in living Tory memory, given that the Conservatives are 20 points ahead in the polls and—consciously, jubilantly—on the verge of a famous by-election victory.
Is Osborne unpacking his memories about his spell as an adviser in the last weeks of the Major government for the benefit of our fellow passengers? Scarcely. They go through a very British performance of recognising and ostentatiously ignoring him. Not that he cares. He’s being mischievous, clearly relishing the recollection of impotence at No 10 because it applies now to Gordon Brown, pacing his office as funds, flattery and seekers of influence migrate to the opposition.
But the story is also a reminder of how Osborne’s own political education has been shaped by adversity. He was only five when the Tories last won a by-election in a safe Labour seat in 1977. He was still at university when the Tories won their last election in 1992. One senior Conservative colleague observes that the long polar night of Conservatism is critical to understanding Osborne: “The 1997-2001 period was especially important, because he saw the consequences of a half-hearted attempt at modernisation.”
On arrival in Cheshire, Osborne heads to campaign headquarters, awash with euphoric shadow ministers. The atmosphere is light-hearted, light-headed, but Osborne isn’t here to lark about. He goes about the business of campaigning with a certain doggedness. He moves smartly from door to door, patiently getting his point across—a plea for a big turnout to “send a message to Gordon Brown.” At one house, where the husband is pro-Conservative but the wife a Lib Dem supporter, Osborne good-humouredly argues that she should vote tactically. “It’s called a ‘lend-us-your-vote’ strategy,” he grins as we retreat down the driveway. Tactics, strategy—the words recur again and again throughout the day. This is his language: he speaks it like a native.
It has been an extraordinary year for Osborne. Just last September, the Tories seemed on the verge of implosion. Gordon Brown commanded Labour’s biggest poll lead since the Iraq invasion. A snap election seemed inevitable: a coronation for the new PM.
Then Osborne spoke to the Tory conference. And everything changed. He promised to raise the threshold on inheritance tax to £1m and to cut stamp duty for first-time homebuyers, funding these moves with a flat charge on “non-doms”—mainly wealthy people who live in Britain but are not taxed as residents. Osborne’s prose might not have won a place in the anthologies—it was pregnant with familiar rallying cries about aspiration and Labour holding people back—but the speech still belongs in any history of the Conservative party. The delegates roared with delight. Better still, Osborne’s pledges resonated far beyond Blackpool, rattling Brown into calling off the snap election, a fiasco from which he has yet to recover.
The tax reforms were not panic measures designed to forestall an election, Osborne now says (although the Tories were clearly petrified by the prospect of an election and were engaged in a gigantic bluff). The changes had been on his mind for some time. Nor was it just a case of tossing red meat to Tory supporters: “Inheritance tax was a genuine and serious problem that had spread far beyond Tory strongholds.” It also fitted into the template of Osborne’s approach to tax—no unfunded cuts. Any reductions had to be funded by increases elsewhere.
The bluff worked because it was politically astute. The Labour party had been muttering about the non-doms without doing anything about them. A string of City fat cat stories earlier in the year had made the non-doms into a hot issue. Even so, the idea of cutting capital taxes made Tory high command jittery. It didn’t fit with the plan to “decontaminate” the Conservative brand. Senior figures, like Steve Hilton, director of strategy, and Michael Gove, the modernising shadow schools minister, were unhappy. It would be seen as the Tories looking after their own. Even David Cameron is said to have had misgivings. But Osborne’s advocacy won him round.
The speech transformed Osborne’s status in the Tory party. As the novelist Robert Harris, a family friend, observes: “His conference speech made the political weather—it changed British politics and that is quite an achievement. The really bold stroke was the £1m round number on inheritance tax and the way in which it contrasted with Brown’s fiddling with tax bands.” Harris, who as a friend of Peter Mandelson had a ringside seat at the dawn of New Labour, is impressed by Osborne’s courage. “The key thing about George is that, to put it crudely, he has a lot of balls.”
“Before the conference speech, he wasn’t very popular in the party,” observes a colleague. “He always came low on the polls that Conservative Home [a closely followed website] does. But that’s now changed and he is esteemed independently of Cameron.” His status at the top has also been strengthened by the decision of Hilton—the third member of the Conservative strategy-making triumvirate—to move to California, where distance is likely to dilute his influence.

But what can we expect if the Tories do win power? And what have they learned from Labour in government? “Blair missed a massive political opportunity,” says Osborne. “That combination of very strong economy, a huge parliamentary majority, massive public goodwill and political energy—it was squandered.” New Labour didn’t know what to do. “They crossed the finishing line and collapsed.”
This is a long way from the “heirs to Blair” talk of a few months ago, and more to the point, it seems just plain wrong. Whatever one thinks of the results, there was plenty of activity in Blair’s first term: devolution, the Human Rights Act, Bank of England independence, the minimum wage, just for starters. What will the Tories do in their first 100 days?
“First of all, there will be a dramatic devolution of power in public services,” says Osborne. “Away from Whitehall and government ministers to the professionals and users in health, education and policing.” The second is “an intense focus on the social issues: the breakdown of marriage and so on.”
Devolution is the Conservatives’ chosen method to accelerate welfare reform: give users a direct say in how things are run and standards will go up. Osborne offers the example of elected police commissioners. “Instead of asking a cabinet minister why crime has gone up in their street, people will ask the locally elected police commissioner. If he cannot answer, he will be out of a job.”
But if all the money decisions are still taken in Whitehall, isn’t such devolution a sham? None of these public services will raise revenue locally. “Look, there’s still going to be a central government: Her Majesty’s treasury and Her Majesty’s armed forces. But that doesn’t mean that by devolving powers you can’t achieve a great deal.” Osborne sees Scotland as a good model. The Scots, he argues, no longer look to Whitehall for many of the answers, even if central government continues to dish out most of the funds.
But surely this devolution process just means the health and education services are captured once more by the professionals? Not at all, says Osborne. “Accountability will come through payment by results.” This, he says, is a superior approach to the Labour model of targets. “Targets mean you have a big monolithic service and the secretary of state decides how you achieve something—how much time you spend on a task and how many times you do it. This is a different approach, where you say to a private company that is, say, running a prison: we will pay you according to reoffending rates. So we will choose the objective, but they will decide how to achieve it.”
There are other obvious problems with “devolved provision” of education and health—the charge of a postcode lottery, for example. Osborne dismisses this: “There are already big inequalities in healthcare and education.” It’s not much of an answer: there’s a built-in contradiction between local decision-taking and uniform standards, and voters tend to want both.
All politicians talk about devolving power, but find it hard to do so in practice (although Labour, lest we forget, has done it in Scotland, Wales and London). Osborne does not always seem to have thought through the problems. He says he is opposed to allowing patients to make “top-up” payments for treatments not available on the NHS, for fear of creating a two-tier service. But most NHS professionals are in favour. In a devolved world, which view would prevail? It’s not clear. And what if devolution doesn’t raise standards? Scotland and Wales have opposed most of the Blair-inspired reforms, and the initial results have not been great.
The Conservative agenda sometimes seems like a grab-bag of progressive-sounding measures— loosely modelled on the late Blair period, but with a distinct lack of ideological underpinning. For devolved healthcare read NHS trusts, and for local democracy read elected mayors (although the Tories would push further and add police chiefs). It isn’t clear what is radically different about all this. The Conservatives have signed up to Labour’s spending plans till 2011, adopted the child poverty targets, and their welfare reforms tweak the means but confirm the ends. Isn’t this just all managerialism? We had Labour stripped of its old-time socialist religion, and now we will have similarly pragmatic, centrist Tories.
Osborne counters that the Conservatives are finding their own solutions to problems traditionally associated with Labour. “We now have a clear Conservative model, which is that governments should increasingly be the paymaster, not the provider, of services.” This is, of course, just what Labour has been edging towards in many areas. Osborne is clearly happier when the conversation moves from policy to tactics and party positioning. He trots out the line that the Tories now talk about things that matter to “someone in suburban Birmingham” rather than talking to themselves about Europe and tax. Occupying enemy territory is key to renewal: he talks about it endlessly. “We tried carving out clear blue water and that condemned us to ten years in the clear blue wilderness,” he says. And by ignoring the siren calls of the old-style Tory tax-cutters, they are nudging Labour off to the left. “Here we are in Crewe with the Labour party trying to carve out clear red water. We are now the occupiers of the centre ground; Labour is leaving it.”
Boasting apart, isn’t this still just a sterile squabble over the centre ground, with politicians trading managerial promises they seldom keep? Osborne disagrees, but this time more interestingly. “What happens is that a new centre ground is created. So what happened in the 1980s forced Labour to accept privatisation, lower taxes, control on unions. Arguably there are things that have happened in the past ten years—the minimum wage, the Scottish parliament—which are part of the new centre ground of British politics. Blair has made an impression. So it is not simply a pendulum; what you want to do is to move the centre ground in your direction.”
This is strongly reminiscent of New Labour pre-1997. Certainly the Conservatives sometimes seem—as did Blair and Brown back then—to be governed by ferocious self-restraint. How else to explain the stifled yelps of frustration from senior Tories that followed David Davis’s decision to resign and fight a single-issue by-election over civil liberties? When I asked one senior Tory what Davis was up to, he replied: “being a self-indulgent twat, as usual.” In public, however, the Tory high command have assumed a strained air of patrician indifference to the one-man show playing in their front yard. The big words which Davis wants to unpack—freedom, liberty, civil rights—appear to embarrass them. Osborne’s small daughter is called Liberty, but—as one wag comments—this might just as well be a reference to the shop as to the idea.

Close observers say Osborne has an amazingly acute political brain. “It’s not just that he gets it ahead of others,” says one. “It is that he gets there before anyone else in the room has even worked out that there is a political question to be answered.”
This facility, combined with a sharp logic-chopping capacity and clarity of expression, explains why Osborne—a pipsqueak fresh from university—slotted so easily into the role of efficient Baxter to senior politicians. He drifted into politics; for though he wanted to be a journalist, he got no further than odd shifts writing Times leaders. Then a friend recommended that he try for a job as a researcher at Conservative central office.
He was soon sucked up into the upper echelons—first as an adviser to Douglas Hogg, the hapless agriculture minister who oversaw BSE, then to Major. After the 1997 election, he considered a second bash at journalism but was persuaded by William Hague to stay on as his speechwriter. Hague’s regard helped him to secure the safe seat of Tatton in Cheshire in 2001. Michael Howard—who as Tory leader was Osborne’s last boss before Cameron—gave him the shadow chancellorship in 2005 and urged him to stand for the leadership, aged just 34.
Osborne still looks, and sounds, young for a senior politician, but he is already an old pro at the hand-to-hand combat side of Westminster politics. Most weeks he helps Cameron prepare for prime minister’s questions, and he clearly relishes his own chance to land blows on Brown. I see him when he emerges from one of these sessions, and he tells me of the trap they have just laid—a trick question that’s designed to embarrass the PM about not campaigning in Crewe. It is a Westminster pyrotechnic that’s quickly spent, but to Osborne, laughing and gleeful, it is clearly the meat and drink of politics.
But his backroom skills don’t always play well to a wider audience. Osborne’s performance on Northern Rock—an issue central to his brief as shadow chancellor—was lacklustre. He spent too much time berating the government without suggesting what should happen to the stricken bank. The deftness and authority of the Liberal Democrats’ Vince Cable showed up Osborne’s weakness. When it was clear that the Rock would have to be nationalised, Osborne came up with some procedural nicety that allowed him to continue opposing the government.
A colleague agrees that Osborne handled the Rock in a highly political way—but suggests that this is his general approach: “George’s starting position in any debate is to work out the political position he wants to end up in—on the Rock he wanted to end up on the opposite side to Gordon Brown.” However, the City—which Osborne has been trying to court—was not impressed. He seemed to be putting party before country. “His language was sometimes ill-judged, and he showed too much relish at the mess Brown was in,” said one bigwig.
It’s clearly personal: Osborne seems to have a perfect recall of every slight Brown has delivered over the years. He says that Brown cold-shouldered him when he was first appointed as shadow chancellor. Apart from their duels over the dispatch box, there was no personal contact whatsoever—until Brown suddenly found himself in desperate need of a parliamentary “pair” to get him off the hook in the crucial 90-day terror law vote in November 2005, when his diary was due to take him to Israel. Osborne was summoned to Brown’s office for a lecture on Gaza before a deal was proposed. Baffled, he demurred: this was for the whips to organise. Come the day of the vote, a civil servant called Osborne’s mobile to remind him of the pairing. When Osborne referred him again to the whips, Brown came on the line, saying, “I hope you are going to stand by our agreement.” Osborne’s last memory of the conversation is of Brown slamming the phone down. In the event, Brown was forced to turn his plane around immediately after landing in Israel to make the vote.
But what sort of chancellor would Osborne make? He seems to have won the battle to wean the Tory party away from its primal urge to demand cuts in taxes and spending. He talks a lot about the lessons he has drawn from the past, seeing tax as part of economic policy, not the whole thing.
True, Osborne instinctively favours a smaller state. Throughout our discussions he refers to how much of the national income the state devours. He also talks a lot about competitiveness, and the need to cut corporate tax. This suggests that companies may be higher up his to-do list than individuals.
But today’s economic picture makes the careful Tory mantra—to “divide the proceeds of growth between public services and tax cuts”—sound rather hollow. Few voters wrestling with the soaring cost of food and fuel and the plunging value of their homes believe there’s going to be any growth to share around. Come what may, public spending is on an upward tilt because of the ageing population. Also, the reforms the Tories are proposing for health and education will cost more up front before they begin to save anything. There is, quite simply, no money in Osborne’s till to give back to anyone. And with the OECD recently warning that Britain is going into a substantial slowdown, his problem may not be how to avoid giving tax cuts, but how to increase taxes without trashing the economy.

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