George Osborne’s painful budget narrative is one of cuts and bruises

The chancellor is pinning his hopes on infrastructure projects starting quickly

Secretary of state for communities and local government Eric Pickles: for Conservatives, he is one of the success stories, having cut costs  and given greater control to local councils over their budgets and extra powers. Photograph: Suzanne Plunkett/Getty Images

Secretary of state for communities and local government Eric Pickles: for Conservatives, he is one of the success stories, having cut costs and given greater control to local councils over their budgets and extra powers. Photograph: Suzanne Plunkett/Getty Images

Wed, Mar 20, 2013, 06:00

Nearly three years ago, staff in the Department of Communities and Local Government applauded Eric Pickles, the blunt-speaking Yorkshire-born Conservative secretary of state on his first day in office.

Listening to the applause, Pickles thought to himself, “There is rather a lot of them”, he remembered yesterday. Since then, a third have gone, more will go; while two floors in the office have been let out. A “pop-up” shop is rented out on the ground floor.

For Conservatives, Pickles is one of the success stories: he has cut costs – “nearly £500 million in administration by the time of the next election” – and given greater control to local councils over their budgets and extra powers.

Back in May 2010, George Osborne had a plan: government spending would be drastically curbed; the UK’s Triple A rating would be safeguarded, while the UK would be living within its means by 2015.

Today, Osborne’s plan is in tatters – the deficit, which had been cut by a quarter, is rising again; £600 billion will have been added to the UK’s national debt by the time voters next go to the polls, economic growth is flat-lining, while the UK consumer will not spend.

On Sunday, Mr Osborne played down expectations about the budget – though it would be difficult to see how anyone could have expectations – saying he had no “magic wand” to make problems disappear.

Back in the early days of the government, Osborne slashed capital spending from £50 billion a year down to £22 billion, which gave a short-term fillip to his budget-cutting figures, even if it drained life out of the British economy.

Now, he has found reverse gear: local councils will be put into competition for Whitehall funds to boost business, billions will be found to fund aviation research – one of the UK’s finest industries.

Some of the money – £2.5 billion – will be found by hitting departmental spending, bar health, international development and education: they will have to cut budgets by a further 1 percentage point by 2015.

Health spending was a red-line commitment given by prime minister David Cameron and Osborne before the last election, but Conservative backbenchers remain baffled on why the two will not cut the UK’s £12 billion aid budget.

Osborne will borrow a few notes from the Irish play-book, it seems, by cutting VAT on restaurants in a an effort to bring life back to the high street, along with restricting annual increments to public servants.

He has few levers left to boost growth: more will be put aside for new roads and so-called shovel-ready infrastructure, along with mortgage guarantees to boost home construction, while he will hold off on increasing petrol duties.

However, his principal problem is that the British public, where it has it, is saving money, not spending it: about 7% of income every year for the last five has been squirrelled away, compared with practically nothing in 2008, the last year of the credit-fuelled boom.

The problem illustrates the essential crux faced not just by Osborne: governments need to save money to get their own finances under control, as does the public. However, only rust will grow if everyone does it.