Fifteen years ago, on 11 May 2010, George Osborne arrived in the Treasury with a mandate to change the British economy. The deficit had reached more than £100bn, a hole in Britain’s finances twice the size of the armed forces. Who was to blame? The truth was confusing, technical and international. It involved understanding mortgage-backed securities and credit contraction. It was also depressing, because the people who were most at fault (investment bankers) would obviously never pay for the damage. So the Conservatives and the Liberal Democrats sold the public a simpler, more satisfying story: it was Labour’s fault, for spending too much money.
This was probably the most consequential and obvious lie in modern British politics, bigger even than the claims that would be made about the EU six years later. It was a risk, but Osborne told the story better than anyone else in his party, and it opened the door to becoming a more radical government. The story also contained its own solution, which was the Conservative principle that government spending is not a benefit to the country, but a problem to be solved.
Osborne’s approach was to underwrite very tight fiscal policy (austerity) with very loose monetary policy (zero interest rates and quantitative easing). Government spending was slashed while everyone else was encouraged to borrow as much as possible. Consequently, Osborne’s Britain became a place of private affluence and public squalor. The longest stagnation in real wages for 200 years was accompanied by a boom in asset prices. Britain became a country of wildly overpriced houses and flash cars, in which the trains can’t be relied upon, the local council is insolvent and the roads look like the surface of the moon. A country that seems to be doing well on paper, but which is inescapably threadbare in person.
Osborne still boasts about his long-term economic plan, but he is remembered as the chancellor who failed to invest while borrowing was cheap, blowing the chance to rebuild. Labour’s critics say his economic assumptions are followed so closely that it can seem as if Osborne himself is still in power.
Far too much crass, sexist comment has been written about Rachel Reeves’ qualifications as Chancellor, although she has a master’s degree in economics from LSE and spent six years at the Bank of England. The same writers had no such qualms about Osborne, who studied modern history and got as far as applying for a job as a journalist at the Economist (he was turned down). Not that Osborne himself had any doubts about his right to occupy the Treasury. He believed it was unnecessary for a chancellor to have any formal background in economics. Instead, he relied upon his most significant talent: the ability to present a drastic economic experiment to the public, and the market, as grey-suited fiscal discipline.
The experiment was based on a paper by two American academics, Carmen Reinhart and Kenneth Rogoff. The paper was not peer reviewed and has been described as containing significant errors, but it was highly influential in shaping austerity policies in the US and the UK. It was a niche view, but it fit with the politics of the Conservative and Republican parties, and Osborne expounded its principles: that government debt held back businesses from investing, and high levels of debt shrank the economy.
Whether he truly believed this, or whether it simply worked as a justification of the politics of austerity, is debatable. In 2011, Nigel Lawson gave a speech at the Treasury where he was asked by a member of the audience if he thought this “expansionary austerity” could work. Thatcher’s chancellor shrugged: it was not a matter of believing in an economic theory. The core belief was that the deficit was messy, and messes should be cleaned up.
Aeron Davis interviewed Osborne and David Cameron for his history of the Treasury, Bankruptcy, Bubbles and Bailouts. When asked about his economic thinking, Osborne defaulted back to the Reinhart-Rogoff idea, as he always had in government, but the details no longer seemed important. Despite the central importance of these two economists and their theory to Osborne’s career, “he couldn’t even remember their names”.
Osborne became a qualified economist in 2017, when he was appointed an honorary professor of economics at the University of Manchester. In conversation with Davis he reflected on this with an “embarrassed laugh… Why had he been given an academic title for something he knew very little about?”
On economic theory, Osborne trusted his chief of staff, Rupert Harrison, to take the lead. Harrison was a former research economist who had been Cameron and Osborne’s chief economic adviser for the four years before the election. He joined the morning strategy meetings in No 10, which were largely attended by what one source referred to as “gimmick people, like [the political strategist] Steve Hilton”. Harrison was occasionally referred to as “the real chancellor”, but he was not, as has been said of Dominic Cummings, helping himself to power; his thinking was aligned with Osborne’s and he was able to supply the economic arguments in favour of Osborne’s politics. They shared a view that the state really was flabby, that it could be starved aggressively and emerge in better health.
Part of the reason Osborne’s cuts to the state were so deep was that he planned to eliminate the deficit in four years. This timetable had not been set by an economic model. There was no analysis of the impact this might have on demand, or any prediction of how the Bank of England might respond; Osborne simply met with his advisers and they agreed that it would be good to have it done a year before the election.
He was free to make sweeping decisions of this sort because he and Cameron, unusually for a prime minister and chancellor, were aligned in their thinking. Unlike Margaret Thatcher and Nigel Lawson, or Tony Blair and Gordon Brown, they rarely if ever disagreed on their fiscal ideas. This meant these ideas went unquestioned.
The same was true of the other main parties. Before the 2010 election, Osborne had compared Britain under Labour to Greece’s teetering economy. It was a ludicrous comparison – Greece was in the grip of a sovereign debt crisis from which it could not extricate itself, because it did not control its own currency – but it was one that Vince Cable, the Lib Dems’ top economic mind, was eager to affirm, claiming that the Greek crisis was “a salutary warning” to the UK, which would go the same way, he intoned, “unless the next government gets seriously to grips with the deficit”.
The Treasury, too, was on side. Nick Macpherson, who had been permanent secretary (the department’s most senior civil servant) since 2005, had broadly supported New Labour’s fiscal expansion, but after 2008, Davis concluded, “the Treasury took fright”. The 1976 devaluation of the pound, and subsequent bailout by the International Monetary Fund, were always present in the department’s institutional memory, the nightmare that must never be repeated. Macpherson was an admirer of Gladstone, the historic saver of candle-ends and cheese-parings, and his department was well placed to help Osborne make the case that there was no plan B, no alternative to austerity.
Meanwhile, other institutions were marshalled to the cause. Osborne set up the Office for Budget Responsibility (OBR) as a fiscal watchdog, to produce independent forecasts by which policy would be judged. But the OBR was also a cover. It made it easy for Osborne and his successors, including Reeves, to play on the public misconception that because economics involves doing a lot of sums, it is a branch of mathematics and its conclusions are self-evident. The truth was best expressed by Neil Postman, who wrote that “economics is less a science than a performing art”. The OBR has, through its responsible attempts to predict the future, given every chancellor since Osborne a means to claim that its model of the economy validates what they are doing to the real world.
When Osborne delivered a Budget speech, he told Davis, he did not really consider himself to be speaking to the MPs in the Commons or the TV cameras, but to the markets that could also validate his policies. The other big speech every chancellor gives comes at an annual dinner at the Mansion House, across the road from the Bank of England. Typically, these do not involve major policy announcements, but in his 2013 Mansion House speech, Osborne spoke directly to someone who was not in the room: the incoming Bank of England governor, Mark Carney. The first and most important means by which the British economy would be healed, he said, was “active monetary policy”. Or, as a normal person would put it, cheap debt.
While Osborne hacked away at the government with “tough, credible fiscal policy”, he expected Carney to maintain very low interest rates and quantitative easing (QE), to make it so cheap to borrow that people would splurge on new cars and houses. He also further inflated the housing market with Help to Buy, a programme of loans underwritten directly by the government itself. The goal was to create the “wealth effect” – which does not necessarily make people better off, as rising real wages do, but certainly makes people feel better off. The same year, Osborne began to talk not only about eliminating the deficit, which still stood at more than 5 per cent of GDP, but also about targeting a government surplus. Under the coalition austerity programme, departmental budgets had been frozen, but to reach a surplus would have involved cutting £50bn from them in three years.
Giles Wilkes, a former economic adviser to Vince Cable and Theresa May, remembers this as the point at which he lost patience: “Clearly, the maths didn’t work. It was clearly impossible. It was insincere. It didn’t take any economics, it was arithmetic – you couldn’t do it without cutting the Ministry of Justice by 60 per cent.” But the fact that this was taken seriously was a credit to Osborne’s gift as a strategist. He could threaten to damage the state and the economy even more aggressively than he actually planned to, and the consensus was that this was what any smart centrist would do. “He was blithe about whether anyone would subject him to scrutiny,” Wilkes recalled.
By 2014, even Labour accepted the austerity narrative. It was Ed Balls and Gordon Brown who had introduced the concept of “fiscal rules” in 1997; Osborne cemented them as principles. At the 2014 Labour conference, Balls, the shadow chancellor, promised the public that despite the Bank of England manipulating the market to create the cheapest government borrowing in history, he would not commit to a penny of new spending funded by debt.
Balls and Osborne now collaborate on a chummy podcast, as men of a certain age often do. In December last year, they were joined by David Cameron, who compared the environment around a prime minister to the court of Henry VIII. Balls asked: “Was George your Cromwell?” The question was apposite – Thomas Cromwell, too, was a pitiless vandal of England’s infrastructure – but before Cameron could answer, Osborne interrupted: “I think there’s quite a lot of people in politics,” he said, “who fancy themselves as Cromwell.”
Like Cromwell, Osborne achieved his aims at the expense of the poorest in society. The medieval poor had relied upon monasteries for alms, food, shelter, education and medicine until Henry and Cromwell had them torn down. During austerity, the people who lost the most from Osborne’s cuts were also the people on the lowest incomes. In 2012, the Institute for Fiscal Studies predicted that the coalition’s policies would push an extra 500,000 children into absolute poverty, as £18bn in welfare spending was withdrawn. A working-age adult in Blackpool, the UK’s most deprived area, lost £914 per year from their net income; a resident of the City of London lost £177.
At the same time, others were protected. Pensioners were shielded by the triple lock, which Osborne introduced in 2011. Homeowners and asset holders enjoyed the wealth effect: in 2012, the Bank of England found that QE had already increased the wealth of the top 10 per cent by more than £300,000 per household. The Osborne mix of tight fiscal and loose monetary policy (a penny-pinching government, compensated for by cheap debt) created new rules for the economy. Between May 2010 and June 2016, real wages in the UK shrank by 1 per cent, but over the same period, the average cost of a property to a first-time buyer in England rose by more than 90 per cent. Work was a losing bet, but wealth paid like never before.
Last year, researchers at the London School of Economics released a new working paper estimating the human cost of Osborne’s political victory. It directly attributed 1,000 additional “deaths of despair” from drug overdoses to austerity, alongside a marked pause in progress on life expectancy. But austerity was also, as Osborne told the journalist Sam Knight last year, “devastatingly politically effective”. It allowed the Conservatives to protect older people and homeowners – natural Tory voters – while inflicting targeted pain upon Labour constituencies. Local authorities in the most deprived areas lost 35 per cent of their funding per person (in real terms) during the 2010s, while wealthier areas lost 15 per cent. At the same time, the declining health and welfare of those most in need put even more pressure on the most cash-strapped councils. The old municipal duties of local government – road-mending, bin collections, leisure centres, culture, planning, buses, street cleaning, housebuilding – were ignored as councils scrambled to deal with the ballooning costs of social care and accommodation, funded by a tax system that was not designed to cope.
The 2015 election was the great demonstration of Osborne’s talent for playing the economy as a game. He promised the public an even more stringent programme of cuts, the effects of which had not been considered and which were clearly not deliverable, but which the OBR had to model as if they were really going to happen. “They knew they were making a whole bunch of mutually inconsistent promises,” said Wilkes. “[Osborne] knew that he couldn’t do it, and the moment the election was over, the RDEL [departmental spending] figures got marked up by about £40bn… but they got their election win, because it removed space from the Labour Party to make attractive promises.”
The following year, the UK voted for Brexit, which came as a shock to the half of the country that hadn’t really been subjected to austerity. Osborne, who had promised a “punishment Budget” of further austerity if the Leave vote succeeded, was out. “Dave’s f**ked, I’m f**ked, the country’s f**ked,” he jauntily observed. On his final day in the Treasury, Osborne met with Masayoshi Son, the Japanese investor who was bidding for Arm, Britain’s most valuable technology company. Osborne waved through the deal – foreign direct investment was another of the means by which he and Cameron hoped others would compensate when they withdrew government spending – and Arm was sold for £24.3bn. This appears to have been something of a steal: when Son began selling shares in Arm in September 2023, the company was valued at $54.5bn. The specialist bank advising on the deal, Robey Warshaw, made £96m in fees for a few weeks’ work.
Five years later, in the most financially astute move of his post-parliamentary career, Osborne became a partner at Robey Warshaw. The small boutique bank is structured as a limited liability partnership, meaning it pays no tax itself, but its members do. In Robey Warshaw’s most recent accounts, the profits available to be shared between members of the partnership came to £69,971,274.
Osborne has been in demand as a purveyor of insight – he famously held nine jobs at once – but his crystal ball is not infallible. He predicted that a vote for Brexit would knock 18 per cent off house prices (which rose without stopping for seven years after the referendum) and destroy half a million jobs (unemployment fell for three years after the vote). At the beginning of 2024, he announced that he had inside knowledge that the general election would be held on 14 November (it was held on 4 July). Shortly before the US election, Osborne was asked who would win. “Kamala Harris,” he confidently replied (Ed Balls confidently agreed). Who would succeed Rishi Sunak as leader of the Conservative Party? “James Cleverly.” When Kemi Badenoch arrived instead, Osborne predicted that she would “make PMQs important again”. This, at least, appears to be true, in that Badenoch has failed so spectacularly to hold Keir Starmer to account during Prime Minister’s Questions that it may lead to her replacement, although this is perhaps not what he meant.
Since October 1629, the heraldic motto of the Osborne baronets has been “Pax in bello”. It was chosen by Sir Richard Osborne, the family’s first successful politician, but it suggests a temperament that seems to fit his modern ancestor: untroubled, at peace when others are at war. The glib, detached approach to running the economy is arguably the most significant part of Osborne’s legacy. It allowed him, and his successors, to make economic decisions as traps for future chancellors. Cutting current spending to fund tax cuts is one example: “You can certainly boast about it, and talk about how many pounds you’ve put in people’s pockets,” said Wilkes, “but the cost of the spending cuts accumulates, and is distant.”
The mistake Liz Truss made was not in planning to cut taxes, but in failing to admit that her plans would be paid for by further austerity. Rather than playing institutions such as the OBR and the Bank of England to her advantage, she engaged them in a brief, pointless battle in which she was humiliated. When Jeremy Hunt stepped in, he returned to the Osborne model, offering the country billions of pounds in tax cuts that also implied a savage round of austerity – but he knew he wouldn’t have to deal with it, because he also knew that his party would lose the next election. Fixing the problem he had created would be a job for Rachel Reeves.
The result is a government that is, as the historian David Edgerton puts it, “radically constrained by the market”. The Osborne consensus has become permanent. Labour, Edgerton told me, is “totally committed to a Tory view of the world. They want to be the Tories, in some deep way – the Tories as they were, not the Tories as they are now.”
For Edgerton, the rise of Reform and the Conservative Party’s embrace of the angry, identitarian right are the result of the Osborne consensus: “They are products of the extremism of the centre.” Reform and its supporters sometimes describe the Tories, Labour and the Lib Dems as a “uniparty” that thinks and acts in the same way. “They’re not wrong,” Edgerton told me.
What is Rachel Reeves’ analysis of the economy? What is her explanation of what was really wrong with the past 14 years of Conservative rule? Against which principles does she make that judgement? During the election campaign it was enough to diagnose “chaos” and to blame this, as the Labour manifesto did, on “Conservative ideas”.
What are Labour’s ideas? The public is left guessing from a series of muddles. We know Labour wants a stronger border force, an improved NHS, thousands more teachers, and the state-assisted rollout of renewable energy. But it also wants to achieve these things with a smaller state that borrows less. It wants to improve social care, while letting fewer people into the country to take jobs in social care, and without changing the tax system that funds it. It wants to reset our relationship with the EU without repeating the Brexit wars. It wants to train the people needed to build 1.5 million homes using an additional yearly budget smaller than that of the University of Hull. It wants to address inequality and poverty while cutting disability benefits, removing the winter fuel allowance from ten million pensioners and maintaining the two-child limit on Universal Credit.
This leaves the one clear set of principles to which we know Rachel Reeves is dedicated: her fiscal rules. I recently asked the polling company Ipsos to survey the public on how many people could explain a fiscal rule, or even name one. Of a representative sample of more than 1,000 people, the most popular response was: “Don’t know.” The second most popular response was, “Closing the £22bn black hole,” which is incorrect. Just 4 per cent of voters were confident that they had a strong understanding of Reeves’ fiscal rules. Four times that number had “never heard of them”.
Reeves might argue that her fiscal rules are simply aimed at placating the market, but the market is not apolitical. To the extent that it has opinions, the bond market prefers austerity, because the bond market is a large set of bets on interest rates, and austerity goes hand in hand with low rates. What is the point of being in government if your guiding principle is to ensure a good price for government debt?
Governments are seen to have failed when they abandon their stated purpose. Labour has tried to exempt itself from this risk, by refusing to give the public a clear idea of what its central purpose really is, by defining itself as a government that will pass the tests set for it by the OBR (which Reeves mentioned 19 times during her Spring Statement) and won’t blow up the bond market. But this remains a Britain shaped by Osborne and Cameron: an economy growing on precarious jobs and asset prices, while the public realm rots. If you do not assert your principles against the status quo, others will assert them for you. The ghosts of the past are always happy to take the wheel.
[See more: Cosplaying Reform will doom Labour]
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This article appears in the 14 May 2025 issue of the New Statesman, Why George Osborne still runs Britain