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There are three groups of Tory MPs when it comes to economic policy. George Osborne aims to please two of them.

By Tim Montgomerie
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George Osborne's meeting with Tory MPs went well yesterday evening according to all reports that I've received. No MPs objected to the central message of deficit reduction but there were a number of calls for tax cuts. Some wanted cuts in the air passenger duty, arguing that a boost for tourism and business travel could produce early economic dividends. Robert Halfon MP led calls for more action on fuel duty. There were also calls for reform of energy subsidies and lower CGT and corporation tax. One Tory MP told me that her colleagues were always readier to call for lower taxes than identify routes to lower spending and last night was no exception. 

Advisers to the Chancellor have divided Tory MPs into roughly three groups.
  • The first group which I shall call the competitiveness caucus want further action on corporation tax, more deregulation, less subsidy of renewables and more progress on aviation. Insofar as they want tax cuts they recognise they need to be funded. Many of these MPs are found in or care lose to the Free Enterprise Group - a forum now chaired by Kwasi Kwarteng but established by LIz Truss and supported by the IEA (profiled here).
  • The second group could be called the cost of living caucus. This group is less focused on economic competitiveness and more focused on expressing solidarity with the voters who are struggling to make ends meet. Rob Halfon's campaign against petrol duty is this unorganised caucus' top project. They're also interested in his 10p campaign and freezing council tax. They are also very supportive of the Chancellor's decision to squeeze welfare payments but protect pensioners. Many of these MPs represent marginal and northern seats.
  • Group three could be called the Plan C caucus. If you want to know what they think you should read Allister Heath's indispensable columns, including his ten point plan to reboot the economy in yesterday's Telegraph. The Plan C caucus believe that the economy needs shock therapy, including big tax cuts that won't be immediately fully funded. Among their recommendations are big cuts to corporation tax and the kind of CGT changes advocated by Eamonn Butler. Some want large new infrastructure efforts.

George Osborne thinks he is already doing a lot to satisfy the first two groups and hopes to do more. He is unprepared to risk increasing borrowing to satisfy the Plan C group.

I may be in danger of repeating myself but you will note that none of the three groups are particularly focused on cutting spending and there are approximately £30 billion of cuts that still need to be identified (£75 billion that need to be made). Spending cuts not tax cuts is where all of the big decisions are going to be taken. It's a real shame that Paul Goodman's Lower Spending Commission was never established.


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