ConservativeHome's ToryDiary

The race to 'own' the economic issues

The Independent reports that Labour has found an extra £5bn of savings across Whitehall.  These savings will be used to help justify next week's promise of recession-beating tax cuts and also to blunt the Tory case that there are further big economies to be made.  In a speech yesterday evening Lord (Michael) Forsyth quoted Barack Obama's promise to "go line by line through every item in the federal budget and eliminate programs that don't work and make sure that those that do work, work better and cheaper.”  This is what the Conservatives now need to do, he said.

ConservativeHome's Tuesday afternoon survey of Tory members found strong support for real terms cuts in public spending.  55% said that they supported real terms cuts in spending. 29% supported a real terms freeze.  Only 2% supported matching Labour's planned level of spending growth and another 2% supported even higher spending.

Both main parties now appear to be in a race to get there first with announcements on tax relief, waste reduction and spending restraint.  Daniel Finkelstein - very close to George Osborne - yesterday suggesting that Labour may not keep to its own spending plans.  The clearest gap between Labour and the Conservatives is in the attitude to borrowing with Conservatives saying 'enough is enough' and Labour willing to take Britain further into the red.

We also asked Tory members what recession-related issues they thought would be most important at the next election.  This is the resulting league table for those members identifying an issue as "very important":

• Unemployment: 72%
• Personal incomes: 66%
• Government borrowing: 62%
• House repossessions: 58%
• Mortgage and interest rates: 56%
• Rising severe poverty: 38%
• Behaviour of the banks: 36%
• Inflation: 34%
• The level of the pound: 27%

The Tories are calculating that - should there be an early election - government borrowing will become a much more potent issue.  Many Labour backbenchers also see political opportunity in taking a strong position on behaviour of the (nationalised) banks.

Today we launch our tracker graph of issues, their importance and which political party is most likely to 'own' them.  At this current time we believe that the Tory position on borrowing is our strongest issue and 'policy activism' is Labour's strongest issue.  We will re-release it after next week's PBR.  CLICK ON THE GRAPHIC TO ENLARGE IT.

Tim Montgomerie

Osborne: Britain won't be fooled by Brown's "tax cons"

George Osborne has just spoken to a private meeting of the parliamentary party.  He received a warm reception but one that was "far from ecstatic" according to one source and "conditional" according to another.

He said that the party needed to make it very clear that the economic crisis engulfing Britain was not imported from America but made in Britain.  America was not responsible for Britain's record private and public debt, he said.  America was not responsible for the fact that the UK's recession was likeliest to be the deepest of all major developed economies.

He went on to say that the British people would not be fooled by tax giveaways.  It was vital that the Tories presented the expected tax cuts in next week's Pre Budget Report as "tax cons".  The party needed to be super-disciplined, he said, in relentlessly driving home the message that Brown was - yet again - treating the British people as fools.

Earlier he received significant vindication from the Monetary Policy Committee for his view that fiscal irresponsibility could imperil an expansionary monetary policy.  James Forsyth has blogged that the MPC minutes reveal that deeper rate cuts are dependent upon announcements in the PBR.

Nine out of ten Tory members happy with leadership's approach to tax, spend and debt

Yesterday we hoped that David Cameron's announcement on spending might produce an outbreak of peace in the Conservative Party (at least on economic policy).  We emailed out a quick survey to see if you agreed.  1,092 members answered the survey over the following eight hours. The results are encouraging:

We asked: "How do today's Tory announcements on greater public spending restraint affected your view of the party leadership?"

• 41% replied that "it makes me view them much more positively";
• 42% said "a little more positively";
• 2% said "much more negatively";
• 5% said "a little more negatively";
• 10% said it made no difference or they didn't know.

At least as significantly we found that Tory members were overwhelmingly content with the overall economic policy stance adopted by the leadership.

In a forced choice we asked respondents to say which of the two following statements they most agreed with:

• "Higher borrowing is necessary to pay for a fiscal stimulus to help Britain beat the recession"
• or "Britain cannot afford higher borrowing. Any reduction in taxes must be financed by tighter control of waste and public spending."

92% agreed with the second statement (the Conservative position); just 8% agreed with the first.

The Mail and Telegraph have both reacted very positively to yesterday's news.  Significantly, The Sun, too:

"At last, the Tories seem to be finding their voice. They have decided to put hard-working taxpayers first — and dump their daft promise to match Labour’s bloated spending... Labour seems ready to gamble the entire economy on a “cut now, pay tomorrow” burst of tax reductions financed by ever-higher borrowing. That is the economics of the madhouse."

"Game on"

"Game on" is the expression being used by one senior adviser to David Cameron to describe the new contours of the political landscape.  Although we need a lot more detail from both our frontbench and from Labour, there's a real choice again in British politics (click on the graphic to enlarge it):

There is also a real possibility of unity within the Conservative Party - perhaps the greatest opportunity since the Cameron-Osborne project began.  The fiscal conservatives have retained the integrity of their position by ruling out further borrowing and by insisting on social and budgetary reforms that will start to return order and discipline to the public finances.  But also happier are the more hawkish small government conservatives.  The focus on eliminating waste and controlling spending gives them heart about future possibilities for lower taxation.  Peace may be about to break out in our party.

Tim Montgomerie

CAMERON: WE WILL NO LONGER MATCH LABOUR'S SPENDING PLANS

Forgive a little self-congratulation but ConHome was the first to campaign against the Tory pledge to match Labour's spending plans, we were the first to predict it would be broken and now it has:

David Cameron has just said that only spending restraint will defuse Labour's borrowing bombshell and afford real, sustainable tax cuts.

11.20am, Key highlights of speech:

The scale of Brown's borrowing bombshell: "Gordon Brown is talking about borrowing an extra £30 billion. That’s a £30 billion Borrowing Bombshell – and let me tell you what it would mean. An eight per cent rise in income tax. Or a six per cent rise in VAT. Spending priorities shifting from new schools to educate our children and more police officers to keep our streets safe to servicing the growing interest on our debt. Gordon Brown knows that borrowing today means higher taxes tomorrow. If he doesn’t tell you that, he is deliberately misleading you."

A borrowing binge may not even work: "It’s not just that embarking on a government borrowing binge to pay for tax cuts or spending increases is dishonest and unfair. There is little evidence that it will actually work. In Japan they continually tried to kick-start their economy by repeatedly pushing through an unfunded fiscal stimulus. Between 1992 and 2002, Japanese government net debt grew by fifty-eight percent of GDP. Yet, over the same period, their economy grew by only nine percent – that’s less than one percent a year. The result was a ‘lost decade’ of stagnation, a crippling debt burden, and a landscape littered with endless – and embarrassing - white elephant public works programmes."

A promise of honesty: “I want to be honest about the problems we face, and how we will overcome them. I have been honest with people about the scale of our social problems – and the long, tough road we have to take to fix them. And now I want to be honest with people about the scale of our economic problems too. This means saying things that are not immediately popular. That we can’t afford a massive tax giveaway paid for by a borrowing binge. That we can’t afford a spending splurge. It means arguing for things that are difficult.  For prudence, not giveaways."

We will no longer match Labour on spending: "taxes will need to rise in the future. Without such restraint, the borrowing bombshell will turn into a tax bombshell. And if Mr Brown cuts taxes now, the bombshell will be even bigger. Senior Labour figures have admitted as much, the truth begins to come out. Tony McNulty said any outstanding balance “may need to be found by taxation”. Peter Mandelson admitted they would have to make some form of “structural adjustment in the years ahead”. And Alistair Darling warned that “at some stage you have to pay for it”. I think this is the wrong course for Britain. We need change – we need change to defuse the borrowing bombshell, to start living within our means, and to set us on the path to permanent tax cuts in the future. So, I can announce today that Labour’s economic mismanagement makes it vital for the long-term health of our economy that we set a new path for restraining the growth of spending. That means for the year 2010-2011, we need change, not more of the same. That means reducing planned government spending growth, and not matching Labour’s spending plans."

The overall message: "Today it is our duty to set out an alternative course for the immediate priority: protecting people from Labour’s recession, and ensuring that the recovery comes as quickly as possible. A vital part of that will be sticking to our commitment to fiscal responsibility. Not spending money we haven’t got. But saving it to help people through tax relief. Not borrowing money on the nation’s credit card. But getting a grip on public spending and making sure Britain starts living within its means. That’s the only responsible way to get our economy back on the path to recovery. And that’s the only long-term, sustainable way that we will reach the low tax, low debt economy that the people of Britain - after years of putting up with Labour - not only demand, but truly deserve.”

Boris starts Oliver Letwin's savings list with attack on ID cards, national child register and public sector advertisements in The Guardian

London's Mayor has written a barnstorming article for today's Telegraph, complaining at the inflated cost of wine that will greet him and his diminished pounds on his forthcoming skiing holiday in France:

"I will be forced to sip that drink miserably, nursing it in a corner, while all around me hearty red-faced skiers from euroland will be singing shanties and calling for more, slapping their relatively un-devalued banknotes on the counter."

Defending George Osborne, Boris lays the blame for sterling's slide at Gordon Brown's door:

"Why is the pound at a 12-year low against a basket of other OECD currencies? Who is to blame for the cost of my vin chaud? I tell you who: it's you, Gordon. You did it, by running the largest budget deficit in the world, now hanging round all our necks at more than £100 billion. You wasted all that money in the good times, water-cannoning our dosh with so little thought or restraint that only Hungary, Pakistan and Egypt are suffering from comparable indebtedness, and Hungary and Pakistan are already in the hands of the IMF. You weakened the pound, Gordon, because you expanded the public sector without reforming it. You weakened the pound because you bloated the state pay-roll, and then you added the private finance initiative and the nationalisation of the Bradford & Bingley and Northern Rock, and all the time you somehow believed your own lunatic propaganda that you had personally defied the laws of economic gravity."

And in words which, we hope, will reach the party's new Chief Waste Finder, Oliver Letwin, Boris - who has frozen the Mayor's share of council tax since coming to office - highlights public sector profligacy:

"Why are we still spending hundreds of millions on a new register of every child in the country? Why are we squandering billions on ID cards? Why does the Government still spend £800 million on advertising public sector appointments - very often in the Guardian - when they could be conveniently displayed online?"

Ending public sector advertising in The Guardian should be at the top of the Letwin-Osborne list of public sector economies.

The tide is turning Osborne's way

ConHome has always thought Osborne would survive as Chancellor. We are beginning to believe that he'll succeed too.

Reason one: His weekend performance. His time-to-tell-the-truth interview with Andrew Marr was one of his best performances in recent times. It was also impressive to see colleagues and a former Chancellor coming to his aid over his remarks on sterling. The ex-central banker in me worried about what he told Saturday's Times but 48 hours on, George Osborne has been justified.

Reason two: A desire for unity in the party. The very negative reaction to Ridley Grove's call for Osborne to be moved was striking.

Reason three: The promise of waste-funded tax cuts. The fiscal conservatives and the small state conservatives may both be happy soon - reinforcing reason two. Fiscal conservatives will be happy at George Osborne's insistence that borrowing can't get any bigger. Small government conservatives (and supply-siders) can be encouraged that Oliver Letwin's review suggests a renewed concern about the wastefulness and inefficiency of Labour's bloated state.

Reason four: The growing clarity of the Tories' electoral message. That message has just been delivered very powerfully by David Cameron in the Commons, responding to the PM's statement on the G20 summit...

Three themes stood out:

1. If Britain is so well-prepared why will our economy shrink faster than all our major competitors according to the IMF and the EU? Cameron said that Gordon Brown was beginning to sound "ridiculous" blaming everything on America.
2. Britain he said had a weak currency because it had a weak economy and a weak government.  After using these words David Cameron revealed they were actually Gordon Brown's from the past.
3. Higher taxes are Labour's secret agenda. Labour's borrowing bombshell will become a tax bombshell soon. £30bn of borrowing will become a £1,500 bill in higher income tax in future years. "Tax cuts should be life, not just for Christmas".

There is plenty of material in those three points for some very hard-hitting political campaigning.

Tim Montgomerie

Waste-funded Tory tax reliefs will deny Gordon Brown the disunity he seeks in our ranks

Yesterday's Sunday Telegraph reported that Oliver Letwin has been asked to draw up a list of public expenditure savings that can be used to fund Tory tax cuts. This is excellent news if those savings are to be appreciable and can pay for tax cuts of real significance. Although Mr Letwin should be able to bring forward some obvious ideas for saving money (taking up, for example, the TaxPayers' Alliance idea of scrapping the ineffective Regional Development Agencies) he should not be tempted to be too precise about savings. The people best-placed to make wise efficiency savings are those closest to the frontline. Rather than shadow ministers deciding that 'project x' or 'project y' should be cut the better approach is for the Tories to announce that certain budgets will be frozen in real terms and that local managers and professionals need to find economies.  After many years in which the the public sector has been awash with money that should not be impossible.  Most households in the nation is facing such choices and they would understand such an approach.

Labour's strategy for political recovery relies upon Tory disunity.  Brown cannot get close to an opinion poll lead without the kind of infighting that would make us unattractive to voters.  Slowly but surely the party is edging towards a position where that scenario will be denied Mr Brown.  The Tory leadership is maintaining its fiscally conservative position on fully funding tax cuts while at the same time realising that a more urgent strategy for stimulating the real economy and slimming down the bloated state is necessary.  That is a recipe for Tory strength and unity.

We can then get on to the front foot - slamming Labour for leaving Britain least well placed to weather the global recession.  Campaigning against the debts that Labour is building up for the next generation should be at the heart of Tory campaigning over the coming winter of discontent.   

Tim Montgomerie

Punk tax-cutting?

Danny Finkelstein - one of politics' nice guys - grabbed attention with his "punk tax cutters" soundbite but it hasn't helped anyone understand the very different tax policies of the political parties (and of commentators and bloggers).

As we've written before, Danny sometimes appears as though he is stuck in the mid-1990s.  We imagine him going home and watching This Life DVDs and listening to Portishead.  The enormous thing that has changed since Danny was at William Hague's side from 1997 to 2001 (and was burnt by previous promises to cut taxes) is a massive change in the public mood.  Voters have paid their taxes to the Blair-Brown machine and haven't seen commensurate improvements to the public services.  They are ready for a refund. 

Voter readiness for relief is more urgent in recessionary times.  Tax relief now could help householders and businesses survive very difficult pressures.  ConHome believes that considerable tax reliefs could be funded by spending restraint.  Brown has presided over a massive increase in state spending.  Who believes that that money has been well spent?

Danny may think it unfair that the blogosphere has been agin him recently but he's backed the three big errors that have characterised Tory economic policy:

1. The belief that lower taxation produces no reliable dynamic benefits and every £1 of tax relief needs therefore to be "fully funded";
2. That Conservatives should match Labour spending plans (with this decision has come a missed opportunity to lead public opinion about waste and over-ambition in the Labour state);
3. Failure to use the economic crisis to wriggle free from (2).

None of this need be electorally consequential. ConHome believes that Labour is so broken that the Conservatives are still on course to win the next election. As economic gloom descends the Tory lead will grow again. Middle Britain's allergic reaction to debt will finish off Mr Brown's undeserved reputation for prudence. Our concerns aren't electoral but about getting a really worthwhile Conservative economic policy.

The Tory agenda for social reform remains the best hope for reducing the demands on government and for producing a sustainably smaller state.  What we need is a more urgent agenda for restoring Britain's economic competitiveness. That agenda must include a smaller state and lower, simpler taxes.

PS Danny blogs today that George Osborne gave 'punk tax cutters' what they wanted. No, he didn't. Because of his commitment to match Labour on spending the Shadow Chancellor is having to come up with bureaucratic, self-funding mechanisms like yesterday's recruitment subsidy.

Newspapers brand the latest Tory tax plans as unambitious

The consensus to be drawn from this morning's newspaper editorials responding to yesterday's announcement from David Cameron of tax cuts for firms which take on those who have been unemployed for three months is that the party is not being ambitious enough.

The Telegraph echoes the concerns of the TaxPayers' Alliance, describing the plan as "timid and unambitious":

"The plan to give a tax break to companies taking on unemployed people is excessively complex, does not put money into people's pockets - surely the priority in a downturn - and is far too modest in its scope. Costing £2.6 billion, just half of one per cent of the total tax take, it would barely be noticed."

The paper's columnist, Simon Heffer, is even more scathing, declaring that "it is hard to come to terms with the sheer stupidity of this wheeze".

The Financial Times also states that the Tories have not gone far enough:

"The case for fiscal action is getting stronger. Although the opposition Conservatives show they understand the need for a plan to repair the public finances, their short-term proposals for dealing with the downturn are paltry. Should the government go ahead with a fiscal stimulus at the pre-Budget report, expected this month, it must do better."

Even the Guardian reckons the party's response to be "too small"

"Given the bleakness of the economic outlook, a £2.6bn tax relief is as much use as a rubber ring in the middle of a gale. Few of the modest measures the Tories have produced so far have made much impact on the public. A poll yesterday suggested that, while Labour remains behind overall, most voters think that Gordon Brown is the best man to tackle the recession. The Conservatives want to drum home the message that they alone can restore order to the books, but so far that message seems not to be resonating."

The Times cites the merit of the Tory plan as being the fact that it would be funded by welfare savings, but nonetheless makes a call for "targeted, temporary tax cuts, implemented now but to be funded by cutting wasteful spending programme".

The Daily Mail, whilst rejoicing that the political establishment is finally "waking up to the economic benefits of tax cuts", it believes that none of the parties is planning to do enough to tackle the "tangle of red tape suffocating business" and "hugely bloated public sector". The paper asks: "Where is the new Mrs T?"

The Sun, meanwhile, has another proposal:

"Why don’t we seize this golden chance and raise the starting point for income tax — releasing millions of low earners from tax and welfare forever?"

Jonathan Isaby

"Too timid, too complex and poorly targeted"

The TaxPayers' Alliance have now added their own reaction to that of others.

The TPA draws three main conclusions about George Osborne's recruitment tax subsidy:

• "Too small scale: An estimated £2.6 billion tax cut is a mere 0.5% of the Government's 07/08 tax take. Given the scale of the crisis, and the fact that Corporation Tax, Business Rates and employers' National Insurance Contributions alone place a burden of over £100 billion on business, much larger tax cuts are needed to help businesses and workers through the recession.
• Too complex: Contrary to the stated Conservative Party principle of tax simplification, this proposal increases the complexity of the tax system with numerous conditions and qualifiers. These not only threaten to increase administration costs for business and Government, but also risk distorting companies' behaviour and even potentially skewing the balance of the economy when it comes to recover from the current crisis.
• Poorly targeted: Because the proposals are targeted at recruitment, they do nothing to help firms which are having to shed jobs. Tax cuts should be aimed at helping companies to avoid having to lay people off in the first place. Any firm making redundancies within three months of recruitment will be barred from the scheme, so businesses most affected by the financial crisis will get no benefit at all."

Difficult to disagree with any of that.  More from the TPA here.

Reaction to Tory recruitment subsidy

CBI: "“We know small and medium-sized manufacturers are cutting jobs for the first time during this crisis. While firms have to do what is right for their businesses in these challenging times, these imaginative proposals would help some small businesses keep people in work.”

British Chambers of Commerce: "With unemployment continuing to rise sharply, companies are not in a position to think about recruiting new staff right now. Businesses are shedding staff. Cashflow is of primary concern to businesses at the moment. This policy announcement would have been a valid welfare to work initiative in better times, but it is not a survival tool for small businesses during a severe downturn.”

The Federation of Small Businesses warns - according to Paul Waugh - "that the plan could act as "disincentive" to firms hiring those unemployed for less than three months."  [This - and the scheme's complexity - is among the most important objections].

Janet Daley: "What this proposal will sound like to most voters is a tax break for business. However sound it may be as an incentive to companies to take on employees (assuming that they have the wherewithal to do so), it does not speak to the ordinary hard-working, over-taxed family which all parties are seeking to placate."]

Fraser Nelson: "It’s a welcome move in the right direction: cut taxes on companies, and you will get more jobs. But 350,000 of them during a deep recession? Dream on."

Daniel Finkelstein: "A brilliant stroke of genius from George Osborne."*

* Okay, we made that one up.

Tories to announce £2.6bn tax cut for businesses

So the BBC is reporting:

"The Tories will call for a cut in the amount companies pay in national insurance to help them take on staff who have been jobless for three months. The Tories say the measure will reduce firms' tax burden by £2.6bn and create 350,000 new jobs in the next year."

Our understanding is that George Osborne will say that the tax cut will be funded by the reduction in unemployment it will help deliver.  (8.20am: In a confident performance on the Today programme Mr Cameron said that the tax cut will be worth £2,500 to every firm that takes on someone who has been unemployed for three months and will save £8,000 in every year in the way of saved unemployment benefit).

David Cameron is addressing a press conference at 8.30am. We'll post more after that.

Channel 4 helpfully listed the other tax changes previously announced by the Conservatives:

1. A two year freeze in council tax;
2. A six month VAT holiday for small businesses;
3. 1p NI cut for very small firms;
4. A reduction in corporation tax funded by an elimination of allowances;
5. Abolition of inheritance tax - except for millionaires - paid for by a tax on non-doms;
6. The end of stamp duty for nine out of ten first-time buyers;
7. Lower fuel duty when oil prices are higher, higher fuel duty when prices fall;
8. Full opposition to Labour's planned increase to Vehicle Excise Duty;
9. Lower taxes on families funded by higher green taxes - both yet unspecified.

8.45am: CCHQ has just released this (PDF) document (and logo) which outlines the conditions attached to the tax relief.

The Tory tax cut must not be a mouse

The Telegraph reports that "Alistair Darling will announce measures worth several hundred pounds to every family struggling to cope in the downturn."  The Conservatives, meanwhile, will announce a fully-funded tax relief that, the Today programme reports, will be targeted on people in danger of losing their jobs.

Although small tax cuts can work electorally (see the experience of Canada) it is vital that tomorrow's Conservative tax reliefs are proportionate to the scale of the economic challenge facing Britain.  Tory members agree with the leadership that indebted Britain cannot afford even more borrowing but tough spending restraint could afford large tax reliefs (a position supported by today's Daily Mail).

Trevor Kavanagh uses his Sun column to attack the "sloppy assumptions" of the Conservative position - particularly on economics but the most important warning to David Cameron and George Osborne comes from Fraser Nelson.  Writing at Coffee House he points to the experience of America where Barack Obama 'stole' the tax issue from the Republicans:

"McCain didn’t think for a moment that the tax-cutting agenda could ever be stolen from the conservatives. He was wrong. Obama put tax cuts at the front and centre of every speech he made, even if this wasn’t much reported in Britain. Look at www.obamataxcut.com to see the power of the message he was sending American voters. You enter your income, and see how much better-off you’d be under Obama than under McCain. Obama placed tax cuts at the start of his “infomercial,” he ran two-minute television adverts on tax cuts. He stole the issue from under the noses of the conservatives. Just like Bush did with education in 2000 and Clinton with welfare reform in 1992." 

Tories will announce fully funded tax cuts on Tuesday

So says Ben Brogan. Good to see us (finally) getting ahead of Labour on this one.

The Tory Treasury team believes that there is now real possibility for party unity. They were encouraged that the ConHome poll of members rejected tax cuts funded by borrowing. Much more important than that, the party believes that Labour could get itself into real trouble with voters if it takes the country even further into the red.  Polls and focus groups are suggesting that swing voters are very worried about the debts that Labour are building up. The message of David Cameron's News of the World article - LABOUR HAS MAXED OUT BRITAIN'S CREDIT CARD - will now be centre stage in the Tory strategy.

George Osborne writes for tomorrow's FT setting out what global leaders must do at their forthcoming summit.  He highlights six areas for action:

1. Relaxed monetary policy must be the "principal tool for stimulating demand";
2. There must be improved international regulation;
3. A stronger role for the IMF with more heed paid to its warnings;
4. "Colleges of regulators" to oversee, for example, credit rating agencies;
5. Some supportive use of fiscal policy;
6. Including use of automatic stabilisers - but no unfunded tax cuts that add to the structural deficit.

Labour has maxed out Britain's credit card, says Cameron

In an article for the News of the World David Cameron hits nearly all of the right notes:

There's empathy: "I know how tough times are right now. Jobs, homes and businesses are being lost. People need help . . . and they need it fast. They want to know politicians are on their side—not the other side of the world."

There's a stronger attitude on tax relief: "Lower taxes are in my DNA — it’s one of the reasons I came into politics. I know it’s your money and I know you want some of it back."

There's this on debt: "This government has maxed out our nation’s credit card—and they want to keep on spending by getting another. We believe we need to get a grip, be responsible and help families now in a way that doesn’t cost us our future."

We say "nearly all" because the Tory leader needs to say still more about public sector waste.  Taxpayers know that the state isn't spending their money well and want a refund.  It appears that that is what the party is going to offer.  Both the News of the World and The Sunday Telegraph report that the Tories will be announcing a fully-funded tax cut within days.

Tory members want Cameron to join Obama, Key, Harper and Rudd in offering tax cuts

Given all that George Osborne has done for the Conservative cause, grassroots unhappiness at his performance is uncharitable. All of us also need to understand that the Brown bounce is NOT that considerable. The latest polling confirms that David Cameron remains on course to be Prime Minister. The time for a change message is working from Washington to Wellington. It will triumph in Britain, too.

But there should never be any room for complacency and Conservatives need to enthuse voters and they need to offer some recession-relieving, economy-boosting tax relief.  That's the message to emerge from the latest ConHome survey of grassroots members when we asked about the ideal fiscal policy for the downturn:

68% of members want lower taxes. 57% want tax cuts funded by tighter spending control (also to be used to reduce borrowing) and 11% are content for lower taxes to be financed by higher borrowing.

Commentators like Daniel Finkelstein have misrepresented the lessons from other countries (see here and here) and accuse tax cutters of being punks.  In reality tax relief is on the agenda of nearly every successful politician in the world:

Although we still believe in the multiplier (or supply-side) effects of lower taxation, last week we proposed that the Conservative Party should respond to Labour's (almost certain) irresponsible tax relief plan with a responsible tax relief plan; tax cuts financed by reducing waste rather than increasing borrowing.  We are encouraged that that position is supported by a majority of Tory members.  Before recession struck it was important that resources were shifted from the bloated state to the overtaxed private sector. That's why September 2007's Tory decision to match Labour on spending was so ill-judged. A shift to the private sector is even more important now.

At 10pm we'll be releasing the results of our members' survey on tax

The Tories need a responsible tax cut plan to beat Labour's irresponsible tax cut plan

Today we conclude the Next Steps Series that began on Monday.

Alistair Darling and Gordon Brown are widely expected to announce a package of tax reliefs.  The package will have three aims:

1. To speed Britain's recovery from recession;
2. To help small businesses and the low-paid (the two likeliest beneficiaries);
3. To put the Conservatives in the tricky position of opposing tax cuts.

You can be sure that objective three is at the front of Mr Brown's mind.  He wants to sow disunity in Tory ranks and he also wants to frame a contrast between Tory tax cuts for the rich (inheritance tax) with Labour's tax cuts for "hard-working families".  How should the Conservatives respond?  Iain Martin has learnt that "George Osborne's advice is to oppose it on the grounds that Brown and Darling would be doing it with borrowed money and that it will probably be a 10p tax style con."

That's not an unreasonable position.  Unlike Iain, Fraser Nelson and Andrew Lilico, ConservativeHome believes that the Conservatives are moving towards an economic policy that is politically credible.  The Tory message that Britain must live within its means and tighten all belts is one that will play well with middle England.  It isn't sexy but we predict that it is the political equal of Labour's stance of policy activism.  Further than that: if the Tories succeed in communicating the idea that Labour's borrowing is out of control then Brown is politically toast.

Having said that, however, the Conservatives will be in a better position if they are able to oppose Labour's irresponsible tax cut plan with a responsible Conservative tax cut plan.  If Labour intend to finance their tax plan with extra borrowing we should put forward our own tax relief plan and it should be funded by tighter control of public spending.

Matching Labour's spending plans has been the biggest strategic mistake of the Cameron-Osborne leadership.  The current economic crisis can be used to wriggle free from that pledge.  Labour plan to increase discretionary spending by more than 2%.  A tighter settlement could be used to force the public sector to tackle its wastefulness (Dan Hannan seeks a war on the quango state) and can be used for economy boosting tax relief.  We certainly believe that hard-pressed businesses and families will make better use of every pound that is given to them and taken away from Whitehall.

The Tory tax cut plan does not need to be as big as Labour's (although there is no reason why it couldn't be larger if we adopted a sufficiently hawkish approach to spending) but it's vital that - in addition to existing pledges on a council tax freeze and VAT holiday - we join Barack Obama, John McCain, Nick Clegg and Gordon Brown in offering our own tax relief plan.  You don't beat something with nothing.

Step 7/10: Prepare for next year's European Elections

Osborne: If Britain begins to live within our means we can have lower interest rates

George Osborne has just addressed the LSE on The Economic Policy of Recession.  At the heart of his speech is the idea that control of the public finances is necessary to give the Bank of England the freedom to cut interest rates.  In recent days his approach has won the support of former Tory Chancellors, Lord Lawson and Lord Lamont.

Mr Osborne concluded his speech with these words:

"There is now a clear choice in British politics. Irresponsible borrowing now and higher taxes later under Labour. Or the responsible Conservative plan, enabling the Bank of England to deliver a sustained cut in interest rates and lay the ground for lower taxes later. Helping families and businesses today by getting money into their pockets directly, instead of hoping that trickle-down public spending will work one day. Building a better economy for the future through economic change, not more of the same. And above all, preparing for the recovery through fiscal responsibility, not burying it under a mountain of debt before it starts.”

Other highlights of the Shadow Chancellor's speech are pasted below:

Labour governments are all essentially the same: "On the wall of my office in Westminster is a set of cartoons from the 1970s depicting the economic calamities of the time. One shows Denis Healey sitting at a desk with his in-tray piling up with problems – home economy, unemployment, inflation, world trade recession. Another shows him raiding a child’s empty piggy bank. A third shows the manifesto promises of the Labour Government of the time overwhelmed by an economic avalanche. Visitors to my office used to look at these cartoons and remark how the world had changed. I now look at them and think how much is now the same."

The automatic stabilising role of fiscal policy: "Government borrowing rises automatically in a recession, as tax revenues fall and spending on unemployment benefits rises. This is what is meant by the term “the automatic stabilisers.” That is not a virtue, it is a necessity. So these “automatic stabilisers” should be allowed to function. That is what is starting to happen now.  But we shouldn’t be fooled.  This increase in borrowing is the inevitable consequence of recession not a strategy to fight it. It is an overdraft, not a plan."

Ten predictions about economic policy and UK politics

(1) The terms of the banks' recapitalisation programme will come to be seen as too punitive.

(2) Alistair Darling will announce some modest tax cuts - targeted on low income workers and smaller businesses.  They will be too small to make much of a difference to the path of the recession but Labour will attempt to present themselves as the real friends of the low-paid and business.

(3) The Tories will say that tax cuts now (unless funded by spending restraint) are irresponsible and will make it harder for the Bank of England to cut interest rates.  Conservative spokesmen will be instructed to say 'Britain must live within its means' at every possible media opportunity.

(4) The Bank of England will cut interest rates but not as quickly as necessary and Britain's recession will be among the deepest in the developed world.

(5) The Conservatives will stay in the economic policy game by announcing lots of sensible but small measures to help small businesses and families.

(6) George Osborne will establish an economic advisory council including big beasts like Ken Clarke, John Redwood and Lord Forsyth.

(7) As recession bites and people fear for their jobs and homes the Tories' opinion poll lead will grow again.

(8) A YouTube ad targeting Brown's economic bust will be as symbolic for the 2010 General Election as the Labour isn't working poster was for the 1979 election.  Something like this (used against George W Bush) should do the trick:

Children Will Pay - video powered by Metacafe

(9) The Tories will win the Election but inherit dire public finances.  There will be enormous debate within the Conservative Party as to whether George Osborne's first Budgets will need to deliver spending restraint and tax rises or spending restraint only.  Opponents of tax rises will prevail.

(10) Burdened by debt and an unreformed public sector, Britain will underperform our major competitors for much of the next decade.

George Osborne: I did make a mistake over Deripaska but I didn't break any rules

Highlights, not verbatim, from George Osborne's interview on Radio 4's World at One programme:

Yatchgate: I didn't break any rules but I did make a mistake. It didn't look good. I regret how I operated. I will no longer be involved in party fundraising.

Sterling's slide against the dollar: There is a "flight from sterling" because of concern at the UK economy. It represents an international vote of confidence in the UK economy and our levels of borrowing.

Interest rates: The Chancellor and Shadow Chancellor should not speculate about the future of interest rates but should respect the independence of the Monetary Policy Committee. Keeping control of the public finances makes it easier for the Bank to cut interest rates; something everyone in the country wants.

Public spending: Gordon Brown "is a man with an overdraft not a man with a plan".  The extra borrowing he is advocating is not a strategic move as part of a plan but simply a reflection of reduced tax receipts and higher benefit payments associated with the recession.

The indispensable George Osborne

Not a great day for George Osborne.  The allegations about what he and CCHQ CEO Andrew Feldman said to Russia's richest man are hardly helpful to the Conservative cause.  The allegations follow a testing time for Mr Osborne.  The Telegraph, in particular, has been questioning George Osborne's effectiveness during the economic crisis.

ConservativeHome has had its differences with Mr Osborne - on matching Labour's spending, green taxes and the dynamic effects of taxation - but we recognise his indispensable contributions to the renewal of the Conservative Party.  We thought it a good time to remember ten of them:

1. David Davis was hot favourite to win the 2005 Tory leadership race but he didn't.  George Osborne ran David Cameron's insurgent leadership campaign; a campaign which won him ConservativeHome's 2006 Campaign of the Year award.  George Osborne's political skills are extraordinary.  It's one of the reasons Mandelson wants to damage him.  Labour understands the centrality of Mr Osborne to the Conservatives' election hopes.
2. George Osborne recruited Andy Coulson as the party's head of communications.  The former News of the World Editor has been an essential driver of the party's improved press operation.
3. When the Conservative Party was at its weakest under David Cameron's leadership - during Brown's honeymoon - it was George Osborne who crushed the über-moderniser thesis and insisted the party start talking more about crime and immigration.  His recent switch to a more incentive-based approach to the environment fits with this pattern.
4. The Shadow Chancellor's greatest moment came at the Conservative Party Conference in 2007 when he announced the effective abolition of inheritance tax.  It transformed the Tory opinion poll position and was decisive in stopping an election that Brown might easily have won.  The Spectator fairly described that IHT announcement as "the single most effective policy ever announced by the Conservatives in Opposition".
5. When the Boris campaign was adrift in the autumn of 2007 it was Osborne that encouraged changes in the campaign strategy and staffing.  The recruitment of Lynton Crosby as effective head of the campaign was an important 'Osborne call'.
6. Over the last year George Osborne led Tory opposition to Labour's abolition of the 10p tax band.  He recommended that it be front-and-centre during the party's campaign to win Crewe and Nantwich.  As John Redwood has noted, it was George who first dubbed Brown's 10p budget as the tax con, not tax cut budget.
7. George Osborne also came up with the "Labour didn't fix the roof while the sun was shining" soundbite.  Few soundbites have done more to nail Labour for its failure to use the 'boom years' to prepare us for today's tough challenges.
8. The Shadow Chancellor is a big convert to the social justice agenda.  In the most impressive speech of his time as Treasury spokesman, to the CPS in the summer, he explained the many links between the weakness of society and the growth of government.  The party's social reform agenda is more necessary in a recession, not less.
9. The two year council tax freeze - announced at this year's Party Conference - won't save Britain from recession but it will be an important vote winner on the doorstep.
10. There are also many other good economic policies he has overseen.  Top of the list would be the plan for tax simplification, the fair fuel stabiliser and new powers for the Bank of England.

ConHome's first post of 2008 identified George Osborne as "the Conservative politician to watch in 2008".  We paid tribute to his considerable skills but we also warned against his tendency to become too political:

"It is now important that many more voters want to trust him with the nation's finances.  He needs to look in charge of his brief.  Solid.  Reassuring.  With policies to reverse Britain's declining competitiveness.  He is pursuing promising ideas on tax simplification, IT's transformative effect on government and financial regulation.  We need to hear much more about those and less of what George Osborne thinks about Labour's day-to-day political woes. 2008 is the year in which George Osborne must become the nation's Chancellor-in-waiting."

We stand by those words.

David Cameron rules out fiscal stimulus to beat recession

David Cameron has just used an interview on Radio 4's Today programme to reject any big change in Conservative economic policy.  Conservative economist Andrew Lilico has led a number of calls for the Tories to offer large but temporary tax cuts in order for the country to be saved from a serious prolonged recession.  Mr Cameron could have used the changed economic environment to change his policy but he has now made it clear that he will not.

If Labour had not spent so recklessly during the boom years, the Conservative leader continued, Britain could have afforded lower taxation now but the cupboard is bare.  He said that it would be "quite dangerous" for the state to borrow even more because that would make it harder for the Bank of England to cut interest rates.

Mr Cameron has effectively handed over all recession-beating possibilities to the Bank of England's Monetary Policy Committee.

He questioned Alistair Darling's talk of accelerating capital projects.  It was very difficult to change the timetable for capital projects that required careful planning.

The Conservative leader outlined another measure to help small businesses: a 1p cut in NI contributions for very small firms.  Yesterday he advocated a VAT holiday for small firms and faster payments by local authorities.  He acknowledged that these were measures that would help businesses cope with the recession; they would not prevent it.  The Daily Mail launches its own eight-point plan to help small businesses.  The plan includes a 2p cut in small business corporation tax.

He also defended his decision to back Gordon Brown's recapitalisation plan.  Without it, he contended, the recession could have become a slump.  On his blog yesterday John Redwood came out against the recapitalisation strand of the Government's bank rescue plan.  The £37bn could be better used, he thought, and he repeated his call for a 2% interest rate cut.

David Cameron calls for six month VAT breathing space for small businesses

In his article for The Observer the Conservative leader starts what he promises will be a number of policy announcements over coming months to help families, homeowners and entrepreneurs.

Today he highlights four ways in which help can and should be delivered to the "small and medium-sized businesses [who] employ over 13 million people and turn over £1,440bn a year":

1. More local authorities should make faster payments to small business.  Mr Cameron salutes Brentwood and Castlepoint for leading the way in reducing payment periods from 30 to 20 days.
2. Better treatment for small business from the banking sector in recognition of the help that the taxpayer has provided for banks.
3. Quicker tax rebates for small businesses - delayed by "Bureaucracy in the Treasury".
4. Fourthly comes Cameron's main new policy: "Today we are calling on the government to allow small and medium-sized enterprises to defer their VAT bills for up to six months. That means a typical small business with 50 employees, revenues of £5m and an annual net VAT bill of £350,000, doesn't have to find £90,000 to pay the taxman when the bank has just taken away its overdraft."

Mr Cameron's intervention coincides with a declaration by Alistair Darling that Labour aims to spend its way out of recession by fast-tracking expenditures on capital projects.