Tax cuts - We're inching our way there, but the slower we are, the more embarrassing it's going to be in the end

There's going to be a recession, probably the grimmest since the early 1980s, perhaps the grimmest any of us have seen in our lifetimes.  Given where we are (and we didn't by any means need to be here) there are four broad approaches we could take:

1. Muddle along: We could let the budget defict rise as tax receipts falls and welfare benefits rise, and watch interest rates being cut aggressively to try to stave off deflation (they'd probably fail, but that's another story).  This isn't an altogether stupid strategy, as none of the others I shall sketch is overwhelmingly likely to do better - and some would probably do worse - but I do think it's politically infeasible as it's likely to be characterised as "fiddling whilst Rome burns".
2. Austerity: We could just try to accept that a grim recession is inevitable and that there's not much government can do about it, and say that the key thing must be to ensure that at the end of this recession the government isn't bust (there's no sovereign default), the books are balanced, and the future is well-prepared-for.  That would mean rises in tax equivalent to perhaps 3 to 5 percent of GDP, and cuts in expenditure of about the same.  This strategy would (a) be fighting the economic battle of 1980, not 2008; and (b) possibly doom us to terrible deflation and a contraction in GDP in the double digits.  Insofar as the public thinks the Conservative Party has a current strategy at all, as opposed to its running around like a chicken without a head, this is probably the strategy thought of.  If any of our senior people are thinking of going this way, I hope they and the ghost of Andrew Mellon will be very happy together.
3. Public works: Public works programmes in the face of recession have a long ands illustrious history, going back at least to Pericles (who is doubtless Boris' inspiration).  As reported on The World This Weekend today and in a number of newspapers yesterday, this is now the Brown-Darling plan.  The consequence will be a greatly enhanced role for the state and a set of grandiose projects not all of which will ever be significantly useful.
4. Temporary tax cuts: This is the path I have been advocating for many months now.  It would not be guaranteed to work on its own, or even in combination with interest rate cuts.  I envisage initially cutting taxes to be replaced by increased borrowing.  If we had not wasted so much money on those counter-productive bank bailouts, I believe that large enough borrowing-funded tax cuts would have been enough, but now, given the massive increase in debt we have taken on with the bank nationalisations, a little further down the line we may have to contemplate cutting taxes to instead fund government expenditure by printing money.  That isn't a happy outcome but it could be better than risking a sovereign default or sustained deflation.

There are your choices, Mr Osborne.  I think it's completely clear that you are eventually going to choose tax cuts - indeed, the tax delay on small businesses is an inching towards that inevitable conclusion.  It's obviously going to be embarrassing for you whenever you finally have to do it, given the daft "cupboard is bare" box you built around yourself and all the nonsense about "no destabilising or irresponsible tax cuts".  I understand completely why you didn't want to commit to unfunded tax cuts before - you were right not to want to do that (our unfunded tax cut commitments in 2001 and 2005 lacked all credibility, as I've argued before).  But you got carried away with the rhetoric of why such commitments were a bad idea, creating a political hole for yourself, and now you're in terrible trouble.  I recommend taking your medicine at the earliest opportunity - since committing to tax cuts is now inevitable for us (unless we really fancy the Austerity approach or going along with the Brown-Darling Public works programme - No?  I didn't think so...) we need to get on and do it, otherwise we're going to be damaged by the perception that our leadership has been dragged kicking and screaming into reversing its earlier error (everyone is going to know you were dragged into reversing an error - the only question left is whether you will be kicking and screaming at the time).

Get on with it.  You screwed up.  I warned you a long time ago, but you didn't listen.  You were too obsessed with fighting the last war.  But that's gone now.  We've missed the opportunity to get ahead of the game, look like we knew what we were doing, and lead the debate, but the position is still recoverable in terms of not looking like fools.  However, the clock's ticking.  Tax cuts.  I know you don't like it, but you don't have any realistic choice.