Michael Gove MP: It's the economy, stupid

This is the second of Michael Gove's reports from the Cameron campaign.  Paul Goodman is blogging for Team Davis.

Bill Clinton’s winning message in 1992 was built around the economy. But not restricted to it. The Democrat candidate had a tripartite message - not just “the economy, stupid” but also “change versus more of the same” and “don’t forget healthcare”.

All three messages were crucial to his election. Clinton was running against an incumbent, George Bush senior, who’d succeeded a very successful President only to run into a recession. So the economy was central. But the Democrats weren’t trusted on economic management in the same way as the Republicans. Therefore Clinton had to show that he was a different sort of Democrat when it came to economic policy.

Clinton also had to communicate that he was the change candidate overall - not just a credible alternative to Bush senior but a new kind of Democrat, no longer repeating the party’s failed messages from the past.

And Clinton had to communicate hope - by showing that he was focussed on public service reform. His emphasis on healthcare gave his campaign an optimistic edge which trumped the claims of Bush to be the experienced hand at the tiller.

A winning electoral message depends on maintaining a disciplined adherence to a few core principles, and not being knocked off course by the media. David Cameron has shown throughout his leadership campaign an impressive capacity to set his own agenda, and not be deflected by media, or party, voices, urging him to change course. He won the first round of this process on a clear modernising platform. One he has stuck to.

And central to that platform has been the conviction that Conservatives have to escape the traps we’ve fallen into repeatedly in the past.

We need to recognise that the Conservative Party lost its reputation for effective economic management in 1992 and we have not recovered it since. Indeed Labour’s lead on economic competence is massive. Labour’s position is likely to be challenged in the years ahead as the economic news may worsen for Gordon Brown. But it would be both foolish and weak to expect that Labour’s defects will do our job for us.

And it would also be a mistake to think that our reputation as the party of good economic management will be restored if all we talk about on the economy is tax. We’ve been there, done that, and got the election defeats to show for it. Central to our campaigns in 2001 and 2005 was a proposal to cut tax. And we got biffed both times. Not because tax cuts are wrong. But because they were practically all we talked about on the economy. The Conservative Party has, in the past, acted as thought it believed a policy on tax was an effective substitute for a policy on the economy overall. That’s like trying to win a football match by fielding only one player. Even if he’s Wayne Rooney he can’t do it on his own.

Where George Osborne has been so impressive as Shadow Chancellor has been his success in re-integrating the low-tax argument into a broader economic narrative. As the Sunday Telegraph’s Matthew d’Ancona has pointed out, Tory policy on tax has suffered in the past because we’ve either been seen to be obsessed with the exact percentage of GDP spent by the state, or we’ve been palpably using tax policy as a means of getting votes from particular constituencies (eg pensioners). Tory credibility on tax has suffered because we’ve been seen as one-issue ideologues who rate hitting a specific target for the exact size of the state above any other consideration of what makes a good society, or spivs who see tax as a way of seducing special interests. Instead, we should be setting policy in the national interest.

George Osborne and David Cameron believe that the right policy on tax is to construct a tax system which forms part of a broader economic strategy to increase growth in Britain. That’s why George has set up a tax commission to look at how we can make the tax code simpler and more effective at stimulating growth. Beacuse not all tax cuts have the same supply side effect. Some tax cuts, especially on business, are more likely to stimulate growth than others. Therefore the onus is on those people proposing specific tax cuts now to tell us which cuts will stimulate most growth, and which are being proposed for other reasons.

It’s also necessary for those who are putting a specific figure on tax cuts now to tell us what precise level of Government borrowing they envisage in four years time, what proportion of Government spending they would allocate to debt repayment, and what then would be left for tax cuts or public spending. And public spending on which issues? If money is to be made available for new grammar schools, does that mean a rate of growth in the education budget faster than other departments? If so which will be cut to make up for that? The Home Office? But what about the commitment to build more prisons?

There is a lot to be said for making the case that tax-cuts can play a part in stimulating growth, and asserting that people already pay too much for too little. But saying now which taxes one would cut four years out, and making that the only economic message one has, risks once again damaging the mature case for supply side tax reform.

As well as looking at tax a future Conservative Government must do many other things to help raise the trend rate of growth in the British economy. We need a trade policy agenda which deals with the distorting effect of the EU external tariff and the broader protectionist threat. We need, as David Cameron has already powerfully argued, an engagement with the EU to ensure we regain  control of those policy levers which affect our competitiveness. We need a tougher competition policy to tackle monopoly power in our own economy. We need a pensions policy which helps us deal with future demographic challenges, and the burden they place on public spending. We need a higher education policy based on market principles in which students make rational decisions about degree courses and we can then develop universities which will enable us to compete alongside America. We need a transport policy in which rational market decisions govern road and rail use, and there is more investment in infrastructure to help our manufacturers.

All of these changes, and more, are crucial to developing an economic policy for growth. The right way to stimulate more growth in our economy, with the benefits that would bring us all, is to recognise that such a strategy depends on a low-tax policy, public sector reform and investment in infrastructure, especially education and transport. The Cameron approach to the economy is driven by a belief that Conservative arguments are winning arguments across the board. Its time we moved outside our comfort zone and talked about much more than tax.