George Osborne claims victory as Brown prepares to utter the "cuts" word

Speaking at a Spectator conference George Osborne is about to claim credit for the Conservatives as stating the truth to voters about the spending cuts that are about to come.  The passage is worth quoting in full:

"Gordon Brown is on the eve of a complete capitulation.

Whether he hoists the white flag today at the TUC, or later at his Conference, or when Parliament returns, we will see.  But hoist that white flag he will.  For he and his style of politics have been comprehensively defeated.

And it is the Conservatives who have made the right judgement about the biggest economic question that faces this country.  We could have let it go.  We could have taken the easy route, ducked telling the public the truth, and avoided a pitched battle with our opponents on the same terrain on which our party had lost so often.
 
Or we could have the courage to say it as we saw it; to warn our country of the looming debt crisis; to tell the truth that spending will have to be cut whoever wins the election.

That is the hard path we chose.  For months we endured the onslaught of Gordon Brown and Labour Cabinet Ministers as they spoke in apocalyptic terms about what would happen if you cut spending.  Time and again this summer in the House of Commons, David Cameron fought back across the Dispatch Box and challenged the Prime Minister to tell the truth.

When people ask: are the Conservatives up to it?  I say, look how David Cameron and our party told the truth about the national debt, told the truth about public spending and won the biggest economic argument of the day."

Mr Osborne also used the speech to set out the Conservatives' broader economic policy message and, in particular, the three underpinnings of economic recovery.

Pasted below are key sections of the Shadow Chancellor's address.

The British economy has been weaker than our rivals: "Other major economies including France, Germany and Japan emerged from recession in the second quarter of this year, while the UK economy continued to shrink by -0.7%. The UK is now the only major economy for which the OECD is predicting no growth at all this calendar year, although we hope they are wrong. And unemployment has risen faster here than in Germany, France, Japan and 16 other OECD countries. If that is Labour’s idea of seeing us through a recession then it’s not really anything to boast about."

Britain cannot afford another fiscal stimulus: "According to the IMF the automatic deterioration in Britain’s public finances as a result of the crisis has also been the largest of any major economy. No wonder we now face the prospect of the largest budget deficit of any G20 country – by far the largest in our peacetime history. In other words, we couldn’t afford a further, discretionary, fiscal stimulus."

Monetary activism NOT fiscal stimulus beat the recession: "A PWC survey last month concluded that “the reduction in the rate of VAT from 17.5% to 15% late last year has had little or no impact on consumer spending” ...So if Britain’s fiscal stimulus has been a failure, which part of the policy response has had an impact?  Around the world, but particularly in the UK, it has been the unprecedented monetary stimulus... Bank of England rate cuts are saving British households more than £30 billion a year in interest payments.  That’s almost three times as big as the VAT cut, and at no long term cost to the taxpayer. This response – “radical monetary activism” in the words of David Cameron – is the prescription that the Conservatives have consistently called for during this recession."

Britain needs a new economic model for the recovery: "If we cannot rely on government spending and debt-fuelled consumption, a simple process of elimination leads to the inescapable conclusion that a sustainable recovery must be led by private sector investment and export growth. Our aim must therefore be nothing less than a new British economic model: an economy with a structurally higher rate of national saving, a more competitive export sector, and higher rates of private investment in long term productive assets."

Conservatives will protect the City but banks must not pay inappropriate bonuses: "A Conservative Government will want financial services to succeed, compete and innovate.  Making London the premier home of global finance will be a key objective of policy and we will resist ill-designed European regulation that threatens that objective... if banks pay out huge bonuses on the back of taxpayer support instead of using profits to rebuild their balance sheets, that is not only bad for the broader economy, it is bad for the City itself.  It is not in the interests of the financial services sector as a whole to have a small number of government-subsidised players distorting competition by using taxpayer support to bid up remuneration levels."

Cutting spending now is essential to international confidence in Britain: "Early action on spending is crucial to maintain market confidence and keep market interest rates down... But what about the argument that cutting spending risks undermining the recovery by reducing demand in the economy? Not only does this argument ignore the risks of a loss of confidence and higher interest rates, it is also too simplistic. It ignores the impact of fiscal policy on the exchange rate in an open economy like the UK. Ben Broadbent, Chief UK Economist at Goldman Sachs, wrote recently that fiscal tightening in an open economy “has little appreciable impact on aggregate output” because it tends to rebalance demand away from non-traded goods and services and towards the traded sector. In other words, what you lose in government spending, you gain in exports."

A comprehensive programme of supply-side reform: "Lower corporation tax rates and a simpler tax system.  Radical school reform, welfare reform and better skills. More private investment in infrastructure and other long term productive assets such as high speed rail and smart energy networks. The transition to a low carbon economy. Regulatory reform to create a financial system that serves the long term interests of the economy, not its own short term interests."

> Read the full speech: Download a PDF of The Conservative Strategy for the Recovery