Conservative Diary

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The Coalition's four defences of its budget reduction strategy

By Tim Montgomerie

Earlier today I worried about certain right-of-centre commentators' argument that the cuts weren't going to hurt that much because, over time, they weren't - they argue - that big. The cuts are absolutely necessary in my view but it is silly to suggest they only amount to a "scratch". Fortunately the Chancellor and Prime Minister are not displaying any sign of complacency.

In this morning's FT(£) George Parker, Political Editor, reported that the Coalition's defence of the cuts would take on four main themes.

Theme one "is to argue that the cuts to departmental spending are not only unavoidable but also not dissimilar to those planned by Labour". The Miliband/ Johnson team - trounced by Cameron/ Osborne in a weekend poll - appear determined to hype up the differences. In addition to the more modest cutbacks in spending they have also shifted to advocating a tax heavier adjustment. While George Osborne is aiming for cuts to account for 80% of deficit reduction - the OECD's standard recommendation - Mr Johnson is looking for spending restraint to only do 60% of the work. The obvious question is to press Labour on which taxes they would increase. Given the footloose nature of today's entrepreneurs and big companies any tax rises are a grave threat to job creation and competitiveness.

The second theme "is to ram home the message of “fairness”. This has two parts:

  • The Coalition is upsetting the wealthier part of the country with its soon-to-be-permanent bank levy, retention of the 50p tax, higher CGT and withdrawal of child benefit from higher rate taxpayers.
  • A positive commitment to protect the NHS, limit cuts to schools and to introduce the 'fairness premium', launched by Nick Clegg on Friday. David Laws returned to the political frontline this morning with an FT OpEd (£) defending the pupil premium. The premium is a welcome development but I'd rather the Coalition focused on a dynamic approach to poverty reduction - emphasising welfare and schools reform and stronger families. Big state Labour will always outspend us if fairness is allowed to be measured by billions of government spending.

Theme three will be "a series of announcements designed to show that the coalition has a growth strategy as well as a cuts strategy". We learn from the FT that "a white paper identifying barriers to growth will be published soon". ConHome has been urging this emphasis for a while. I have recommended tax reform, counter-cyclical banking regulation and delay of anti-manufacturing energy measures. Unfortunately the CSR looks set to include extra investment in green initiatives. I fear these will be a very inefficient use of scarce taxpayers' money. As part of a Britain-is-open-for-business strategy we also need a timetable for abolishing the 50p tax band but I can't see this getting past Vince Cable, the Anti-Business Secretary. The protection of Crossrail and other major infrastructural investments is one of the most concrete signs, so far, that Osborne is going for growth.

The fourth theme is what the FT calls the “good news narrative”. "Although the cuts are being driven by necessity not ideology," writes Parker, "the Coalition is taking the opportunity to refashion the state." Decentralisation - including the ending of more local government ring fencing - is a big part of this refashioning. Schools, welfare, health and police reform are also intended as legacy projects.

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