David Cameron should not renew George Osborne's spending pledge

This is what Tim Hames writes in this morning's Times:

"It is implied that because Alistair Darling has partially matched the Conservative proposals on inheritance tax that Labour has performed some sort of political frontal lobotomy on itself from which it will never recover. This is a fantastic interpretation of the evidence.

The Comprehensive Spending Review set out public spending of almost £580 billion in the current financial year increasing to £678 billion by 2010-11. The Opposition has not only accepted all of these totals but also every penny of each single departmental allocation. The disagreement over taxes involves £3.5 billion that the Tories would have steered towards cutting inheritance tax and easing stamp duty on first-time buyers.

This might sound like a tidy sum of money but it represents 0.68 per cent of all that will be brought in through tax and national insurance this year. The difference is yet smaller now that Mr Darling has set out his stall on death duties. Call that a “battle of ideas”? It is an insignificant squabble at the margins of a tax-and-spending debate that has been framed on the terms of the Labour Party."

Tim Hames is right.  As ConservativeHome has already noted, we won a £1bn tax cut but had already surrendered a £37bn real increase in spending.  One of the most important internal debates in the run-up to the next General Election will be whether George Osborne should repeat the pledge to match Labour's spending for the subsequent three years.  At the moment, he has said that we will match the commitment until 2010/11.  We need to ensure that the pledge does not become 2011/12 and then 2012/13.  Tory grassroots members oppose the pledge by 64% to 24%.  There is also much unhappiness amongst Tory MPs about the spending me-tooism.

I think they do so for three good reasons:

• Economic: The British economy wil not be competitive if our tax burden continues to grow as it falls in competitor countries.  There is a danger that all of the proceeds of growth are going to end up with the Exchequer.
• Value for money: The waste within the public sector is huge.  Taxpayers know that they are not getting value for money.  Real spending increases may be necessary but we should be creating more room for a Conservative Chancellor to cut taxes and/ or borrowing.  We should certainly not be tying his or her hands for three years.
• Political: The inheritance tax cut showed that there is a real appetite for politicians to cut taxes that offend the voters' sense of what is right.  Ten years ago the benefit of the doubt was with politicians who said that the public sector was underfunded.  Today the voters are at least as likely to say that, with their disposable incomes under pressure, they deserve a refund.

Idea #1 in this series: It's time to make it harder to remove the sitting Conservative leader

Comments

[Alan S]

100pc right Editor. Year by year the good work of the Thatcher/Major years is being undone by Brown/Major. We have gone from having a economy with a relatively small state to one with a relatively large and very wasteful state. We need a daily Tory campaign to show how badly our money is being wasted. We need someone who can echo Mrs Thatcher's talk of housewife economics. The British state needs to live on a diet for a while. It has not used the largesses of recent years prudently.

[James Maskell]

Before the survey and when the issue of matching Labour's spending commitments appeared, I backed Osborne. Id like to take the opportunity to rescind that support, in light of what Ive read since, and to repent for my sins in this respect.

[MrB]

This is a risky choice politically though. By saying we will spend less than Labour it leaves us open to attack. We've already made some rather expensive commitments such as a bigger army. How can we make the case for policies like that when we're spending less? Labour will just say our sums don't add up, the public will believe them, and it's game over.

[Richard Calhoun]

I believe it imperative that the Tories rescind their committment to match Labour spending for the next 3 years.

The sooner its done the least damage, but it must be announced hand in hand with credible proposals to cut Government waste, a good start would be to eliminate Quango's, and then the huge waste in the public sector.

The proposals to cut waste must be supported by detailed analysis of the problems and the detail of how the task will be undertaken

[Damon Lambert]

Spot on. Voters are fed up with their money being wasted.

[Tony Makara]

The correct thing for Mr Osborne to do would be to say that he will make a decision on spending pledges after a complete audit has been taken once in office. There may well be opportunities to restructure spending and save the taxpayer some money in the process.

No-one can predict what shape the economy will be in by the time Labour leave office, so a decison should be made then as to determine whether the country can afford to match some of Labour's more lavish spending commitments. There will certainly be room for manoeuvre if the Conservative government makes reforms in areas like welfare such as bringing basic disability pay into parity with JSA and closing down the wasteful New Deal. The very act of cutting out Labour waste will serve to free up money for more efficient public services and leave room to downsize the tax burden.

[MikeA]

The problem is political cowardice and "anchoring" (see Finkelstein).

New Labour came to power in 1997 and promised to match the Conservative governments spending plans, which they broadly did. Nothing controversial, nothing to frighten middle-England.
In 2000, New Labour reverted to old form after a process of softening up public opinion "our public services are c*ap because of Tory underinvestment", moving public opinion away from the anchor or baseline of a smallish public sector, cheapish public services and lowish taxes. By that point NuLab had solidified themselves in power, they promptly reverted to old-school Tax n' Spend and that has got us to the point of public spending within touching distance of £700Bn by 2010-11. Any idea where all the money has gone?

Now we Conservatives seem to be following the same policy in reverse.
Match Brown's public spending plans, nothing controversial, nothing to frighten middle-England.
At some point after a Conservative government has been in power a few years, the "this cannot go on" point will be reached and we will start reducing public spending and cutting taxes.

We're scared of the Labour "Tory cuts" attack, and their barely disguised vision of old ladies dying on the streets and the poor being forced into the poorhouse under a Conservative government!

I believe its time to be honest. We simply cannot afford this level of spending and taxation and remain a competitive nation. Our public sector has absorbed epic increases in spending for scant increases in outputs and public service. We need to go to the country with a strong reform programme and expect our public services to do far far more for less.
Public opinion is moving in this direction, away from NuLabs anchor.

Its high time to offer a real political choice to the British public. More of the same - every higher taxes and ever higher public spending. Or a government that can reform our public services, set public spending at an appropriate level and reduce the huge tax burden than hangs over us all (or the rapidly-becoming-a-minority economically active!)

[Michael McGowan]

Given the economic outlook, George Osborne is likely to have to increase taxes significantly if he is to match Labour in the squalid Dutch Auction over which party can spend more.....a competition which the Tories can never win.

[Yogi]

Spending will have to come down in order to meet the higher interest payments on the borrowings stacked up by Brown and Darling. We have run deficits during years of prosperity, that simply shows the prolifgacy of NuLab.

The other time bomb lurking is the hidden cost (put off for another day by Brown) under the PFI.

However, commitments to the Armed Forces and Border Control need to be maintained.

The sooner we come clean with less Government spending and largesse the better.

[Grayling4Leader]

Hear hear, editor. I actually think we need to go into the election with an eventual target to reduce State spending to 30% of GDP. We need to be radical - that's what the electorate is crying out for. Radicalism on the economy.

[Simon R]

I'm not an economist, but could the Tories not stick to Labour's spending plans, make massive efficiency savings, and instead of giving the money saved directly back to the taxpayer in the first few years, pay off some of the national debt instead. This would lead to a situation in 3 years where heavy tax cuts could be made due to lower national debt repayments. Or have I got that totally wrong?

[Chad Noble]

Why should the government have unlimited access to our money?

We have to budget and so should they.

Tax Freedom Day should be set at a legal maximum of 1st May.

[DavisFan]

Tax Freedom Day is the key economic indicator which should be actively targeted by a Tory Government. We should aim for 1st May so we can have a double bank holiday weekend.

[David Cooper]

Yogi @ 11.00: yes, PFI is a time bomb, and it raises a serious argument as to whether a responsible (Shadow) Chancellor should bring in the disposal squad to defuse it, or hope to be able to stick his fingers in his ears until his period in office was over.

If we may think the unthinkable for the moment about PFI contracts, what would the fallout be from repudiating them, or threatening to repudiate them unless the other parties to them agreed to a complete variation of their terms (in the full knowledge that they had by any moral standard been living on borrowed time with the profit stream plundered from NuLab)? Would this be any more intolerable than Brown's long forgotten windfall tax on the privatised utilities, a step which in any event wasted taxpayers' money rather than saved it? Just a thought.

[Stephen Yeo]

I'm sure you are correct that grassroots Tories would like to cut spending. They wanted to in 1997, 2001 and 2005 as well, but not enough of the rest of the electorate did. If you did a survey of floating voters who supported Labour or LibDem in the past and that showed an appetite for spending and tax cuts, I'd be more persuaded.

And Richard Calhoun can hardly have had a fuller dossier on waste, and how we would cut it, than that provided by the James review in 2005, but it didn't save enough and the arguments over how to use the proceeds to cut tax went on until too close to the election.

Much better, in my opinion, to win an election first, stick to the spending commitments already made, and then share the proceeds of growth beyond then.

[Editor]

Stephen Yeo: "I'm sure you are correct that grassroots Tories would like to cut spending."

I didn't say that. I just said that they didn't agree that we should match Labour's increases. Spending could still rise but not as fast. We could spend the next two years explaining what we mean when we say "sharing the proceeeds of growth". We could show that we'd still protect frontline services, that we'd cut waste and cut borrowing and some hated taxes. Polling evidence suggests that that message is believable. I certainly don't think that it's an impossible sell.

We made the tax cutting case at the 11th hour before the last election. A two year campaign on waste would sicken enough of the public towards any ideas of further spending... if we have the will?

[Alan S]

Stephen Yeo also writes: Much better, in my opinion, to win an election first, stick to the spending commitments already made, and then share the proceeds of growth beyond then.

Hmmm.

Not very honest and if we stick to the spending pledges we may not have any room to cut taxes or borrowing --- all of the proceeeds will be eaten by dirty hospitals and out of control schools and unnecessary wars and form-filling police officers.

[True Blue]

We need to promise to cut income tax to increase tax take that way, and grow the overall size of the economy, so that in absolute terms public spending can be about the same, but lower as a percentage of GDP.

Lower taxes = better growth = more money for public services, plus more money in the pocket. The British people have reached the maximum tax burden they will tolerate, and it's time to give them something back.

The best way to target tax cuts will be an massively increased personal allowance, abolition of complex tax credits, remove the distinction between couples and individuals, while maintaining and increasing child benefit.

Also, we need to be much, much better at playing the European game, and claiming every last penny we can in grants, loans, and awards.

[Grayling4Leader]

DavisFan hits the nail on the head, yet again. I think it's time for the Dream Ticket...

But on the subject of tax freedom day, I look forward to a double bank holiday on New Year's Day. May Day would be horribly inappropriate - NASTY, SOCIALIST holiday.

I can't believe Stephen Yeo thinks we need to stick to Labour's soaring spending plans. I hardly think people are going to vote for SOCIALISTS WITH BLUE BADGES.

And if anybody believes that we can't identify wasteful spending, they must be living on another planet. Let's promise to SLASH taxes and find the savings once we get there.

YEE HAW.

[Michael McGowan]

The problem with Stephen Yeo's prescription is that the last bit ("sharing the proceeds of growth") will never happen. It is a classic example of politicians offering jam the day after tomorrow. Their word is not their bond.

[passing leftie]

It would be great if the Tories stood on a tax-cutting platform so that people have a genuine choice - do you want better public services for all or more money in your pocket, so you can buy your own services from the private sector?

[DavisFan]

Grayling4Leader: I sincerely hope that you are right and the David-Grayling dreamteam finally comes to life.

Why be limited by 'maths' and 'popularity'?

[MikeA]

Great commentary here.
On mind altering point that we Conservatives should be shouting about:
- Given the plans on the rising levels of taxation (over 43% of GDP) and spending almost touching £700Bn by 2010
- If public spending in 2010 was reduced to the same level as it stood at around 2003 the reduction is spending would be so large we could eliminate personal taxation.

Does anyone think our public services are materially better now than in 2003?

[Grayling4Leader]

Maths and popularity? To hell with them. Think of the column inches and the radicalism.

[DavisFan]

It will be a REVOLUTION IN GOVERNMENT, G4L.

George Osborne is missing the clear economics here.

We can pledge to match Labour's spending plans because it's well known that that if you cut spendning by £30bn on, say, Health, voluntary institutions will make up the slack.

At the same time, cut income tax to, say, 10p in the pound and corporation tax to the same amount and the trouble will be that the economy grows and we raise so much tax, that we won't know what to do with it. We will soon have surpluses of £100s of billions and growth rates of 10, 15% like they do in China.

Ultimately, that's why we should give those bean-counters who say 'count this' or 'add up that' a bally good thrashing.

I would like to see David Davis and Chris Grayling giving one to George Osborne's girly accountants.

[Michael McGowan]

Passing leftie, not clear what planet you have been inhabiting for the last ten years but one thing is painfully clear: eye-watering levels of expenditure have not produced better public services for all. Indeed in education, the reverse is true.

[Richard Calhoun]

Stephen Yeo

Surely you would agree that the public mood is changing, they feel overtaxed and have seen that money wasted.

It would be a vote winner to have a set of policies in place by the new year as to how we are able to cut waste.

The public mood in 2008 and beyond will be even more receptive to radical policies that will reduce the huge public waste and the individuals tax bill.

[Old Hack]

2 pledges for the next election:

- We will not raise taxes overall above current Labour levels AND the amount of government spending it currently supports. (In other words shift the pledge from levels of spending to levels of taxation)

- Over time we would seek to optimise tax revenue by setting tax at levels that best promote enterprise and individual prosperity. (Shift the debate from redistribution to revenue gain)

We should not let Labour use the excuse of maintaining spending ('investment') to justify future tax increases.

We should also start to seek some better measures of return on 'investment' and declare a war on inefficiency and waste within government. There is still massive scope for this after Gershon and the public would welcome more interest in examination of how their money is spent.

[Opinicus]

This is triumphalism based on one set of opinion polls.
Osborne is right to have given the pledge although I would only extend it two years into government. There are three simple reasons for this.
It neutralises Labour's last charge against us - the mantra of Tory cuts. It does in reverse what Blair's two year pledge did for him.
Government totals are set into the year after next and changing them causes more trouble than its worth and persistent whining from all those affected.
It is not going to be possible to come up with revised spending plans and policies and get them enacted in less than 18mths.

Giving up the pledge is politically inept, administratively chaotic and and practically irrelevant.

Even with Labour's spending *totals* - no one is asking to commit to specific schemes - there is masses that can be done in those two years.