Is victory in sight on public spending?

The Telegraph reports that the Tory leadership has been discussing an "elegant retreat" from its policy of matching Labour on spending: "The Tory leader, under mounting internal pressure to stretch his party's lead over Labour, has conceded that it could be impossible to deliver tax cuts if he sticks to Gordon Brown's commitments."  The newspaper reports the overwhelming opposition of party activists to the pledge, as recorded by this website.

If true the news would be a rapid victory for ConservativeHome's campaign for a more flexible approach to public spending.  We've not campaigned for an abandonment of the pledge to match Labour's spending until 2010/11 - only for the pledge not to be renewed.

There are three central weaknesses to the pledge:

• Labour has presided over the largest peacetime increase in the size of the British state.  Conservatives should be putting an end to the spending binge.
• It tied Tory hands for far too long. We need the flexibility in government to adjust spending plans if economic circumstances demand it.
• It left no room for reductions in borrowing or taxation.  On last week's Platform the Tory Treasury team's Philip Hammond defended the pledge.  Mr Hammond said that a period of economic certainty would be the wrong time to cut the growth of public spending.  We have some sympathy for the view that a fiscal tightening would be dangerous in a recession but economy-boosting tax relief would be preferable to still higher public spending.

4pm: Red Box reminds us of what Cameron and Osborne have said about the spending pledge.

Comments

[Politico]

Here we go again.....the attacks on public services that have defeated us for the last 3 elections.

We cannot lower taxes and have the relative "quality" of the services we have now. Efficiency savings are hot air. All the work on being the party of the NHS etc is going to be ruined if this pledge is abandoned.

[Richard]

Politico appears to consider that very simplistic solutions are what is required. I believe that his analysis on both spending and the currency are wrong.

Furthermore, I am convinced that lower taxation is a necessary but not sufficient prerequisite for long term economic stability.

As an example, my efforts to avoid Inheritance Tax are now much reduced but not eliminated. It is very unfortunate that since the marginal taxation of any extra income over the past 5 years was in excess of 70% including IHT, I decided to spend the vast majority of time on my equivalent of the golf course rather than work almost entirely for the benefit of HMRC.

[Andrew Woodman]

You are very defeatist Politico. Try looking beyond the Labour spin on policy.

[Politico]

With more people going to university than ever - Britain is becoming a far more liberal progressive society - that is not our traditional vote, and the more such a change progresses - the less conservatives thrives.

Conservatism for conservatism sake has lost 3 elections. "Social" conservatism is a way to win. Do not think for one moment that the public wouldn't see that you cannot have investment in public services whilst cutting taxes. Labour's spin machine is robust.

I was reading an interesting labour blog - a right winger no less in labour - www.doctrineoftheright.com - some interesting ideas there that our party could do well to adopt.

[Chris]

Politico,
I'm going to say you're wrong, but also at the same time correct. Efficiency savings can be found, but going into office presuming they can be found in a single fiscal year is simply reckless.

To maintain service levels before we've had a chance to reform the way services work is going to require the same level of capital expenditure as now, or very close to it. Only after we have been in power for a couple of years will we truly be in a position to cut spending in an informed and rational manner.

I love tax cuts, but we can't afford to be rash in our quest to get them...

*Prepares to be flamed*

[Buckinghamshire Tory]

Politico:"Social" conservatism is a way to win

When you talk about "Social" conservatism, do you mean the social conservatism of the American Christian Right (God, Guns and Gays) or do you mean the "social" conservatism of Ted Heath?

[Politico]

Social conservatism as taking the best parts of socialism and merging it with conservatism. Labour didnt win because it was socialist, it won because it adopted a third way.

Conservatives need to do this. That means investment in public services, tax cuts only if they are affordable and not to the detriment of the common good - and a right wing approach to things like crime and justice. Adapt or die - for if the tories don't win the next election - I can see the party split in two, the modernisers and the old guard.

[James Maskell]

An "elegant retreat" will be fudged no doubt. I hate it that the Tories feel they have to make it elegant or cover it up. Just admit that you were wrong and back down. Cameron attacks Brown for smoke and mirrors and yet that is exactly the tactics that will be used in this. Hypocrites, the lot of them.

[Letters From A Tory]

Ultimately the Conservatives must portray themselves as 'better' and 'different' from Labour if people are to consider them as a government-in-waiting.

I refuse to believe that the amount of money poured into pointless initiatives, quangos, targets etc cannot be reduced and the researchers at CCHQ should be trawling through government accounts to start chipping away at public spending on this basis.

[NigelC]

I think the lessons from local Government could be applied. Some local authorities have tacked their structural inefficiencies and are holding down council tax rises; other continue to spend, blame below inflation grant rises and are planning rises above 4%.
We need a business like approach to address structural issues in the public sector which have not been tackled but fuelled by increased spending

[Tony Makara]

In a time of economic downturn and if the Conservative party is to be a government of sensible public finances it cannot replicate Labour's spending pledges. This is more about common sense than it is about tax cuts. Of course where money is freed-up it should go to relieving the tax burden, particularly on business, who a Conservative government will need to support during a time when the economy is contracting. Sticking to Labour's spending plans would be giving the public a continuation of Labour government, even after Labour have been voted out.

[Malcolm Dunn]

If true, I really hope we don't pay a political price (another defeat)for this.An opposition can't cut or increase public spending, an opposition can't really do anything.Let's see how good the source is.

[Moral minority]

If there is an economic downturn, Labour will not be able to deliver its spending pledges. If unemployment rises, welfare payments will rise and the real costs of unlimited immigration will be felt by everyone. If government revenue falls the deficit will grow. With borrowing at already unsustainable, especially after Northern Rock, the nation's finances could collapse.

We need to hear a proper narrative from Boy George on how he would tackle an economic down-turn. At the moment, all we get from him are meaningless sound-bites. Until Osborne delivers real substance, large sections of the public will remain sceptical of our economic competence.

[Michael Hunt]

I have every confidence that is in the genes of Tory governments to be more careful with public money than Labour.

However I'm sure David Cameron appreciates that plenty of voters associate talk of tax cuts with the tearing down of schools and hospitals.

Also too many voters under-estimate their own total tax bill.

[Iain]

"Efficiency savings are hot air."

They are done in every other walk in life, why is the state different and singularly useless compared to every other person, family, group company or organisation? Probably because its run by useless politicians, for there can be no other reason.

But I would agree with one point that savings and lower taxes can't be a rabbit pulled out of the hat for that would look like no more than what it is, pork barrel politics. No if there is any move in this area it has to be done following sustained argument and debate where the case is made and proven, unfortunately to resort to a long held view of mine, I am afraid to say the Shadow Treasury team have made failed to carry any sort of argument or seek to challenge the basis on which Gordon Brown has built the so called economic miracle, i.e tax spend borrow and debt., so we are left with having to incorporate Labours tax and spend wholesale into Conservative proposals, for as I say the Shadow Treasury team are too incapable to do anything else, or argue for anything else, other than to copy Gordon Brown’s policies.

I said this a couple of weeks ago, look at the opportunity the Shadow Treasury team are missing right now, in a months time the Government are going to stick yet more taxes on Petrol , now this would have been a perfect vehicle for any half awake politicians with any nous about them to have used to attack Government policies and waste, and used to advance their own arguments. Yet what have we heard from the Shadow Treasury team? NOTHING, and now with others taking up the case this morning, anything the Shadow Treasury team will be seen as bandwagon jumpers.

[Tony Makara]

"If there is an economic downturn, Labour will not be able to deliver its spending pledges."

Moral minority, exactly right. This case needs to be put before the people. Any Labour attempt to honour spending pledges would have to involved yet more borrowing, and as you correctly state, welfare will cost more, JSA unemployment is projected to rise to 1.8 in 2008 and that is the positive outlook. I expect in response to rising unemployment Labour will shift more of the JSA unemployed onto their work-experience section of the New Deal as that would mean people not having to sign on, and not being included in the jobless figures, giving the impression of unemployment not rising, however as we all know it costs around 25 pounds a week more to have a person on a work-experience programme because they receive an extra 15 pounds plus travel allowance, so the more people Labour draft onto work-experience the higher the welfare bill will be.

The fact is our country cannot afford flashy government gimmicks like the New Deal and other wasteful spending projects. As I have stated before a future Conservative government must set up a witchfinder-general style dept to monitor all other departments, to hold them to account, to make them justify spending in terms of outcome and make government spending serve an end rather than just being an end in itself.

[Martin Coxall]

Ayuh, since The Clucking Fist won't call an election until the very last day (June 2010?), isn't the promise entirely symbolic anyway?

[James Sproule]

There a few basic questions we need to ask ourselves:

Does anyone think that our economy (and with it our society) can thrive and survive under the current levels of taxation? Why is Labour seeking to hammer Non-Doms, damn the consequences? Why is the duty of fuel set to rise yet again? It is because if your initial position is to view all state spending as inherently sacrosanct, you end up in the ludicrous position of ruining the economy in order to avoid having ever consider shrinking the size of the state. This is not a position we should ever seek to support, leave it to Labour and the Libs.

As to our having lost elections on the taxation debate. This is simply stupid and I do wish people expounding the idea would look at just a few figures. In 2005 we proposed £8 billion in tax cuts, while public spending was (at the time) £440 billion. Does anyone actually think that (well investigated by Derek James) efficiency savings amounting to less than 2% of the budget were the cause of our defeat? Is that really what they believe?

[Jake]

"Efficiency savings are hot air."

no they are not , they are part and parcel of real life and there are plenty easily available .

By the way call it " good housekeeping "
- sounds less threatening .

Good housekeeping ( an open ended phrase )could easily result in bringing public exependiture under control .

[Martin Coxall]

To me it's a question of those who see reduced taxation as a means to an end, and those whose see taxation as an end in itself.

I'm with the latter, which means that I agree that we need not promise aggressive tax cuts up front.

It's clear that Labour, despite all their positioning as 'defender' of public services, has little or no idea of how to reform them in a way that will ensure their continued survival. That makes them more of a threat to public services.

However, the people will not perceive this until we can demonstrate that we *can* reform public services in a way that delivers increased productivity, greater personalisation, increased staff morale and reduced cost.

Once we've done that, we will have earned the trust and respect that allows us to start giving back through aggressive taxation reforms the long overdue savings we have made.

However, and I can't stress this enough, public service reform and public trust over these services MUST COME FIRST.

Osborne is absolutely right the large upfront tax cuts without reform would be reckless.

[Iain]

"In 2005 we proposed £8 billion in tax cuts, while public spending was (at the time) £440 billion. Does anyone actually think that (well investigated by Derek James) efficiency savings amounting to less than 2% of the budget were the cause of our defeat? Is that really what they believe? "

No I thought that was a really good strategy, it showed the Conservatives had a level of competence in what they were saying, as such it's a shame the strategy has been abandoned for it would be really showing some benefits now, especially with people suffering under the burden of Brown's taxes, for it would be very damaging to Labour to show up the cost of their failed policies and waste to people who are having to count their pennies, yet seeing the obscene waste of the bloated state.

[Iain]

"Osborne is absolutely right the large upfront tax cuts without reform would be reckless"

Yes but he isn't saying anything, he's not pointing out any of the waste taking palce. Just pointing out the billions in waste taking pace, makes the argument that there is room for tax cuts without effecting any of the public services.

[Martin Coxall]

Yeah, but whining about "waste" just seems petty. Yes, it does. 2% is 2%.

People are looking to us for sweeping change, not piddling around at the fripperies of public spending.

Going on about waste in and of itself makes us look pathetic. Dealing with waste should be a small part of our overall programme to overhaul Britain's public services into a efficient, personalised sector that people are happy to use and work for.

[Sean Fear]

"Here we go again.....the attacks on public services that have defeated us for the last 3 elections."

What attacks?

Why should the public sector, and the public sector alone, be incapable of moderating its insatiable financial demands?

[passing leftie]

It's true that in 2007 public expenditure will nearly reach the level it was under Thatcher although a much higher proportion of her expenditure wasted on subsidizing unemployment caused by her policies. It's then set to decline slightly in 2010.

For those among you who think that public sector expenditure inhibits growth, I refer you to this lovely FT chart http://www.ft.com/cms/8f7e2266-9b02-11d9-90f9-00000e2511c8.gif
and article
http://search.ft.com/nonFtArticle?id=050323001332

It's not how much you spend on the public sector that matters; it's how you spend it. That's why people who think the State should be reduced to a certain size (or increased to a certain size) in principle, are wrong.

Please, please, promise lots of tax cuts and reduced public expenditure. Same old Tories, same old mistakes.

[Are you thinking...at all?]

1. We don't yet know what Labour's post-2010/11 spending plans will be. Is the Editor's view that we should offer different spending plans regardless of what Labour produce? Or is it that we should promise now to increase Total Managed Expenditire by 1.5% p.a. above inflation (the seemingly arbitrary figure which ConservativeHome has previously declared sufficient) after 2011 and give Labour a couple of years to choose whether they want to spend more than this or less than this?

2. "We need the flexibility in government to adjust spending plans if economic circumstances demand it." What about non-economic circumstances? Why say now that the size of the state cannot grow in 2013 even if confronted with major security threats?

3. If the point of this is to say we'd spend less than Labour, we have to say where we'd spend less. In the last two elections, we asked people to believe that we would give them something for nothing by cutting out waste without harming services. They didn't believe this. Would you repeat this strategy again and hope it will be third time lucky? Or would you tell people we would cut spending compared with Labour's plans in a way which is credible but potentially unpopular?

[Tony Makara]

passing leftie, speaking of government waste, wouldn't you agree that 3.4 Billion pounds spent on the New Deal and youth unemployment up 20% has been a complete waste of money. The Labour website may claim that we have 'full employment' but there are 1.6 million struggling to live on JSA who know that such a claim a case of a government lying to its people.

[Martin Coxall]

@Sean Fear:

It doesn't matter whether the attacks on public services by the Tories were real or imagined. The problem was, that the notion of the Tories 'attacking' public services was not inherently ludicrous.

Which is to say, the people never saw us as defenders of public services in that laughable way Labour portrays itself.

That needed to change, and Dave has made a lot of headway in that regards. We could still lose the ground we've gained, though, by being carelessly bullish on public spending cuts before we've fully established our trust and credibility on public services.

[Dale]

Unfortunaltely for 'politico' his alias is only too apt. He does not live in the real world and will be a contributing factor to the defeat of the conservative party at the next election. He is TELLING people what they want, he will not LISTEN, because he knows better.

If the conservative party wants to win the next election then it will have to adopt an agenda of real devolution (not the regional kind) and direct democracy.

[passing leftie]

passing leftie, speaking of government waste, wouldn't you agree that 3.4 Billion pounds spent on the New Deal and youth unemployment up 20% has been a complete waste of money.

The New Deal was intially more succesful, but it's become more and more difficult to find jobs for the remaining people. However long-term youth unemployment has been massively decreased.

I think the party of Thatcher should show some humility when it comes to unemployment. The irony of "Labour Isn't Working" shouldn't be lost on you.

Better on the New Deal than on the unemployment benefit and a wasted generation we got under Thatcher. Those were years of the institutionalised waste of human potential.

[Tony Makara]

passing leftie, lets get facts straight. Youth unemployment is up 20% under Labour and rising, it is not say you say "massively decreased" The New Deal doesn't not provide work for the unemployed but rather is an expensive way of fiddling the unemployment figures. When those claiming JSA are drafted onto the 13-26 week 'work-experience' programmes they get their P45s back and disappear from the unemployment figures, even though they are still as unemployed as ever and will not be getting a job at the end of the training. If the Labour government ever needs to conjure up a fall in unemployment figures all they have to do is draft additional numbers onto the 'work-experience' programme and 'Hey Presto' unemployment 'appears' to fall. Its a lousy trick but sadly one that has fooled the public for a number of years now. This is government by gimmick, government by dishonesty.

[Martin Coxall]

@Passing Leftie:

It never ceases to amaze me how many people here are obsessed with dwelling in the past. You know, by the next election there will be an entire generation of voters for whom Major left power when they were young children, Labour are the natural party of government, and Thatcher, Reagan and Communism are dusty remnants from ancient history.

Constantly going on about what happened in the eighties is obsessive, boring and unhelpful. And makes it look like you have nothing of interest to say.

Now, don't get me wrong, this party has dwelt in the past for too long itself, but we're (mostly) looking to the future.

So WHY are you still going on about ancient history when we're looking to a bright new future?

[Andrew Lilico]

This all seems a bit ad hoc to me. Do we really think that the right way to go about things is to work out how much we are going to spend (e.g. by saying we'll have spending grow as much as Labour, or grow at 1.5% per annum) and then later work out what we are to spend it *on*?

Surely total expenditure should be regarded as an answer, not a constraint. That is to say, we work out how much it is appropriate, given the role chosen for the State and the method of state involvement, to spend in each specific area. Then we add it all up to get total spending? We need an overall figure, because we need to work out how much tax revenue we would need to raise, but I'm suprised at the idea that this is best done budget-driven. As if NHS expenditure were a bit like an advertising budget that we just turn over to the Vice President, Advertising, and invite him to spend however he sees fit.

Shouldn't we be coming at this question a different way, something like the following. We consider the key spending departments on which we might be inclined to (or find it necessary to) have policies. For the sake of illustration, suppose that these were Health, Education Defence, Policing, and Social Security. Then we think what is the State's role in Health, Education Defence, Policing, and Social Security.

Then we think about how we would deliver that role (e.g. if we think that the State should take unto itself a duty to ensure that every child is educated, and that the Market cannot deliver this unaided, then do we go for regulatory solutions (e.g. compulsory private provision), compulsory savings-based solutions, tax-and-spend with vouchers, tax-and-spend without vouchers, whatever.

Now we know what it is that we want the State to do, that tells us what budget we need from each department. (If the budgetary change is too much to deliver in one year or one parliament, then we promise to "make progress" towards our goal.) That might mean that we need to spend £Xbn more on Health than today, £Ybn less on Education, £Zbn more on Defence, and so on.

Sum up the differences across the key departments, and you have your overall difference.

It really should be as simple as that.

[RobD]

Surely the point here is not that we all know spending cuts are affordable it is that the public doesn't trust us to make those cuts without it affecting their essential services. We know that cutting 2% of spending would be easy but it is all too easy for our opponents to convince the electorate that means eight billion pounds of cuts and the closure of their local schools and hospitals.

I may be wrong but I think it took the Northern Rock shambles to occur before the polls started to say the public trust us more than Labour on the economy. I would imagine that trust has come partly from Osborne's careful playing of this issue. We are correct that cuts are affordable but we will have to argue our case very well to get the average housewife to believe us when the opposition are telling her it would mean cuts in her children's health and education provision.

I do not necessarily think the spending commitment should be extended but if it is not extended we need to be sure we have a credible and simple case to prove that we can afford cuts. If we can't get this message across effectively we would be gifting our opponents an open goal.

[Buckinghamshire Tory]

Politico: "Social conservatism as taking the best parts of socialism and merging it with conservatism."

That is not a new idea at all. That is basically what the Tories tried to do from 1951 to 1975 (Winston Churchill, Anthony Eden, Harold Macmillan, Lord Home and Ted Heath), resulting in the disaster that was the Conservative government from 1970-74.

[Editor]

Great comment Andrew, 14:14.

[Mark Fulford]

Andrew, mixing politics and common sense will do you no good ;-)

I think the problem with your idealistic theory is the Grand Designs factor: a hopeless inability to estimate costs, complexity and barriers. I do not believe that we (or anyone else) have the wherewithal to accurately specify or cost even 1% of what we’d like government to do. That leaves us with this arse-about-face way of working: here’s the pot, make it last.

[asquith]

Make the case for saving money by abolishing such futile expenditures as identity cards. That nicely ties in with a civil libertarian agenda. Thus, a balanced budget can be achieved without any detriment to public servies.

It isn't a good idea to cut away the admin workers, in my humble opinion. Their loss will soon be felt in terms of frontline services.

[Martin Coxall]

If we canceled the ID card scheme now, does anybody know how much of the up-front cash our dimwitted government has already staked would be reclaimable?

[Sally Roberts]

"If we canceled the ID card scheme now, does anybody know how much of the up-front cash our dimwitted government has already staked would be reclaimable?"

Trouble is, Martin I'm sure they'd use it for something equally dimwitted - this Government would rather stick pins in their eyes than return any money to those they took it from in the first place!!

[passing leftie]

So WHY are you still going on about ancient history when we're looking to a bright new future?

First, if you forget history...

Second, public sector expenditure has no apparent correlation with growth. It's how much money you have to spend after tax plus the services you get from the State which are important.

Third, Blair might be history, but he is recent history. It was under Blair and Brown that public spending came down to the lowest for over thirty years and has since increased. The point is, you spend what you need to spend over the economic cycle, and not because of irrational anti- (or pro-) state sentiment.

By all means nail your flag to the mask and let's see you promise to cut the public sector and decrease taxes. It would at least be a contrast.

[Mike Thomas (215cu)]

Martin,

RE: ID Cards.

The answer is very little can be recouped because of the nature of how ID Cards work many of the support systems are already being implemented or will be operation before the next election.

As for Labour's spending plans:

I would say it would sensible that they should be honoured for 12 months after the election as this would limit Labour political opportunism in that budget. The economic impact would be minimal.

After that, it is not a problem of government spending, it is the distortions these taxes they are creating in the marketplace.

There is a strong case to switch from punitive taxes to rewarding good behaviour. This switch would not only make these taxes more palatable to the electorate but have a far higher chance of succeeding in implementing policy.

As for the economic arguments, low tax economy have always outperformed high-tax ones, taxes cannot shift markedly until two massive burdens on the state are reformed, the NHS and Welfare.

A compromise might be to honour Labour spending plans for ring-fenced parts of the public sector for two years instead.

[Martin Coxall]

@Passing Leftie:

I'm not sure what you expect from us! You seem to be assuming that we can be goaded into making ludicrous proclamations about massively scaling back public services in the name of large tax cuts as an end in itself. This party doesn't march to that tune on the whole, if ever we did.

Of course, I favour a lower-tax economy. I'd not about to sacrifice the general wellbeing of the country to achieve it at any cost!

Of course there's a correlation between public spending and growth. There is, by necessity, a feedback effect between the two over an economic cycle.

However, my point about obsessing about the Thatcher era stands. That was a very different time with very different economic realities. I wonder how much the economics of the early eighties truly has left to teach us.

Are there any monetarists left? I thought they all died on the 16th September 1992.

[Iain]

"Are there any monetarists left? I thought they all died on the 16th September 1992."

Interest rates are use to curtail inflation, the only thing interest rates impact on is money supply, thus the monetarists are alive and well, its just that its become so main stream people don't realise they have become converts to the policy.