Michael Fallon challenges George Osborne to cut the "unsustainable" growth in the size of the state

On ConservativeHome yesterday Michael Fallon MP issued a warning against taxing non-doms.  He's written another superb article today; for The Daily Telegraph.

The first half of the piece is stuffed with hard-hitting facts:

• "Four years ago, the 2003 Budget forecast that net public borrowing would be £22 billion in 2007-08. In fact, it's now planned to be £38 billion - 72 per cent higher."
• "Each year we were promised that the Budget would be brought back into surplus: in 2003, Gordon Brown forecast surplus by 2006; in 2004, that slipped to 2007; in Budget 2006, it became 2008; by last autumn that had moved out again to 2010."
• "Back in 2003, Mr Brown planned total public sector debt to reach £472 billion by this March. In fact, it has already risen to £541 billion: that's 15 per cent or £69 billion higher. In five years' time, it is planned to hit £713 billion, well over double what it was in 2002-03."
• "Debt interest is now our fourth biggest departmental spending programme: it's almost exactly as much as the entire defence budget (£32 billion)."

Mr Fallon then links this deterioration in the public finances to the tax burden that is facing the British people and businesses:

• "A single man on the minimum wage earns around £11,482 a year, but pays £1,722 in tax and NI - almost 16 per cent of gross earnings. (He receives just £2 a week in working tax credit.)  If he lived in Ireland, he would have to earn twice as much before he paid the same amount of tax. In fact, somebody on the average Irish annual wage of 30,000 euros (£22,500) has a tax burden of only 14.8 per cent."
• "In 20 years as an MP, I have never known so many constituents finding themselves in real difficulty this winter making those last council tax payments."
• "[Small businesses are] paying more corporation tax, not less. Over the past 10 years, they have been paying more and more to the Government for doing more of the Government's work for it: operating tax credits, checking immigrant status, sorting out graduate loan repayments."

In order to begin to get control of this situation Michael Fallon draws the conclusion that is obvious to 77% of Tory members but not, it appears, to Messrs Cameron, Osborne and Hammond: A Conservative government must reduce the growth in the size of the state:

"The public finances are in crisis. We need not just a formula, but some principles. We need, too, to be honest with people. The growth of our state is now simply unsustainable.  Because we have yet properly to address the spending side, we feel constrained to match any sensible tax cut proposal with a compensatory tax increase elsewhere. Lower taxes for families will be paid for by higher taxes on polluters, raising inheritance tax thresholds financed by taxing the non-doms.  But every time we match a commitment to a tax cut with a commitment that we will increase another tax to pay for it, we undermine the moral case for low taxation.  We give no hope to those people at the bottom of the heap - the worker in his first job at the minimum wage, the pensioner on a fixed income - that we understand the pressures on them and that we are determined to help them.  Restoring our public finances will not be easy. It wasn't when we returned to power in 1979. But we began by being on somebody's side."

David Cameron's commitment to share the proceeds of growth is a good one but current Tory plans would see the state gobble all or nearly all of the nation's growth.  We need to reduce the rate of growth so that we can reduce borrowing and introduce economy-boosting tax relief.  John Redwood has put forward a ten point plan for slimming Labour's bloated state.   A freeze on civil service and quango recruitment would be the right place to start.

Comments

[Observer]

Alas, the ConservativeHome readership and Mr Fallon are not the electorate! In recent opinion polls, a large majority of voters support retaining public spending.

Following Mr Fallon's recommendations would, therefore, only result in improved opinion poll performance - and ultimately, an election victory - for Labour.

[Dominic]

The Conservative party need to hear Cameron Osborne and Hammond hammering this failed Labour Government on all aspects of tax and expenditure. All through this Non Dom debacle not a whisper .Will we hear in PMQ’s devastating attacks on Darling or is it an area we are afraid to enter because are own plans are flawed?
Make no mistake if these madcap ideas go ahead one of the large contributors to the economy the City of London will be seriously damaged.

[Iain]

I would agree, the deterioration in public finances and rise in taxation was all very predictable, but to beat a tired drum of mine, unfortunately the Shadow Treasury has not been up to the task of pointing this out. As such if they had bothered to lay the ground work and pointed out the gathering problems, people would be looking to the Conservatives for solutions, but they aren't , well not as much as they should be, because of this failure, and to pull out the hat solutions when the problems haven't been identified to me seems like a waste of time, and will be immediately dismissed by Labour as same old tax cutting Tories.

Two recent points of note to back up my assertion that the Shadow Treasury team are not up to task. Firstly the go to figure for an opposition view on public finances is not anybody in the Conservatives, but Vince Cable of the Libdems, as last night on Newsnight. Secondly we are about to see further rises in taxation, notably on fuel , and not a whimper out of George Osborne or anybody else from the Shadow Treasury team.

[Editor]

Which poll are you referring to Observer?

[Simon Chapman]

Michael Fallon is bang on the money. At a time when households are having to tighten their belts, the government should do the same.

Sad to say, there is no evidence that the Party really understands the current pressures on incomes. We don't seem able to articulate or share the pain (remember the strivers, and more recently the copers?). We are not speaking to the needs of the electorate, and that's why we aren't connecting with them as well as we could be.

Instead we get ourselves tangled up in debates about hares & tortoises. This is an example of the Westminster Village at its worst: obssessing with internal discussions about tactics; ignoring the needs of the nation.

We need to find the language (please - no more hackneyed nods to "hard-working families") and the passion that will show that we understand the financial squeeze. If Messrs. Cameron Osborne and Hammond won't or can't do this, they need to appoint someone who will.

And whilst we are about it, a serious commitment to David Willett's idea in the leadership election that we need to find ways of reducing demands on the state (strengthening marriage and combating obesity are both examples of this) as well as a second and expanded edition of the James Report would help set the terms of debate.

[David Belchamber]

What a breath of fresh air from a tory MP:

"A single man on the minimum wage earns around £11,482 a year, but pays £1,722 in tax and NI - almost 16 per cent of gross earnings. (He receives just £2 a week in working tax credit.) If he lived in Ireland, he would have to earn twice as much before he paid the same amount of tax. In fact, somebody on the average Irish annual wage of 30,000 euros (£22,500) has a tax burden of only 14.8 per cent."

These are the things that matter to real people, to which I would add my usual bleat that inflation is not running at 2.1%, because ordinary people have to pay rent or a mortgage, which costs are excluded from Brown's CPI figures.
Let the tories get real and tell it as it is. Brown has got away with it for too long.
As Ian points out at 09.24, it is left to Vince Cable to articulate our current economic problems succinctly and cogently.
A shadow Treasury team of Cable, Fallon and Redwood would have real purpose.

[James Maskell]

Fallon is right, but Cameron and Osborne wont change course. They may well consider this a defining part of modernisation and a Clause 4 issue. The talk of an elegant reverse may well be good politics but it indicates that the Conservatives dont think the public deserve their honesty.

It would be nice for Cameron or Osborne to just come clean. Make a decision then stick to it. All this smoke and mirrors just continues to give fuel to the idea that politicians cant be trusted.

[passing leftie]

The important thing is not how much you are a taxed, but what your net income is. Your net income depends on the success of the economy. If your net income is increasing and public services are improving, what is the problem? It's no good to have low taxes if the money in your pocket is worth less, and only the wealthy can afford basic services.

Under Labour, the average real income growth has been 2.3% annualised, weighted towards the lowest quintile, whereas the average between 1979-1996 was 2.1, and this was heavily weighted towards the top 10% of the population. Not much difference, really.

So, if you can overcome your obsession with low tax, and instead concentrate on what you really think is important - net income - you might come up with better ideas.

But, by all means, go charging off into the wild blue hinterlands of low tax and slashed public expenditure. It would be great to see some clear blue water rather than this blue/green/orange mix. Ironically, this mix of colours gets you Brown.

[Mike A]

"A single man on the minimum wage earns around £11,482 a year, but pays £1,722 in tax and NI - almost 16 per cent of gross earnings. (He receives just £2 a week in working tax credit.) If he lived in Ireland, he would have to earn twice as much before he paid the same amount of tax. In fact, somebody on the average Irish annual wage of 30,000 euros (£22,500) has a tax burden of only 14.8 per cent."

This is a peculiar analysis. Why only look at direct taxation? And why not compare decile to decile? And what adjustment has he made for Ireland's lower PPP incomes?

[Martin Coxall]

I can't help noticing that the article is big on complaining, but short on answers.

Anyone would think that whining is easier than offering constructive alternatives!

Does anyone think that Mike Huckabee's ideas regarding the abolition of the IRS and the introduction of a single FairTax on consumption with a sizable allowance and generous rebates for the poor to replace all other taxes might work in the UK?

What about a fiscal and monetary constitution for the UK? Something that chancellors of the exchequer cannot violate. As we're not part of the Eurozone, we're not bound by the growth and stability pact, but limits on debt and deficits as a percentage of GDP should be absolutes.

If nothing else, the execution of the loathed HMRC would surely do something for the country's morale?

[Iain]

"I can't help noticing that the article is big on complaining, but short on answers."

Answers are for elections, its for the opposition to point out the failings of the Government, something the Conservatives are failing at in the tax, spend and economic area.

[London Tory]

Winning the Election is more important at this stage.

I doubt Michael Fallon would be espousing such views were he still defending his old seat- Darlington, rather than his new one, Sevenoaks.

We need to win the Darlington's back, and to do that, we need to stick to the Cameron/Osborne strategy.

[Jennifer Wells]

What is interesting about those who defend Osborne is that their arguments are consistently political. They are not saying that even more spending is justified in more fundamental terms or will help the UK economy.

[Mike A]

77% of Tory members may think it is "obvious" that we need to "cut" spending. 61% of our membership also preferred IDS to Ken.

They're hardly experts on picking election winners.

[Mike A]

Jennifer Wells:

How much more quickly than the Government could we reduce spending?

Hint: If the answer is anything other than "I don't know", you're lying.

Moreover, if you want reform in the public services, you have to be willing to put money into it.

[Martin Coxall]

@Jennifer Wells:

That's odd, because here am I in thinking that George Osborne is a politician! Have I been a bloody fool?

Look, as Tories we all agree that we want to see a more competitive, lower tax economy. We also want public services to be more efficient, more personalized and have better morale than they do now.

These two desires frequently conflict, especially if you start promising one pole over the other recklessly. A subtle balance has to be achieved, and we have to earn the people's trust to make the necessary changes.

Osborne knows what he's doing.

[London Tory]

@ Jennifer

We cannot reduce public spending at a faster rate than any Labour Govt while we are sitting in opposition with an electoral mountain to climb. Once again, as with the EU, idelogical purity is fine, but a generation in opposition is utterly futile.

George Osborne is highly rated by the carping ninnys in the Left Wing Press. In recent weeks I have seen Freedland, Kettle and Dame Polly speak highly of him. So too has Steve Richards, a slightly better journo from the Indie. He has got them rattled, and we should stick with him.

Don't frighten the horses.

[Veritas]

Why is this man not Shadow Chancellor? He is MILES ahead of Osborne in terms of impact and ability.

[Martin Coxall]

@Veritas:

Is he miles ahead in terms of electability? If your honest answer is no, then there's your reason.

Osborne will win us elections. Fallon will not. It's not a difficult call for those tired of Labour government.

[Jennifer Wells]

Thank you for proving my point LondonTory. You Cameroons are all political. Let's start talking about what the country needs and you might be surprised at the electorate's response to such straight-talking.

[Bill]

The problem with passing leftie's analysis is 1) growth under the Tories was retarded by having to clear the mess upafter Labour 2) Labour's post 1997 growth was in large part due to Tory reforms which 3) have been undone and partly explain our current dificulties. In addition were had Labour not damaged our competitiveness we might all be better off still like the Irish.

[Mike Thomas (215cu)]

I agree in some part with Mr. Fallon's analysis right up to the point that tax cutting should now supercede the Cameron Osbourne axis of maintaining Labour spending plans.

Any suggestion of tax cuts being a vote winner will only work if they are perceived by the ELECTORATE that the tax is unjust. Witness the reception to IHT tax allowance increase.

However, cuts in direct taxation will hand a significant advantage to Labour and the idea, fallacious or not, that tax cuts equals cuts in public service is hardwired into the public psyche.

If you want to get a vote winning tax cut policy in the short term, my suggestion is campaigning to reinstate the 10p tax band and a simplification of income tax thresholds.

That is part of the story of modern conservatives that is already there.

It doesn't take a genius to work out that Labour's economic woes are only just beginning, let Labour have to make the tax increases to fill the growing black hole. There is far more capital to be made out of criticising Darling & Brown's woeful stewardship of the economy first AND THEN denouncing lack of Labour's budgetary control AND THEN changing tack.

Remember, Labour's stewardship of the economy is the bedrock of their support.

To destroy this needs a deliberate and simply communicated narrative first with the electorate as to why we offer a better alternative.

Otherwise tax cuts = cuts in services remains with the very voters we need to persuade to win any election.

[Iain]

"Osborne will win us elections"

Well if 'hear no evil, see no evil, speak no evil' regarding the economic mess Gordon Brown has made of our economy is the winning strategy, then may be Osborne will win the Conservatives the next election, but excuse me if I think that is nothing short of political cowardice and wrong.

Today we have yet more evidence of the economic conditions deteriorating with he Bank of England Governor’s assessment, yet still nothing from the Shadow Treasury team, and as such it comes to something when the dry comments from the Bank of England Governor are more forthright in expressing concern for the economy than anything from the main opposition party!

[Iain]

"To destroy this needs a deliberate and simply communicated narrative first with the electorate as to why we offer a better alternative.

Otherwise tax cuts = cuts in services remains with the very voters we need to persuade to win any election."

I fully agree!

[Martin Coxall]

I'm slightly baffled that Iain and Jennifer seem to think that being "political" and "wanting to win the next election" are somehow insults of the highest order.

Iain, Jennifer. Simple question: would you rather Osborne in government or Fallon in opposition? These are the choices you and we are advocating.

[Iain]

"would you rather Osborne in government or Fallon"

I don't know Fallon, but we have experience of Osborne for the last three years, and here he has failed to carry the attack to Labour while Gordon Brown was Chancellor and now with Darling when there has been much to challenge them on. As such I don't think the Conservatives can succeed while one of the most important policy areas is so badly misfiring, and failing to carry any sort of argument or challenge to Labour or their policies. Personally I believe the Conservative ploy to copy Labour’s spending plans is more about the weakness in the Shadow Treasury team to carry any sort of political and economic argument than anything else.

[Editor]

I'm much more with Jennifer than Martin, London Tory et al.

The electorate might just warm to politicians who tell the truth about Britain's economic decline but chart a path to putting things right.

[Martin Coxall]

The nice thing about being in opposition, I suppose, is that you have lots of free time to plot lots of paths to any number of Conservative utopias.

[Umbrella man]

We'll be in opposition a very long time if voters continue to see Cameron and Osborne as fakes --- salespeople selling policies that are designed by focus groups.

[James Sproule]

It seems that much of the debate centres on do we simply accept the way things are (our welfare state is large, unreformed and failing, but doing anything about it might not be electorally popular, so we treat the entire thing as sacrosanct), or we try and win some electoral arguments. If this is the case, the question is do we broach these subjects before or after wining power? If we advocate reforms to public services, which will entail amongst other things, will facilitate tax cuts, we may indeed frighten some people off (but equally we will win plaudits for being honest, and may win votes for being so). Alternatively, we could wait until we are in power. The latter course leaves us open to charges of dishonesty about our purpose (leaving aside the fear that not having been elected to reduce the role of the state, we will have no mandate to do so).

It is wilfully stupid to claim we have lost the last elections through promising tax cuts, our tax cuts were rounding errors in state spending. There were many reasons we lost the last three elections, but we have to ask ourselves if leadership is merely a reflection of public opinion, or if it means looking at what is necessary for our country to prosper and advocating that course.

[Martin Coxall]

I guess it's a difference of emphasis we're talking about here, since we all agree that we want some kind of lower tax economy.

The important question is how we do it in a way that preserves public trust, doesn't scare people, and doesn't re-contaminate a brand that Dave has spent a lot of time cleansing.

And you know what? It's a difficult problem, and we *have* to be careful. I doubt that Fallon, Iain, Jennifer or our good editor would pretend otherwise.

We, as a party, have lots of radical ideas and very smart people, but to implement them requires the trust of the British people. And trust is a valuable, fragile commodity in British politics these days, and rather hard to come by.

[Editor]

Martin: There are many ways of winning trust and of losing it.

Your argument - and it's a fair one - is that we should not frighten voters.

My argument - which is equally fair I think - is that we need to be more honest with voters.

Most political judgments are a balance between the need to be reassuring and the need to energise voters. On the whole - including within this debate - I fear we are being too cautious.

[Andrew Lilico]

I'm certainly with the thought that we should argue for what we believe in - as I've said many times before. But I don't think that what we believe in has to be all that difficult to sell. We are *Conservatives*, not radical anarcho-libertarians, after all. At that level, George Osborne's "trust me, and I'll make sure that each time a Budget comes around I'll try to find ways to cut spending" means rather more than lots of commentators here give him credit for.

On the other hand, this debate runs the danger of being finance-led. We have fallen into this trap many times over the past three decades, appearing as rich people who resent paying any more taxes to help the poor than we can possibly get away without. We should seek reform of public services, in the first instance, because such reform will make those services run better and deliver superior outcomes and freedoms for our citizens.

In contrast, if we make things finance-driven, as well as being politically foolish, it is also practically confused. Because then services run the risk of "death by a thousand cuts". It would be better to decide what we want to do - which may, in the case of some services, be radically less than today - and then fund what we want to do properly, rather than in as miserly a fashion as possible.

The debate about taxation and spending should be a series of ideological debates about the roles of the state in various areas, not one grand finance debate or a (slightly confused) macroeconomic debate. We can win the micro-ideological debates if we engage in them properly. Arguing "I'm rich, and I don't feel like paying for the poor" isn't a debate we're going to win, ever.

[Martin Coxall]

@Editor:

I absolutely agree.

Although, I don't think that Osborne has been dishonest. The Cameroon's failings are, as you say, that they have merely been too cautious.

Of course, as our poll leads have proven increasingly robust, some of that caution has started to ease. But I wouldn't expect Osborne to start a cavalier programme of promising to cut public spending by tens of billions in the near future.

There's a certain asymmetry here, which is that we are still more trusted on tax and spending than we are on public services. To be able to drastically reform both, we need to be trusted on both.

[Bill]

I'm with the Editor here although I still remain unimpressed by Osborne and Cameron. I don't think today's Tory party has got the spine to roll back the state and free the people.

[David Belchamber]

The above posts largely suggest that we are floundering around; why do we not ask the party to commit to running government departments as if they were large service corporations and to bringing in best business practices (including or especially security measures)?

Just to run these monoliths efficiently is bound to produce better outcomes, cut out quite a lot of waste, increase transparency and improve decision making.

[Editor]

I don't think George Osborne has been dishonest Martin but we haven't presented the electorate with a compelling account of Britain's economic difficulties and why it's worth voting for us so that we can put things right.

[Bill]

One saving which could be made would be a moratorium on the use of "consultants".

[James Burdett]

Politics is often a factor of mood music and facts, the facts on the economy have been there for all to see for a while. The mood music hasn't been there. Therefore deployment of the facts would have been unproductive, the mood-music is changing and so subtle deployment of the facts can begin. I would suggest that the budget will be a good place to start a major fact blitz on this using the approach identified by Mr Fallon. Remember from April some of the poorest people in the country are going to find their tax bills doubling. That is going to be a powerful environment to start deploying the kind of argument on tax, spending and economic competence that many of us want to see.

[Martin Coxall]

Trying to integrate private sector buzzword bingo into the public service sector is part of what has lead to the chaos of Britain's modern target-driven stupidity.

I think it's about time we simply accepted that much of the public sector, especially the NHS is too complex and heterogeneous to be run in a top-down fashion by a cabal of politicians with a textbook on game theory and a bulge in their trousers.

[London Tory]

Labour won in spades in 97 with a manifesto Blair subsequently described as pathetically modest. We went down the Fallon Path (or should I say Death Run) in 97, 01 and 05 and were slaughtered each time. We had no coherent response to the inevitable Labour lies about 'so that equals how many schools and hospitals being cut'.

It is not right wing core voters we need to appeal to next time. It is the electorates of Worcester, Stroud, Thanet, Edgbaston and Great Yarmouth etc- seats we should never have lost but where we have scared voters off in the past with dry, dusty and frankly idle talk about 'aspirations'.

Ask yourself- would you like to be a PPC in one of these seats, supporting a manifesto which promises tax and spending cuts?

[James Burdett]

London Tory - You are illustrating my point, the arguments we made in 2001 and 2005 were broadly the right arguments in entirely the wrong environment. The environment is changing, which will make the right arguments resonate more not less.

[Martin Coxall]

It's a case of being true to who we are though, isn't it? After all, we *do* all believe in a lower tax economy, and to fail to mention this at all would be the dishonesty of omission.

At the next election, we need to make it clear that we believe in a lower tax economy than Labour, and believe in more personalised, more efficient public services than Labour, and can be trusted, over time, to deliver on both.

Now, it's a difficult circle to square, but not impossible. As long as we keep John Redwood in a cellar till it's all over. :)

We have to be aware of how *every* statement we make on these issues plays to the people we've lost to Labour and the Lib Dems and never should have.

Now, I know that seems like "politicking", and you know what? It is. I want us to win an election, and we need those people back.

[Iain]

"but we haven't presented the electorate with a compelling account of Britain's economic difficulties and why it's worth voting for us so that we can put things right."

Agreed, as far as I can tell the Conservatives have been making little or no compelling case regarding the economic difficulties we are facing, and I'm an anorak on these issues, so anybody with a life would be completely oblivious of any case the Conservatives were making. With the budget and new tax year weeks away the Conservatives should be flagging up issues, like the increase in fuel tax, like the removal of the 10p tax rate, like to gaping black hole in Labour's economic plans, but we get nothing, its as if the Shadow Treasury team are abiding by an extreme form of pre budget purdah, when even the Chancellor of the Exchequer or Government wouldn’t keep to this level of silence.

[David]

Right, so. How about some ideas on what we can cut from the defence budget to get us going.

[Martin Coxall]

I think, in terms of a strategy of blaming the current economic brouhaha on Brown, there's yet another air of caution.

If, say, the fallout from the sub prime crisis is not as bad as we all fear, and the economy never quite falls into recession, it will look extremely bad had we spent months 'talking the economy into recession', and will give Brown ammo to portray us as black-sky economic ill-wishers.

Of course, when the brown stuff does hit the extraction device, I'm sure we'll be ready to put the boot in.

[Joe James Broughton]

Michael Fallon should be Shadow Chancellor.
I thought so long before this.

He has the intellect to sharpen up our plans (but without being over the top).

It must be something to do with Gordon Brown's taxes that one can still feel very over-stretched on a high salary.

[Martin Coxall]

@David:

We use the money we were going to spend on renewing Trident to develop a strategic missile defense with all of the major nuclear powers instead. Because the costs will be shared between the UK, the US, Russia, France, China, Israel, India and Pakistan, it'll cost a small fraction of Trident, whilst offering all of its advantages and a few Trident doesn't offer.

We use the money saved to create an entirely new armed service, devoted entirely to high tech/cyberwarfare.

[London Tory]

Joe James Broughton

With all due respect, have a look at the Register of Members Interests. Michael Fallon has a number of 'other jobs' in addition to his full time role serving the people of Sevenoaks. All perfectly within the rules and above board, I wonder if he could have found the time to work in the Shadow Cabinet.

[Mark Fulford]

and believe in more personalised, more efficient public services than Labour, and can be trusted, over time, to deliver on both.

Promises like this fall on deaf ears. Every party promises that they can deliver better, more efficient public services. Can you name as single modern government that has actually delivered?

[Martin Coxall]

@London Tory:

"1. Remunerated directorships
Just Learning Holdings Ltd; children's day nurseries, and of the following subsidiaries:
Learning Just Ltd.
Just Learning Ltd.
Just Learning Developments Ltd..
Careshare Holdings Ltd
Careshare Ltd
Tullett Prebon Plc (independent non-executive); inter-dealer broking"

Nurseries and a... brokerage firm?

If there's some implication of unsuitability there, I'm not sure what it is, apart from the two apparently incongruous poles.

[Martin Coxall]

@Mark Fulford:

No. And that's part of why trust is so scarce- frankly, British politicians don't deserve it, considering their pattern of overpromising and underdelivering since the second world war.

Which is why I think it's important that the trust has to come first. In the meantime, it gives us plenty of time to analyse where other governments have failed.

My feeling is the failure stems directly from the failed assumption, tested time and time again, that our public services can truly be run in a centralized fashion, if only we could find the right 'management doctrine'.

I'm just as sick of management speak and buzzwords as I'm sure everyone else is.

[Iain]

"How about some ideas on what we can cut from the defence budget to get us going."

Why the defense budget when there are fatter areas of Government spending to cut away? The Government has just absorbed the failed Metronet which is going to cost us £1.7 billion, a Gordon Brown PFI deal which the Conservatives have said nothing about. Labour have just agreed to pay the EU another billion a year, Gordon Brown went to India and spent £825 million there, the continuos NHS reforms have cost us £3 billion, and so on and so on.....

[David Belchamber]

Exactly, Iain at 13.57:

"With the budget and new tax year weeks away the Conservatives should be flagging up issues, like the increase in fuel tax, like the removal of the 10p tax rate, like to gaping black hole in Labour's economic plans".

All the shadow Treasury team need do is to read Jeff Randall (today):

"Then there's the cost of living. Petrol prices, food bills, tax demands, train fares, energy costs and mortgage payments are powering ahead, but the Government insists that inflation is running at just 2.2%. I don't know anyone who thinks that rate reflects the real increase. It's nuts".

Luckily we can leave it to Vince Cable who regularly has something worthwhile to say, even if our lot haven't.

In the same paper Damian Reece said:

"For many of us, buying season tickets, paying our council tax and doing the weekly shop, the CPI is a nonsense. The worry for the Governor is that a widespread sense that "real" inflation is higher than the official figure starts to inform wage negotiations".

Don't worry the NUT has already noticed and why, as the PM insists that inflation is only 2.2%, did he give state pensioners a 4% increase?

Does our Treasury team actually realise the impact that inflation has on people on pensions and low salaries? Do they not know how to express its pernicious effect on fixed incomes in terms that readers of the Sun and Mirror can understand?

[Martin Coxall]

@Iain:

I guess we shouldn't talk too loudly about failed PFI schemes, because we used to be in favor of such ill-conceived idiocy ourselves. That's one bullet I'm glad that Labour has bitten for us.

A billion here, a billion there is not a lot of money though in real terms, and we shouldn't get too hung up on them. What we need is an overarching philosophy for the core spending of the vast blocks of public money: the NHS, education, defence, social security.

[MKS Tory]

Here is a quote for UK economy that I picked on bloomberg

"Government spending is growing 6.1 percent annually, while tax receipts
are increasing 4.9 percent. You don't need a degree in accountancy to see
where that is going. As each month goes by, the country slips deeper into
the red." Source Bloomberg 06/02/2008

The two elements of Fiscal deficit are revenue/taxes and spending.

I will not argue for/against matching Labour spending stance taken by
Shadow Treasury.. but highlight that we need to pay more attention to
spending aspect of fiscal deficit.

While the topic of cutting taxes and a better flatter tax often fills reams
of pages, spending doesn't get proportionate press and heading........real
culprit of bad fiscal deficit almost always is increased/uncontrolled/wasteful Govt. spending

Its the SPENDING which is to blame.....making a case for cutting taxes can be misinterpreted/deliberately miscarried
by some leftist press/people..but making a case for 'monitored and matching
judicious spending' should give us better and wider appeal. 'Cutting taxes when economy is in dump' as an idea has been given up by even its most fervent believers in US.

If UK goes into recession it will be a very painful one .. and there is not much any govt. can do now, given all the screw ups done in the past by Labour. Economy has been an issue and will always be a poll issue and even more given the oncoming recession..... so we should not hesitate in
magnifying the issue.

'Review of Government Scending' should be one of our proposal which will also help us continue highlighting Gordo's excesses.

Picking some more stats from the bloomberg article...
Debt Management office stats show, 33 percent of gilts are now held by
overseas investors. That compares with 17.7 percent at the start of the decade. In money terms, it amounts to 148 billion pounds in foreign loans.
Robust bullish economy over last 10 yrs and stable ££ meant investing in gilts have been a good deal for foreign investor, the trouble is this may not last and turn is imminent, what happens then

Worst case, if ££ falls, what happens to this financing... while a foreign
investor ( read foreign central banks and sovereign funds etc.) gets 5%
yield on bonds and 5% on currency it makes for a good investment but if you
lose 5% on currency and make 5% on bonds.. the deal suddenly a no brainer..

1/3 of state debt is in foreign hand ....in the doom scenarios of rising
deficit and falling currency ,.. this debt will be difficult to replace with new auctions... and with a paltry saving rate of the UK nationals it can only exacerbate the problem

Bottomline is .. great care is to be exercised in govt. SPENDING and not
just when Tory govt. gets the control of purse string but even now.... to
highlight how much we care about the economy it will be good for us to make
a passionate case on this issue.

[Andrew Lilico]

I'm at a bit of a loss to justify the political (as opposed to policy) criticisms of our Shadow Treasury team that are expressed in the comments above (though not in the main piece). Darling has been humiliated over the past few months - Labour looked opportunistic over Inheritance Tax, incompetent over CGT, and now ridiculous over non-doms. And all because of positions our Treasury team (explicitly and unquestionably) drove Darling and Brown into. Osborne is eating Darling alive at the moment, politically.

That's not to say that that will continue if we repeat mistakes like the spending pledge. But why do we need to make spending pledges for five and odd years ahead, anyway? "Long-term planning" with five year plans is a Socialist obsession, anyway. We used to function perfectly well without making such commitments. The world changes quickly, why should we bind ourselves in? Circumstances might change, allowing us to spend much less or requiring us to spend much more. We simply don't need any of this five year plans nonsense.

[Martin Coxall]

@Andrew Lilico:

There's a possibility that some here are not giving Osborne the credit he deserves for making look Darling quite as inept as he does.

To a certain extent, Labour have gotten themselves into a mess by trying badly to nick our policies, not understanding them, adding a bit of Stalinist complexity to appease Broon, and generally screwing everything up.

Now, there was no real expectation that they would do this- after all, we've gone to great lengths to try to avoid having them nick our policies.

Now we know how inept they are at policy theft, maybe Osborne should offer them a few more?

But there's still a feeling that we're not completely making hay as the Darling's sun continues to shine his ineptitudery down upon us.

[MKS Tory]

@Andrew Lilico

You are grossly mistaken.. its an outline of the state of UK economy and not a criticism of Shadow Treasury team. If its a criticism, its of the 10 yr Labour treasury record. George and his team are working hard and they have my full support and respect for that. Please think before passing such judgement on any comments...also neither do I suggest a 5 yr plan, spending review doesn't necessarily mean communist like 5 yr development plan

As Martin has rightly mentioned, its a plea to highlight the current govt's excessive and mindless 'spending' ...which can definitely do us more good than harm.

[David Sergeant]

"Now, it's a difficult circle to square, but not impossible. As long as we keep John Redwood in a cellar till it's all over. :)"

Posted by: Martin Coxall | February 13, 2008 at 13:53

I am disapointed Martin. Remember Redwood's last economic report? He pointed out how the Tory governments cut taxes but also vastly increased public spending. Yes he did, yes John Redwood! Whenever the headbangers make general calls for tax cuts (and Michael Fallon was specific) it is usually acompanied by some teenager type bitch at the Tory leadership, you know, "I'm not going to get my hands dirty but will make a Labour government more likely unless you do". Hardly ever does anyone demonstrate ways to sell tax cuts in a way marginal voters understand and apreciate.

But John Redwood put his finger on the answer. An answer that has been available for the last three elections and not used - hence the results. Under the Tories there were huge increases in public spending (Redwood specified doubling of NHS funding). If this was trumpeted selling tax cuts would be easy. BUT, it seems to me that Tories almost feel ashamed that they increased public spending so much and daren't say it. Frankly I have been incredulous about this since 1996, I just don't understand.

Also, as for the mess Brown will leave, how about pointing out that we sorted out Labour's last mess in 1979.

(Oh yes Vince Cable. Does it not accur to you that Cable gets the invitations because he isn't a Conservative?)

[Observer]

Editor 09.37 -

For example,

http://conservativehome.blogs.com/torydiary/2008/02/tories-announce.html

Non-Tory supporters are -6 reduced taxes and cut public spending. Cutting public spending (i.e. which the floating voter equates to public services) is not a vote winner (apart from retaining core vote). Sorry.

Already committed Tory supporters are + 27.

[Malcolm Dunn]

I agree with Martin Coxall, Fallon's argument is long on complaints about Labour but (very) short on answers.
I also strongly disagree with you Iain that 'elections are for answers'. By the time of an election it is far too late as Lynton Crosby famously noted. We need to make our case long before.
My own belief about the elections of 01 and 05 was not that the electorate did not like our economic policies they simply did not believe them.
If we are to suggest spending increases below 2% which in itself will be quite tough we have to indicate where economies can be made. Vague generalities of cutting waste will not be anywhere near sufficient.

[Joe James Broughton]

The party was seen as more credible in 2005, under Michael Howard, but it was still unpopular. I think our campaign lost focus a bit actually, after an ok start. If we'd taken a few more seats off the Lib Dems we could have crushed them quicker afterwards.

Michael Fallon - he was, rightly, urging us to sharpen up our tax proposals well before the 2005 election, not cobble them together at the end.

If the government cut the amount of regulation and use of consultants, it could afford to reduce taxes, as in Ireland, New Zealand, Australia.

[Matt Wright]

Interesting debate. Need to be careful on simplistic promises of cuts/efficiences etc. There are always some quick hits but really public sector organisations need careful re-engineering to offer significant savings combined with better services. I think constitutional issues run alongside this. The system is a real mess and the public know it and want us to solve it. We will struggle to solve many probelms while we have so much power being centralised in Brussels, London, Cardiff and Edinburgh. Real devolution would see effective local decision making at county, community and family level alongside accountability with more contented voters who can see things getting done. We have the ridiculous scenario of politicians at all levels furiously pulling at the levers of power frustrated at little happening. Conservatives have to stick up for ordinary people and put power back in their hands if we are to re-build the system and faith in politics.

Matt