Time for tax cuts

Nick Robinson has a good post today arguing that David Cameron has a problem with the economy; that is, he does not have much to say. Robinson argues:

• He can’t say that he predicted the banking crisis because he didn’t;
• He can’t say he has a better answer because he has backed the government’s recapitalisation;
• He seems to have ruled out tax cuts saying that the “cupboard is bare” and as a “fiscal conservative” he won’t borrow money to fund a tax cut; and
• He won’t spend his way out of trouble arguing that it is not a cost free answer.

What Cameron has been able to offer has been measures to give small businesses help such as a 6-month VAT holiday and a short-term 1% National Insurance cut. These may be worthy and all will help, but they are hardly sufficient in themselves to pull us out of a recession.

Cameron has said that Government has made two key errors – 1) profligate borrowing and spending during the good years and 2) removing the regulatory powers of the Bank of England. However, Cameron’s previous pledge to match Labour’s spending levels (it seemed clever at the time as it negated Brown’s ‘Tory tax cuts’ attacks) undermines his argument that Labour spent and borrowed too much as does the lack of serious and sustained warnings from him about government debt levels.

Before the financial crisis and economic downturn, Cameron’s economic policy was “Spending the proceeds of growth” – a mixture of tax cuts and government spending/investment – which is clearly no good anymore given there is no growth. Cameron has yet to offer an alternative economic policy.

Cameron’s argument that the Conservatives wouldn’t have got us into this problem is not enough on its own. The media do not seem interested in his “we wouldn’t start from here” argument as they seem far more interested in what remedies he has for the future – as do voters.

Labour have made it clear that they will head off to the Left with their Keynesian stimulus package – i.e. they are going to try and borrow and spend their way out of trouble like all Labour governments do. The Lib Dems have shifted to the Right unexpectedly with pledges to cut taxes. And what are the Tories doing? They are tinkering at the edges with small initiatives while essentially saying the economic realities they face precludes them from offering a strong lead in any direction. This is what Cameron is doing by trying to link his lack of options to Labour’s decade of economic mismanagement. But this is not what the other parties are saying and doing.

Cameron seems determined to cling to the centre, matching Labour’s current spending plans while avoiding any specific pledges to cut taxes. This just won’t do anymore. The situation has changed and that means new ideas are needed. He cannot continue playing safe indefinitely. Fiscal levers need to be pulled and Cameron needs to make up his mind and pull one of them properly. His choices are more and more spending or tax cuts.

This is back to the future territory. The Conservatives need to re-fight and win the arguments of the 1980s all over again. How has it come to this that the Tories have let Labour turn ever higher public spending and ever higher public debt (the highest in the world) into a positive? How have the Tories let Gordon Brown spin public spending as ‘investment’? How have the Tories let Labour smear tax cuts? The answer unfortunately has to be successive weak and misguided leadership.

The Conservatives need to have the intellectual confidence to win this ideological battle.

Cameron should be bold and courageous and offer tax cuts. The political climate has changed. Nick Robinson says this is a trap Brown is laying so that he can once again use his favourite ‘Labour investment versus Tory cuts’ attack. So be it. Cameron should take him on and make the case for tax cuts.

For too long Tory leaders have been silent. It is not as if he would be sticking his neck out anyway as the Lib Dems have led the way and this should make it easier for him. Also the Tory supporting newspapers of the 1980s and early 1990s will return to the fold. The Murdoch papers and Daily Mail in particular would relish the battles of the 80s again.

To fund his tax cut Cameron should either cut public spending (unlikely in a recession and will play into Brown’s hands) or borrow money. He should do the latter. Labour and Gordon Brown no longer have a foot to stand on. They cannot claim Cameron is offering unfunded tax cuts Cameron when its own spending commitments are unfunded paid for by more and more borrowing. Cameron should also inject some economic realism into the debate. He should tell the voters some hard truths and link them relentlessly to Brown’s handling of the economy. He should also attack Brown’s spending, destroying the spin of ‘investment’, and hammer home the message of a wasteful, bloated state. Brown should not be allowed to just create unproductive public sector jobs. In a time of a recession, Britain does not need more bureaucrats! Finally, Cameron needs to stop Brown’s argument that a big state is the solution from taking hold. We have had Brown’s big state for 11 years and all his spending, regulation, tax increases and red tape have not stopped us from entering recession but have helped lead us here!

And if Cameron does not offer tax cuts and continues with his cautious strategy? He could still win at the next general election. He still holds a 8-9 point lead in the opinion polls and the “time for a change” sentiment among the electorate remains strong. Furthermore, the Item Club says we’re now in recession and won’t come out until 2010. Consequently, the economic recovery is unlikely to be in time to save Gordon from the wrath of voters upset with becoming unemployed, having their houses repossessed and their living standards fall. But there is still a small chance Brown could win, especially if Cameron lets him frame the terms of the debate around more public spending and a bigger state. Finally, remember 1992 – John Major won despite being in a recession.

Cameron should be bold, not cautious. He should take the fight to Brown!!!