Labour's irresponsible tax cuts

It is being widely reported that in Alistair Darling's Pre-Budget Report (expected in the next couple of weeks) he will announce tax cuts - funded by borrowing. The government will argue it is another step they are taking to help people through a recession. However, implicit in their plan - as political as ever from our Dear Leader - is that they hope it puts the Conservatives in a bind. This is because Osborne is likely to reject the tax cuts as irresponsible, because they are funded by government borrowing, but this will then leave the Tories out of touch with the electorate who want tax cuts and will also foster disunity within the Conservative Party where many MPs and activists want tax cuts offered.

ConservativeHome has an excellent post on this today. They have been broadly supportive of Osborne's attempts to articulate a credible Conservative policy position on the economy - as was i yesterday - but now argue, faced with this new threat from Brown, that "the Tories need a responsible tax cut plan to beat Labour's irresponsible tax cut plan." ConservativeHome argues that "If Labour intend to finance their tax plan with extra borrowing we should put forward our own tax relief plan and it should be funded by tighter control of public spending," and they conclude that "The Tory tax cut plan does not need to be as big as Labour's" but that the Tories should remember "You don't beat something with nothing."

I agree with ConservativeHome that the party's 'fiscally conservative/responsible' stance, in other words, the country should live within its means, is one that could resonate with voters but that there is real danger with the government's tax cut approach. If it is funded by borrowing then it should be condemned as irresponsible. But i am not convinced that the Tories should respond to the government's political games with tax cuts of their own.

One question i have is how big is this tax cut from Labour actually going to be? The government seems to be promising more government spending and now tax cuts. It is all adding up. It is unlikely that the tax cuts will be huge in scope. But I'd expect they will, nevertheless, try to be as eye-catching as possible - possibly something that helps individuals and families (though Brown has already had to borrow (£2.7 billion to make up for his 10p tax rate cock-up).

So, what should Cameron/Osborne do about it?

1) Do nothing - Brand the tax cut as irresponsible and desperate. Government has lost all credibility on the economy and is set us up for further ruin etc etc

2) Offer modest tax cuts paid for through pledges to cut government waste (always easier to say than do)

3) Offer substantial tax cuts paid for via cuts in public spending or increased borrowing.

To my mind, only options 1) and 2) are serious contenders. Option 3) just wouldn't fit the Conservative's 'fiscal responsibility' agenda.

Another dilemma also presents itself. If the Tory leadership decides to offer tax cuts, do they:

1) Wait until Darling announces his, try and trump him, but risk Labour saying they are making the running and the Tories are copying them - the opposite of 12 months ago.

OR

2) Pre-emptive strike on tax cuts to say the Tories are making the running, but risk being trumped and derided for being panicked into the move. There is also the risk that Labour is just flushing out the Tories and won't in fact offer tax cuts.

The more i think about it, the more convinced i am that the Conservatives should not respond to Brown's politically calculated tax cut ploy. The Conservatives are rightly positioning themselves as the 'responsible' party in sharp contrast to Brown who has borrowed, taxed and spent and got us into the mess only now to offer more borrowing, spending and another cynical tax cut (remember the 'Tax Con' Budget and the 10p rate of income tax anyone?) to get us out of it.

If the Conservatives are spooked into responding all they will be doing is showing that Brown is setting the agenda and they are merely jumping through his hoops. Osborne and Cameron need to stick to their agenda. I'd doubt Labour's tax cuts would be substantial - if they materialise at all - and the Conservatives have already offered modest tax cuts, including pledging not to to raise corporation tax on small businesses as the government plans.

I also doubt whether Brown would win much media support for his type of irresponsible tax cut. Headlines such as "Spend, spend, spend" were also met with critical editorials denouncing higher spending funded by yet more borrowing. I'd expect the newspapers to be as critical, if not more, of a cynical move by Brown to outflank the Tories on tax funded by more borrowing.

As a final point, I'd remind readers that whenever Brown tries to play political games, such as the 10p tax fiasco and last years Pre-Budget Report with inheritance tax, he always ends up...

In the Brown!!!