Early days in motion, by David Lipsey

23 Oct 09
DAVID LIPSEY | The Conservatives are suddenly beginning to think of themselves as the party of government. That explains shadow chancellor George Osborne’s speech – labelled ‘brave’ – to his party conference where he canvassed tax increases

The Conservatives are suddenly beginning to think of themselves as the party of government. That explains shadow chancellor George Osborne’s speech – labelled ‘brave’ – to his party conference where he canvassed tax increases.

This was not intended as a carrot for voters but to make Tory government easier by preparing the electorate for hard times to come. The expectation that office is not far away also explains the increasing effort the Tories are now putting into their preparations.

They haven’t gone too far. They realise victory – and certainly a working overall majority – is not yet in the bag. The huge pro-Labour bias of the electoral system means that the Tories could win big in the popular vote while not having a corresponding majority in the Commons.

So far we have heard no talk of the Tories’ first 100 days. This, incidentally, is a good thing. The phrase has proved a millstone to every government that has subsequently adopted it. Rush round doing too much in your first 100 days and you end up making botched decisions that dog the rest of your term. But claim you are going to have a dynamic hundred days, and expectations will be disappointed. The press, naturally, will misrepresent caution for indecision. Ask US President Barack Obama.

But privately, plans are being laid. Civil servants past are being talked to separately from the statutory conversations with civil servants present. Because shadow ministers these days have substantial staff, the capacity for preparation is greater than it used to be. The Tories plan to hit the ground running.

The early days strategy is not without its difficulties. Take the dilemma facing Osborne. On the one hand, he wants to make big cuts in spending and big increases in taxes. The quicker he does so after the Tories get their mandate, the better. No government is as strong as it is soon after its election, when the fire of novelty has yet to be smothered by the wet blanket of reality. So, for example, Geoffrey Howe was able to get away with his increase in VAT to 15% in 1979 simply because voters were euphoric at having got rid of Labour.

Having said that, from an economic view, next May – the latest month in which an election could happen – might be too early for a major fiscal retrenchment. At the moment, fashionable opinion holds that the worst of the economic crisis is over – hence the rise in the stock market. However, more sober observers than the casino class in the City are not so sure. Long rates on bonds are edging up; consumer confidence is not yet strong; and there is a long way to go before the banking system is truly stable. If the huge fiscal stimulus applied by the government, through cutting taxes and increasing spending, is withdrawn on top of this, the recovery could disappear.

Nor are the risks symmetrical. From an economic point of view, the chances of a renewed and perhaps prolonged depression are far greater than those of inflation. It would be better to keep the stimulus in place a bit too long, even at the expense of having then to overcorrect, than to cut it off before it has finished its work.

So the political timetable points to early decisive action on the deficit. Economic logic points to later cautious action.
Capable governments have to square such circles. The obvious way for the Tories to do so in office would be to make only modest increases in taxes at once, while timetabling further increases in the months and years ahead. If the economy goes sour on them, those further increases can always be withdrawn.

Meanwhile, the job of cutting public spending cannot be done in an instant anyway. A few eye-catching measures could be introduced straight away, a freeze or near-freeze on public sector pay being the favourite at the moment. But they could begin the process of agreeing deeper cuts – with the success of the government’s strategy likely to rest on whether or not the chancellor manages to ignore the bleeding stumps his colleagues will present to him.

David Lipsey is a Labour peer

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