At last: The beginnings of a regional economic policy

IN terms of the political big picture, Chancellor George Osborne’s autumn statement on Wednesday this week may well come to be seen as a pivotal moment in the next general election battle.

Whether the so-called mini budget will win or lose that contest for his party, however, is currently a difficult one to call.

On the one hand, the Chancellor was, against the expectations of most pundits and economists, able to reveal that the deficit is continuing to fall, and that government borrowing would therefore not need to increase after all.

On the other, he was forced to admit that the years of austerity would continue at least until 2018, that growth would continue to be sluggish, and that his original target of reducing debt as a proportion of GDP by 2015 would be delayed by at least a year.

Too much has been made of the fact that Shadow Chancellor Ed Balls, thrown by the unexpected news on borrowing, made an uncharacteristic hash of his set-piece reply to Mr Osborne’s Commons statement.

The truth is that only political anoraks get worked up about that sort of thing.  What will linger more in the public’s mind is the fact that Chancellor’s harsh medicine is still no nearer to bringing about a lasting economic recovery.

Of potentially much greater significance than Mr Balls’ incoherent ramblings is the risk that Mr Osborne’s failure to meet the debt reduction target will mean Britain losing its AAA credit rating.

Much of what Mr Osborne has done over the past two and a half years has been designed to stave off this very threat, and if the rating is indeed downgraded, it will surely be time for David Cameron to find a new Chancellor.

What, though, does it all mean for the North-East?  Well – and how many times have I had to write this line over the past 15 years? – there will be no dualling of the A1 north of Newcastle for starters.

Other proposals which failed to win the Chancellor’s stamp of approval included a £25m upgrade for the Tyne and Wear Metro, and a package of support for the region’s offshore wind industry.

Furthermore the proposed welfare cutbacks, with benefit rises for the next three years capped at a below-inflation 1pc, will also disproportionately hit those regions with higher rates of unemployment such as this one.

But amid all this, there are continuing signs that this government – more so than its recent predecessors – is starting to take the idea of regional policy seriously.

The most obvious indication of this came a few weeks when Lord Heseltine, the arch-interventionist of Tory politics in an era where the free marketeers held sway, published his ‘No Stone Unturned’ report.

The Chancellor has explicitly backed its call for a single funding pot covering housing, skills, transport and job creation as well new powers and funding for local enterprise partnerships.

Significantly, the government is to give each LEP the chance to nominate a single major infrastructure project which will then be eligible for a new concessionary public works loan rate, up to a value of £1.5bn.

In addition Whitehall will provide a further £350m towards the Regional Growth Fund, to provide support for jobs and growth across the English regions until 2015.

While the impact of those changes remains to be seen, a more immediate boost to the region came with the announcement that  - 54 years on from the opening of the Preston by-pass - Newcastle will finally join the motorway network, with all stretches of the A1 south of the city to be upgraded to motorway standard.

And the spectre of regional pay, which could have led to teachers and nurses in the North being paid less than their Southern counterparts, has also receded in what was a notable victory for both the unions and the Lib Dems.

It was surely coincidence that, on the day the Tories were pushed into fourth place by UKIP in the Middlesbrough by-election last week, Mr Osborne appointed a new adviser in Neil O’Brien who has previously warned that the party risks ‘pariah status’ in the North.

If the autumn statement is anything to go by, maybe he is already making his voice heard.

Review of the Year 2011

Ever since the formation of the Coalition between David Cameron’s Conservatives and Nick Clegg’s Liberal Democrats in the aftermath of the May 2010 general election, British politics has by and large been dominated by two interrelated questions.

The first was whether, in spite of the obvious chemistry between the two leaders, an alliance between two parties with such vastly differing worldviews could actually come close to achieving its stated aim of governing for a full five-year Parliament.

The second was whether the tough economic measures it adopted would succeed in tackling the deficit, as the Tories had argued during the election campaign, or merely succeed in choking-off an incipient recovery, as Labour had warned.

Eighteen months on, those questions remain unresolved, but as the political year 2011 draws to a close, we are at least a little closer to knowing the answers.

On the first point, I wrote at the start of the year that if the Coalition managed to get through 2011, it would in all likelihood survive until its target date of 2015.

In making that prediction – which I may well be forced to revise over the coming 12 months - I was looking to May’s referendum on reform of the voting system as the likeliest breaking point between the two partners.

As it turned out, the Lib Dems’ crushing defeat in the referendum did not prove the Coalition breaker some of us thought it might, despite Mr Cameron having apparently given his party the green light to launch some bitter personal attacks on Mr Clegg.

And late in the year another issue emerged which on the face of it now seems much more likely to prevent the Coalition going the course: Europe.

Mr Cameron’s self-imposed isolation at this month’s European Summit capped what on the face of it was not a great year for the Prime Minister.

He found himself forced into a series of policy U-turns – over privatising forests, reducing prison sentences for defendants who plead guilty, and most notably over the ill-judged attempt to impose competition on the National Health Service.

Meanwhile the phone-hacking affair at the News of the World threw the spotlight on Mr Cameron’s close personal links with the Murdoch empire, while the travails of his defence secretary Liam Fox forced him into his first reshuffle.

And with the economy flatlining and unemployment on the rise, Chancellor George Osborne was forced to revise growth forecasts downwards and borrowing forecasts upwards as he conceded that the deficit would not, after all, be paid off in the current Parliament.

The fact that, in spite of all this, Mr Cameron ended the year ahead in the opinion polls probably says less about him that it does about the plight of the Labour opposition.

Party leader Ed Miliband’s one big success – and it was a not inconsiderable one – was to lead the attack on Murdoch and in so doing prevent him taking control of BSkyB - the first time the political establishment had stood up to the ageing media mogul in three decades.

He also made by far the most substantial of the three party leaders’ speeches in what was otherwise a distinctly unmemorable conference season, setting his face against the “fast buck culture” of the Thatcher-Blair years.

But the largely negative public reaction to the speech showed the extent of his task in winning over an electorate that still seems resolutely underwhelmed by him, and as Parliament broke up for Christmas, the muttering about his leadership in the Labour ranks was growing.

Mr Miliband’s failure to make the political weather was all the more baffling given the grim economic news, which increasingly appeared to bear out Labour’s warnings against cutting “too far, too fast.”

Inevitably the impact of the cuts was most keenly felt in the North-East, where more than 30,000 public sector jobs disappeared at a time when they were apparently still being created in other more prosperous regions.

But Labour remained hampered both by its failure to articulate a clear position on the deficit and by its perceived complicity in having created the problem in the first place.

And unless and until the public changes its collective mind about who is really to blame for the country’s economic plight, Mr Cameron’s continued political ascendancy seems assured.

A large slice of humble pie for Osborne - but was it really a game changer?

An extra £111bn of borrowing over the next five years. A fresh squeeze on public spending. No prospect of any tax cuts before the next general election.

It is easy to see why many commentators have described Tuesday’s Autumn Statement by Chancellor George Osborne as a ‘game changer’ in British politics.

Here we have a government that was elected in order to sort out the nation’s finances and eliminate the budget deficit by 2015 admitting that it will fail in that central objective.

Far from the being able to fight the next election on the sunlit uplands of fresh economic growth following the hard years of austerity, it will now have to do so against a continuing backdrop of cuts.

As the BBC’s James Landale put it on Tuesday evening: “Just as the facts have changed, so must the politics.”

“Until this morning, the assumption had been that the election would be about which party was best placed to use the proceeds of an incipient recovery – what taxes would they cut and what spending would they increase. That debate is now for the birds.”

And yet, and yet…I wonder if the Chancellor’s statement really has altered the terms of the underlying political debate about the country’s economic prospects all that much.

Despite all the economic doom and gloom, and the large slice of humble pie that the Chancellor has been forced to swallow this week, nothing has yet happened to demonstrate beyond doubt either that the government’s prescription is mistaken, or that a better alternative exists.

On the face of it, Labour’s narrative ought to be a compelling one. It is that an incipient recovery that was already under way by the time of the last election was then choked-off by a combination of spending cutbacks and “austerity rhetoric.”

But the public remains to be convinced that Labour’s more limited ambition to halve rather than eliminate the deficit in four years would not have landed us with a different set of problems.

There is also, still, a powerful residual feeling that Labour is really to blame for the country’s economic plight, even though history will surely show that Gordon Brown’s actions at the height of the banking crisis in 2008 saved us from a far worse fate.

This is a large part of the reason why, for all Mr Osborne’s difficulties, the opinion polls continue to show that Ed Miliband and Ed Balls are still less trusted on the economy than their Conservative counterparts.

A real political game changer is the kind of event which transforms the fortunes of the key players involved almost overnight.

Sadly for Mr Brown, his decision not to hold an election in the autumn of 2007 was one such example. After that self—inflicted humiliation, the public never saw him in the same light again and nothing he did was able to reverse that negative perception.

For the Tories, the ejection of the UK from the Exchange Rate Mechanism in 1992 is the one that sticks in the mind, destroying in one fell swoop the party’s hitherto prized reputation for economic competence.

I’m no apologist for George Osborne, but I don’t think being forced to downgrade the growth forecast for 2012 from 2.5pc to 0.7pc or even up the public sector borrowing requirement by £111bn quite falls into the same category.

For all the talk of game changers and transformed political landscapes, I actually find myself wondering whether this week’s events might not help the Conservatives in the longer-run.

If history is any guide, it suggests the answer might be yes. While voters appear to have a habit of ditching Labour governments at times of economic difficulty (1979, 2010) they seem more inclined to stick with Conservative ones (1983, 1992).

The Tories will of course hope that some of the pro-growth measures announced this week – for instance bringing forward £5bn of spending on infrastructure improvements – will have made at least some impact by the time we come to go to the polls again, even if few in this part of the world will have been fooled by the reannouncement of some old money for the Tyne and Wear Metro.

But if not, they could find that their most potent message come 2015 could well be that familiar old refrain: “Keep hold of nurse for fear of something worse.”

Osborne's date with political destiny

‘Make or break’ is doubtless an overused term in politics. Many are the times when it is said that a politician needs to make the “speech of his life” on such and such a day, only for the same old cliché to be trotted out again the next time he makes one.

Yet for Chancellor George Osborne, this Tuesday’s autumn statement on the economy is genuinely shaping up to be one of those dates with political destiny.

For years, Mr Osborne has been the man with the plan as far as the Tory Party is concerned, and his plan on taking over at No 11 Downing Street in May last year was straightforward and simple.

It was: sort out the deficit in the first couple of years, wait for economic growth to start kicking in again, sprinkle some carefully-targeted tax cuts around, and then win the next election hands down.

But it’s all gone horribly wrong. Far from providing a platform for new growth, 18 months of austerity measures have pitchforked the economy back towards the ultimate horror of a double-dip recession.

As such Mr Osborne’s masterplan for economic recovery – and outright Tory victory in 2015 – now looks hopelessly optimistic.

And of course, it is not just the fate of the economy and the government that is at stake here, but Mr Osborne’s own chances of succeeding David Cameron as Tory leader.

If recovery comes and the Tories win an overall majority next time, there will be nothing to stand between him and No 10. But if they lose – or are forced into another five years of coalition - it will be Mr Osborne who gets the blame.

All of which make Tuesday’s statement if not quite the “speech of his life” then certainly the most important he has made since that Tory conference address of 2007 which frightened Gordon Brown off from holding an election.

To succeed, he must somehow manage to reconcile two seemingly contradictory goals.

Firstly – and this almost goes without saying - he must manage to reassure the markets that the government remains serious about tackling the deficit.

But equally, he now needs to reassure an increasingly sceptical public that the government has a plan for growth – if not a ‘Plan B’ as Labour still insists on calling it, then at least a Plan A-Plus.

It is already clear from several strategically-placed leaks that switching more spending into capital investment in infrastructure is going to be central to Mr Osborne’s plans.

It all seems a far cry from the days when Margaret Thatcher commented sniffily: “You and I come by road or rail, economists travel on infrastructure” – but no matter.

Chief Secretary to the Treasury Danny Alexander gave an insight into the government’s thinking in a speech to the National Association of Housebuilders on Wednesday.

"We are shaking the Whitehall tree to make sure no-one is stockpiling capital that can be put to good use today. That's why next week's announcement will switch funds to capital spending plans,” he said.

This is all of a piece with Mr Cameron’s speech on Monday setting out measures to boost the housing market, both by encouraging the construction of more homes and by helping first-time buyers obtain mortgages.

And yesterday Deputy Prime Minister Nick Clegg got in on the act by pre-announcing a £1bn scheme to help the young unemployed, apparently to be paid for by further savings in other areas.

The risk for the government is that it will all be too little, too late to counteract the chilling effects of 18 months of what Labour leader Ed Miliband this week called “austerity rhetoric.”

But if he can use Tuesday’s statement to get the economy moving again at last, then it may yet all come right – for the coalition, for Mr Osborne, and most importantly for the long-suffering British public.

Wrong kind of snow - or wrong kind of government?

IN last week's column, I wrote that the coalition government's key political success since taking office was to have pinned the blame for the savage spending cuts it is implementing on Labour.

It is no small matter. On the question of who takes the rap for the country's current economic plight will hang much of the politics of the next five years.

If the government can hold the line all the way to the next election, it is inconceivable that the electorate would let Labour back in after just one term in opposition to atone for its economic sins.

But this, in turn, depends utterly on how the economy actually performs – and whether Chancellor George Osborne is proved right in his strategy of putting deficit reduction before economic growth.

Up until now, the country has by and large been prepared to give Mr Osborne the benefit of the doubt on this point.

Whenever Labour politicians – notably Ed Balls –have tried to argue the opposing point of view, they have been swiftly condemned as "deficit deniers."

But this week came the first sign of a chink in the Coalition's economic armour – a 0.5pc fall in GDP during the final quarter of 2010, following two preceding quarters in which the economy grew.

Could it be that Mr Balls was right after all, and that far from providing a springboard for recovery, the Coalition's deficit reduction strategy is actually strangling it?

Timing is everything in politics and in one respect, the GDP figures could not have come at a better time for Mr Balls, newly-installed as Shadow Chancellor following Alan Johnson's surprise resignation last week.

He certainly made the most of the opportunity, tearing into Mr Osborne with a self-assuredness that made the Chancellor look like the new kid on the block.

"My message to George Osborne is – get a Plan B, get a policy for jobs and growth and do it quick," he said, winning the war of the soundbites with some ease.

Mr Osborne's cause was not helped by the fact that he tried to blame the fall in output on the weather, which, as one union leader put it, sounded "a bit like a rail boss blaming delays on leaves on the line."

Whether this week's exchanges will turn out to be of lasting significance will of course depend on where the economy goes from here.

The risk factors for the government are obvious. This month’s VAT rise seems hardly likely to encourage a resumption in the growth trend, while there remains the risk of another cold snap.

Some observers have argued that having clamped down on spending in last year’s comprehensive spending review, Mr Osborne would use his March Budget to shift to a more pro-growth strategy.

Had this week's figures turned out positive, he could have done that from a position of strength - but to do so now would look more like a panic-induced U-turn.

Either way, if the next set of figures in April show the growth trend resuming, Mr Osborne will be off the hook and Mr Balls and Labour will be back at square one.

But if on the other hand they show another fall, then the UK will officially be back in recession and the dreaded "double-dip" will have become a reality.

Not only would that give Mr Balls the whip-hand in the economic debate, it would start to shatter the current consensus that the cuts are (a) necessary, and (b) Labour’s fault.

And the voters might then start to conclude that not only did we have the wrong kind of snow last month, but that we also have the wrong kind of government.

Where is the mandate for 'Canadian-style' cuts?

Are the Tories economic saviours - or are they just opportunistic ideologues using the deficit crisis as an excuse to finish Thatcher's work. Here's today's Journal column.

---

One of the shortest-lived and least successful political advertising campaigns of recent times was Labour's general election poster featuring David Cameron as fictional 80s TV cop Gene Hunt.

"Don't let him take Britain back to the 1980s," said the catchline, as the Tory leader was depicted astride Hunt's famous red Audi Quattro.

The campaign, which was swiftly pulled, ignored two important facts. Firstly, most people thought Gene Hunt was quite cool. Secondly, many would jump at the chance to go back to the 1980s were it really possible.

For all the bitter folk-memories of the 1984/5 miners' strike, unemployment topping 3m in 1981 and the Toxteth and Brixton riots that summer, it was an altogether gentler age than the one we live in now.

If anyone is in any doubt about this, Mr Cameron's speech on Monday in which he sought to prepare the public for spending cutbacks the likes of which have never been seen before ought to disabuse them of it.

Lib Dem leader and Deputy Prime Minister Nick Clegg is insistent that it won't mean a return to "Thatcher-style policies," and he's quite right. It’s going to be far worse than that.

For all that the Tories still worship the Iron Lady as the premier who began the rolling-back of the state with her 1980s privatisations, there are some parts of the public sector she would have never dared touch.

That is emphatically not the case now. The message coming out from Mr Cameron and Chancellor George Osborne is that no item of public expenditure can now be considered sacrosanct.

Is this a bad thing? Well, not necessarily. All parties are agreed after all on the need to reduce the country's £156m budget deficit, and however many reviews of government 'waste' are carried out, it seems there are always new savings to be found.

But for me, the biggest question mark against the government's plans to adopt the 'Canadian Solution' and radically shrink the size of the state concerns its lack of political legitimacy.

It should not be forgotten that the Tories did not win an outright majority at the election, and that most people who voted Lib Dem certainly did not vote for huge public spending cuts.

While the coalition partners can claim a strong policy mandate in areas such as civil liberties where they fought the election on similar ground, that was decidedly not the case when it came to economic policy.

History is written by the winners, of course, and the government is already busy constructing a political narrative which seeks to justify the drastic economic remedies it now proposes.

Gordon Brown's government, we will be told again and again over the coming months, has left the country practically bankrupt and on the verge of 'doing a Greece.'

It already seems forgotten that Mr Brown's additional spending 'stimulus' designed to get the economy moving again in 2008/09 was met with widespread public approval at the time.

Such rewriting of history is nothing new. The Tories ensured the Callaghan government was remembered not for repaying the 1976 IMF loan within two years and stabilising the nation's finances, but for the Winter of Discontent.

What, if anything, have Labour's five leadership contenders got to say about all this?

Well, the fact that they have thus far been uncharacteristically muted in their criticisms of the coalition's plans goes to show how far it has already succeeded in shifting the terms of the debate.

The truth is that the deficit crisis has presented the Tories with a chance to do something some of them have wanted to do for decades, and take the axe to large parts of the state.

Is it the harsh medicine the country needs? Or is it rather just a blatant piece of ideology-driven opportunism?

Blame, or Gratitude?

Ever since it first surfaced during the 1992 US presidential campaign, the claim that all elections are essentially about “the economy, stupid” has become something of a political cliché.

Like most clichés though, this one contains more than a grain of truth.

MPs expenses, the Iraq Inquiry, antisocial behaviour, the personalities of the party leaders – all will doubtless play a part in helping to shape the forthcoming election battle.

But when all is said and done, it is the state of the British economy which will be uppermost in most peoples’ minds when, as now seems certain, they come to cast their votes on 6 May.

One of the many reasons for this is that there is an unusual degree of unanimity between the two main parties that it should be so.

It is more often the case in politics that the two parties will seek to push different issues to the fore – for instance the health service in Labour’s case, law and order and defence in the case of the Tories.

In this election, though, both the two main parties are convinced that focusing on the economy is in their electoral interests, even though they can’t both be right about this.

It is hardly surprising that, in the wake of the worst recession since the 1930s, the Tories see Labour’s economic management as its weakest spot. What is more so is that Prime Minister Gordon Brown still believes it is his strongest suit.

That much was clear from the speech Mr Brown delivered on Thursday in which he appeared to invoke Churchillian rhetoric to describe his battle to keep the economy afloat over the past couple of years.

Mr Brown said the worst was now over, but the recovery remained fragile and that withdrawing the support he put in place in 2008 would drive the economy back into recession.

He was once again driving home what will be his central campaign message, that the recovery is not safe in the Tories’ hands.

And once again he declared “I will not let you down” – just as he did on the steps of Number 10 the day he took over as Prime Minister, in what already seems the faraway summer of 2007.

Of course, Mr Brown is enough of an historian to know that the British electorate does not usually see general elections as an opportunity to say “thank you.”

Having saved Britain from its biggest external threat since 1066, Churchill famously lost the 1945 election, largely because the public was motivated more by a desire for change than by a desire to express its gratitude.

The Tories’ response to the Prime Minister’s speech was predictable. “The biggest threat to the recovery is five more years of him,” said Shadow Chancellor George Osborne.

Five more years of Gordon Brown. We heard that at the Conservatives’ Spring conference the weekend before last, and we’ll be hearing it a lot more from Tory lips over the coming weeks.

The problem facing Mr Brown, as ever, is that the economy is a double-edged sword for him.

There is a broad consensus that he has been at his best in tackling the economic crisis over the past two years. But there is also a consensus that, during his time as Chancellor, he helped create the conditions which allowed the recession to occur.

So what it boils down to is this. Will the voters give Mr Brown the credit for leading Britain out of the recession, or will they punish him for failing to prevent it in the first place?

On the answer to that question, more than anything else, the result of the 2010 general election will rest.

Brown's losing hand

The Prime Minister's belated decision to send more troops to Afghanistan is all of a piece with his failure to anticipate the MPs' expenses row. Here's today's Journal column.

---

As the dust settles on the 2009 conference season, the key issues which will decide the 2010 general election are becoming clearer – some of them the kind which arise at every electoral battle, others unique to this contest.

There is, as ever, “the economy, stupid” – the central question on which most elections are won and lost, and on which, in all probability, this one will be too.

In terms of a strategy for plotting our way out of the recession, the two main parties are about even, the main differences of opinion being over precisely how and when to start cutting the £175bn budget deficit.

On the question of who was to blame for the meltdown, however, David Cameron’s Tories have an unassailable advantage, thanks largely to Gordon Brown’s hubristic claim to have “abolished boom and bust.”

Then there is the “leadership” issue – which in essence boils down the question of which of the two main party leaders is (a) the most likeable person, and (b) the most convincing Prime Minister.

Mr Cameron has always been way ahead of Mr Brown on the first point. But he is now beginning to overhaul him on the second too, after a conference which saw him set out his vision of post-recession Britain.

But beyond the perennial questions of who can best be trusted to run the economy and who will make the best leader, there have been two other issues in the headlines this week which also seem likely to have a big influence on the 2010 contest.

The first of these is of course the MPs’ expenses scandal. The second is the conduct of the war in Afghanistan.

It would have come as no great surprise to world-weary MPs to find the expenses issue making its way back onto the front pages as they returned to Westminster this week.

There has to be some question as to whether civil servant turned witchfinder general Sir Thomas Legge has been making the rules up as he goes along in his letters to MPs calling for sums claimed in respect of cleaning and gardening to be repaid.

But such is the public mood of anger towards our elected representatives at present, that, however ersatz Sir Thomas’s recommendations, no-one dare defy them - not least Messrs Cameron and Brown.

And so the list of political casualties from the scandal continues to grow, with Tory MP David Wiltshire the latest to be forced to walk the plank at Mr Cameron’s behest on Thursday.

Mr Cameron knows he is in a win-win situation when it comes to expenses. Whenever another Tory MP transgresses, it merely gives him another opportunity to look tough on sleaze.

At the same time, his party as a whole continues to benefit from the “anti-politics” mood thrown up by the whole affair, a mood which invariably harms the incumbent administration.

Mr Brown, by contrast, is on to a loser. He had one chance to claim the moral high ground on MPs’ expenses, namely by reforming the system before the full horror of the abuse came to light.

But he failed to take that opportunity, and ever since his calamitous YouTube video in which he announced a belated and half-hearted attempt at reform, he has been on the back foot.

It’s been a similar story with Afghanistan. This week, the Prime Minister announced that hundreds more British troops would be sent to the war zone – some six or seven months after they were initially requested by the military.

It really does beg the question why this was left to fester over the summer as the casualties in Helmand Province piled up and the issue became more and more politically toxic for Labour.

To do it at this late stage looks very much of a piece with Mr Brown’s response to the expenses scandal – an attempt to shut the stable door long after the horse has bolted.

Afghanistan. Expenses. Leadership. The economy. The sad truth for the Prime Minister is that on none of these key election issues is he currently holding what looks like a winning hand.

Global Village People

Byers tells it like it is

The North Tyneside MP's comments on Gordon Brown's economic policies this week may have been deeply unhelpful, but his analysis is spot on. Here's today's Journal column.

---

At the start of the year, I wrote that Gordon Brown’s chances of political survival up to the next general election would ultimately depend on whether his economic rescue package showed any signs of working.

There will be those who claim the fabled “green shoots of recovery” are already appearing – in the London housing market for instance.

But it will take more than a few satisfied estate agents to convince the rest of us that the economic downturn is bottoming out and that the good times are just around the corner again.

After all, there remains considerable doubt even among some of Mr Brown’s natural allies as to whether his remedies for the country’s economic ills are the right ones.

Mr Brown would like to believe there is a broad national and international consensus for the “fiscal stimulus” measures he has been advocating, and which he continues to claim are being copied the world over.

Unfortunately for him, this is very far from being the case as events this week have only served to emphasise.

If it was just the Tories who doubted the efficacy of his proposed solutions, Mr Brown would have less cause to worry – but some of the opposition has been coming from people who might have been expected to show him more support.

Most notably, it has come from the Governor of the Bank of England, Mervyn King, and his former Labour cabinet colleague , North Tyneside MP Stephen Byers.

Mr Byers may normally be a mild-mannered sort of chap, but his comments ahead of the Prime Minister’s world tour this week to drum up support for his measures ahead of next week’s G20 Summit could not have been more wounding.

He claimed the proposed summit agenda was too ambitious and also called for the withdrawal of the 2.5pc pre-Christmas cut in VAT, the centrepiece of Brown's domestic economic stimulus.

“The 2.5pc cut in VAT may appear modest but it comes at significant cost. On its own figures, it will cost the Treasury £8.6bn between April and the end of the year,” he wrote.

He suggested this money would have been better spent on raising personal income tax allowances in the Budget by £1,520, taking around £1.7m low-paid workers out of tax altogether.

More damaging still was Mr Byers’ claim that Mr Brown’s attempts to get international agreement on an economic rescue package at the G20 Summit will fail, with serious political consequences for Labour.

He said the next month would prove "make or break time" for the Prime Minister, with the outcome of both the Summit and the Budget likely to be decisive to his chances of re-election.

Although this will have been regarded in Downing Street as deeply unhelpful, Mr Byers is correct in his analysis of the government’s position.

It shows that the supposedly “settled will” of the Labour Party, that Mr Brown should lead the party into next election come what may, is not necessarily as settled as all that.

It was perhaps unlucky for the Prime Minister that Mr Byers’ intervention came on the same day Bank governor Mr King went public with his doubts about the Brown strategy.

He told the Treasury Select Committee that the government should not unveil any further fiscal stimulus in the Budget because the public finances are already in such dire straits.

The Tories couldn’t believe their luck. Shadow chancellor George Osborne, said: "Not only has a former Labour cabinet minister attacked the ineffective VAT cut, but the governor of the Bank of England has said Britain cannot afford a further fiscal stimulus.”

“It leaves Gordon Brown's political plans for the G20 and the Budget in tatters. It is the Prime Minister who is now isolated at home and abroad."

For all Mr Osborne’s bullishness, the Tories have been having troubles of their own this week, with Shadow Business Secretary Ken Clarke taking a sledgehammer to the party’s flagship policy of raising the inheritance tax threshold to £1m.

His comment that this was an “aspiration rather than a promise” was followed by furious backpedalling on his part, but the damage in the eyes of the voters has probably already been done.

I suspect Mr Clarke was just telling it as it is, as is his wont. It does, after all, stand to reason that an incoming Tory government faced with a huge black hole in the public finances is going to be in the mood to cut taxes straightaway.

But inheritance tax remains a totemic issue for the Tories – not least because Mr Osborne’s autumn 2007 pledge to cut it dealt Mr Brown and Labour a blow from which they have never really recovered.

The debate over inheritance tax is just one more illustration of just how much the world has changed since then.

Mr Osborne’s dramatic move provoked Chancellor Alistair Darling to effectively double the threshold for the tax in his October 2007 pre-Budget report, but the truth is neither party would have made such pledges had they known what was around the corner for the economy.

Sure, any tax cut constitutes a “fiscal stimulus” of sorts, but like the cut in VAT, slashing inheritance tax is not going to make a real and substantial difference to the spending power of large numbers of people.

Meanwhile the wait for the “green shoots” goes on. And slowly but surely, time is running out for Mr Brown.

Fiscal stimulation

Should Gordon say sorry?

Probably not if he still wants to win the next election. But there is another option for Labour. Here's today's Journal column.

---

Chancellor Alistair Darling says the government should show a bit of "humility" and accept "collective responsibility" for the economic crisis. Childrens’ secretary Ed Balls says it underestimated the risks of not having stronger financial regulation of the City.

Is New Labour edging towards something resembling an apology for the economic downturn? Not if Prime Minister Gordon Brown has anything to do with it.

To be fair, he’s had other things on his mind this week – that much-sought-after first meeting with President Barack Obama, and his big speech to the US Congress in which he set out his rescue plan for the global economy.

But the UK national media had only one thing on its mind – whether or not Mr Brown was going to utter the magic word: “Sorry.”

You almost had to feel sorry for the guy. There he is in the Oval Office enjoying his long-awaited moment of glory with Obama and all the BBC’s Nick Robinson wants to ask him about is the “S-word.”

A Sky News analysis of his speech to Congress concentrated less on Mr Brown’s ongoing attempts to save the world from financial meltdown and more on the fact that the number of times he had used the word sorry was zero.

Back home, meanwhile, the Conservatives redoubled their attempts to get the Prime Minister to take the blame for the recession, even in the absence of leader David Cameron.

It launched a new satirical website entitled www.sorryfromgordon.com in which users are invited to draft an apology on the Prime Minister’s behalf.

So should he or shouldn’t he? Well, the answer to that question really depends on whether you are looking at it from the point of view of political morality, or from the point of view of pure political advantage.

From the moral standpoint, the case for a Prime Ministerial apology is fairly clear-cut. This was after all the man who claimed to have abolished boom and bust, who insisted Britain was best-placed to weather the downturn, and above all who invented the system of financial regulation which has so palpably failed.

Since Mr Brown got all of these things wrong, some sort of “I screwed up” –style gesture is probably long overdue.

But whenlooked at from the point of view of whether it would be in Mr Brown’s or the Labour Party’s best interests for him to say sorry, the picture becomes much more confused.

There are good arguments on both sides, and they are arguments that have been playing out at the most senior levels of Mr Brown’s own Cabinet over the course of recent weeks.

Those urging Mr Brown to make some sort of apologetic gesture contend that it would enable the government to achieve “closure” on the issue of who caused the recession, thus enabling the public to focus more on the issue of who has the best remedies for it.

But those urging caution take the view that the whole apology saga is no more than a Tory trap that has been set by the opposition and its cronies in the national press.

Once Mr Cameron has secured an admission of guilt, they argue, he will throw it back in the Prime Minister’s face every day between now and the next General Election.

The public’s own view of the dilemma is not necessarily as straightforward as the Tories would like to think.

On the one hand, the Tory attacks seem to chime with the public’s general view of the Prime Minister as someone who is happy to take the credit when things go well but seeks to avoid any responsibility when they go wrong.

On the other, there is some evidence that the voters see the Tory attacks as petty point-scoring and the “apology” row as a distraction from the main issue of how to tackle the crisis.

A poll published on Thursday found that 60pc of voters would like to see the media and the Tories “give up” on the issue and move on to more pressing matters.

What are the recent historical precedents? Well, Margaret Thatcher would certainly never have dreamed of saying sorry for causing the mass unemployment of the early 1980s, for instance, or the social divisions arising from the miners’ strike that began 25 years ago this week.

For her, all this was mere collateral damage in her overriding mission to rescue the British economy from the ravages of socialism.

What about Tony Blair? He said sorry for the 75p state pension increase in 1999 – which was Mr Brown’s idea anyway – and also for initially having opposed Ken Livingstone’s bid to become Mayor of London.

But those were relatively minor mistakes. He never really apologised for the big one, the Iraq War, saying only that he would “answer to his maker” for the consequences.

Of course the key point about both Mrs Thatcher and Mr Blair is that they each won three elections in a row, suggesting that a refusal to apologise for mistakes is not necessarily an electoral liability.

My own view on the matter- and I choose my words carefully here – is that if Mr Brown is intending to fight the next General Election, he would probably be better off sticking to his guns on the apology issue.

But there is another scenario, in which Mr Brown says sorry while simultaneously announcing he will not fight that election, thus achieving closure on the issue without giving Mr Cameron a gigantic hostage to fortune.

Ultimately, it may be the only way for the Labour Party to resolve the excruciating dilemma in which it finds itself.

Fatcats

A prophecy fulfilled

A month into the new year, the 2008 media narrative of the Second Brown Bounce now seems a very distant memory. Here's today's Journal column.

---

Four weeks ago, in my annual preview of the political year ahead, I commented that the art of political forecasting was now becoming a good deal harder than predicting the outcomes of sporting contests.

My point was that the sheer unpredictability of the UK political scene during 2008 – the year of bank nationalisation and the Second Brown Bounce – made sports punditry a doddle by comparison.

But a month into the New Year, I seem to have proved myself wrong. The sporting prediction I made, that Chelsea would regain the premiership title, is already looking pretty threadbare.

By contrast, it seems I was spot on with my political forecasting – that the recession would get much, much worse – and that the political standing of Gordon Brown and Labour would again start to deteriorate.

It didn’t take long, did it? Once again, the Tories are now enjoying the kind of double-digit lead in the opinion polls that would see David Cameron on course for a sizeable Commons majority.

The mood in the country appears to have turned, perhaps decisively. An electorate which a few months back appeared to be impressed with Gordon Brown’s handling of the economic crisis now seems angry and looking around for someone to blame.

I myself noticed the atmosphere change around the back end of November, perhaps at the point at which Woolworths went into administration, to be followed by a series of other High Street names.

Up until then, it had been possible to believe that the crisis really was just about banks refusing to lend to eachother. Over the past two months, though, the impact in the “real economy” has finally been felt – with a vengeance.

Two weeks ago, it was 1,200 jobs lost at Nissan in Sunderland. This week it was 2,500 at steelmaker Corus. Once again the very survival of the UK’s manufacturing base is under threat.

And it’s not just manufacturing of course. It is very obvious to anyone working in a commercial environment that we are facing unprecedentedly difficult times - not least in the newspaper industry.

So the Prime Minister is once again back in a very bad place, and for the Cabinet, as well as for the rest of us, these are anxious days indeed.

As one of the more perceptive Westminster observers wrote this week: “Nerves are beginning to fray. Ministers watch the polls and the economy with equal fascination. The debate about the future of the party and its leadership is under way.”

And if the mood in the country has changed, so has the Prime Minister’s. Once again, the pressure seems to be starting to get to him.

The self-confident, swaggering Gordon of last autumn, when he was busy saving the world from economic catastrophe, has gone, and the old, anxious, workaholic Gordon has returned.

Some say that the possibility of a parliamentary defeat in the vote over the Heathrow third runway this week - a potentially serious blow but hardly terminal, if you’ll excuse the pun - had Mr Brown close to tears.

It seems it was less the issue itself, more the prospect of being seen to be losing his grip that was exercising the Prime Minister.

What has been particularly damaging for Mr Brown over the past month is that, increasingly, independent economic assessments of the UK’s position seem at odds with his own.

Since the start of the crisis, the Prime Minister’s defence has been twofold. Firstly, that it wasn’t my fault, guv. Secondly, that Britain was better placed to weather the coming storm than any other major economy.

The International Monetary Fund begs to differ, however, arguing this week that the slump’s impact will be worse in the coming year in Britain than in the US, Japan, Spain, Italy, France, Canada and Germany.

Even if they turn about to be wrong, it’s a gift to the opposition parties who will no doubt use it repeatedly to undermine the Prime Minister’s boasts about his management of the economy over the past 12 years.

And there is of course one boast in particular will haunt Mr Brown to the end of his days – the claim, repeated as recently as his 2007 Budget Speech, to have abolished “boom and bust.”

The Radio Four presenter Evan Davis gave a fairly good impersonation of his BBC colleague Jeremy Paxman when asking him about it on the Today Programme this week.

Whereas Paxman famously asked Michael Howard 14 times whether he had threatened to overrule the director of the prison service, Davis only managed to ask Brown seven times whether he now accepted that boom had indeed followed bust.

But the effect was the same – a politician pointlessly trying to dodge a journalist’s question when he has already damned himself out of his own, hubristic mouth.

In that New Year column, I made reference to the possibility that Mr Brown may not, in the end, lead his party into the next general election.

This might have seemed like a foolhardy thing to say at the time, given that the dominant 2008 media narrative had been of Mr Brown’s amazing comeback from the ranks of the political walking dead following the election-that-never-was debacle of autumn 2007.

But just as he never succeeded in abolishing boom and bust, I never seriously believed he had succeeded in abolishing the most fundamental law of politics – that governments who preside over economic catastrophe invariably end up facing electoral oblivion.

Now that this fundamental law is starting to reassert itself, it is only a matter of time before the plotting begins again.

Heathrow: the regional angle

Much of the criticism of the Heathrow decision has centred on what it says about the government's environmental credentials, but there is another angle worth exploring. Here's today's Journal column.

---

If the old saying is true that the first casualty of war is truth, so it is probably also the case that the first casualty of a recession is usually the environment.

The last time there was a serious upsurge of interest in environmentalism in Britain was in the late 1980s, when the Green Party looked briefly like it could replace the Liberal Democrats as the country’s “third force.”

It reached its apogee in the 1989 euro-elections, when the Lib Dems finished a distant fourth in terms of share of the popular vote behind the Greens.

Then came the recession of the early 1990s, and interest in green politics faded. It took years - and the prospect of runaway, irreversible man-made climate change - before it assumed the same kind of prominence on the political agenda.

Now, as Britain and the world once more face the certainty of tough economic times ahead, the environmental lobby is again struggling to make its voice heard.

Against the backdrop on the economic downturn, there was never any real doubt that Gordon Brown's Labour government would give the go-ahead to the £9bn scheme for a third runway at London's Heathrow Airport this week.

New Labour's three top priorities used to be education, education, education - but it is clear from what the Prime Minister has been saying over the past fortnight that they are now jobs, jobs, jobs.

And with unemployment set to head towards the 3m mark by the end of this year on some projections, most would say quite rightly so.

The government points out that construction work on the new runway could create 65,000 new jobs alone, in addition to the 100,000 existing jobs in the aviation industry that would be safeguarded by the project.

The additional tonnes of CO2 that will be belched into the atmosphere as a result are seen as a very secondary consideration, despite the government's pledge to reduce such emissions by 80pc by 2050.

In an effort to appease critics, Transport Secretary Geoff Hoon said airlines using the new runway would be required to use the newest, least-polluting aircraft.

Few will be convinced by that though. In reality, the Heathrow decision drives a coach-and-horses through any pretensions that Mr Brown may have had to “going green.”

But if the decision is hard to defend on environmental grounds, so too is it when seen from the perspective of regional policy.

In pure cash terms, it is another £9bn of public expenditure being channelled into the London and South-East economy on top of the £16bn already committed to the Crossrail deep tube link and heaven-knows-what for the 2012 Olympics – also hailed by Mr Brown this week as an important job-creator in the face of the downturn.

Vague talk of a more high-speed rail links between East and West and North and South to complement the runway project sounds suspiciously like political window-dressing designed to keep Northern Labour MPs quiet.

I recall that similar things were said by the Tories when the Channel Tunnel was given the go-ahead. Yet the "regional eurostars" that were supposed to link Newcastle to Paris were never used and were eventually sold-off for use elsewhere on the rail network.

Throughout the lifetime of the Blair-Brown government, it has taken the view that the prosperity of UK plc depends vitally on the economic health of London and the South-East and its ability to act as a "driver" for the economy as a whole.

Rather than seek to create a more balanced economy, it has sought to make a virtue out of the current very unbalanced one by pumping more and more resources into the capital.

However much the government may talk about regional policy, this is in fact no such thing. It is, rather, a national economic policy in which, in effect, one region is expected to deliver prosperity for all the rest.

The Heathrow decision takes this logic to a further level. If Heathrow is vital to the economy of London and the South East, which in turn is vital to the UK as a whole, then it follows that Heathrow is vital to the whole of the UK.

After 12 years in power, this particular leopard is unlikely to change its spots now, particularly as the financial centre of London and the South East is now as much in the eye of the economic storm as any other region.

Yet there was surely an opportunity here to address some of the regional economic imbalances that continue to bedevil the UK and its most outlying regions in particular.

Building a third runway with the possibility of a new North-South rail link as an afterthought was surely a reversal of what should have been the government’s priorities.

It was nice to hear the Tories talking in such terms this week, although it’s a shame they couldn’t have thought of that while they were busy creating the North-South divide in the 1980s.

The other point to be made about Heathrow is that it is on the wrong side of London. If you were building a new airport from scratch today, there is no way you would put it there.

The city's mayor, Boris Johnson, at least recognises this. His long-term dream is to move London's main airport to the Thames Estuary and retire Heathrow, enabling European flights to arrive without having to cross the city to land.

Since the outer reaches of the estuary are currently largely uninhabited, this would have had the additional merit of causing the least amount of disruption to people.

Instead, the third runway project threatens to make the communities of Sibson and Harmondsworth the modern-day equivalents of Dunwich, the lost village which fell into the sea in mediaeval times.

The political battle lines over the runway project are now clear, with Labour playing the jobs card and the Tories taking up the cause of the “little people,” threatened by noise, pollution and ultimately the loss of their homes.

But it would be naive to assume that the question of whether or not the runway will go ahead will depend entirely on the outcome of the next election.

Even if the Tories were to win, the future of the project would surely depend on what sort of state they find the economy in, and specifically what the jobless figures are looking like.

For all his supposed green credentials, it would be a brave Prime Minister Cameron who put the environment ahead of 165,000 jobs.

On reflection...they could have spent that money better

There's an old saying in politics that Budgets look different a week after they are delivered than a day after - and I guess Pre-Budgets are no exception. After initially praising the Chancellor's decision to cut VAT on Monday, I've revised my opinion somewhat. Here's today's Journal column.

---

Thirteen months ago, Chancellor Alistair Darling stood up to deliver his first Pre-Budget report in the House of Commons in what was an atmosphere of political ferment.

Prime Minister Gordon Brown was coming under heavy fire after scrapping plans for an autumn election and the PBR – brought forward by a month from its normal November slot – was being seen as a chance for Labour to regain the political initiative.

In a bid to trump Tory plans to scrap inheritance tax for all estates below £1m, Mr Darling announced an immediate doubling of the threshold for the tax to £600,000.

But the attempted vote-grabbing manoeuvre backfired horribly, making Labour look like a government that had run out of steam and which was now reliant on the opposition for new policy ideas.

A year on, the stakes for Mr Darling were even higher. Against the backdrop of the worst economic downturn in decades, this year’s PBR needed to show that the Chancellor was the man with the plan with tackle the crisis.

Not only that, but Messrs Brown and Darling also needed to demonstrate that their plan was better than anything David Cameron’s Conservatives might come up with.

Well, the backlash against this week’s PBR has been nothing like the widespread public contempt that greeted last year’s, but neither has there been anything resembling a public outburst of enthusiasm for it.

It’s still relatively early days for Mr Darling’s Chancellorship, but if pressed for a judgement I would have to conclude that Pre-Budget Reports are probably not his strong point.

Sure, Monday’s statement had its good points, notably the decision to bring forward £3bn of spending on infrastructure projects and the earlier-than-planned increases in pensions and child benefit.

Welcome, too – at least as far as this columnist is concerned – was the long overdue decision to increase the top rate of tax on the highest earners, though only on those earning what for most of us is the undreamed-of sum of £150,000-a-year.

This has been predictably hailed by some as heralding the death of New Labour, but in truth, the 1997 commitment not to raise the higher rate of tax had become almost as much of an outdated shibboleth as the original Clause IV.

The essence of New Labour did not lie in adherence to any single policy stance, more the idea that different times require different solutions, and in that sense, the 45p tax move is as New Labour as they come.

Neither, in my view, can Messrs Brown and Darling be accused of lacking courage in bringing such a package before the voters.

The Prime Minister has been called many things over the past fifteen months - but the soubriquet which possibly did him the most damage was the one applied to him in the wake of the non-election debacle - 'Bottler Brown.'

Well, he certainly didn’t bottle this one. On the contrary, he has been completely upfront with the public both about the sheer scale of borrowing that is required, and the fact that it will require post-election tax rises to pay for it.

For Labour to try to turn the normal laws of politics on their head by promising both
tax increases and spending cuts if re-elected is a strategy so bold it almost deserves to succeed on that alone.

But for all its boldness, there was a huge unanswered question at the heart of Mr Darling’s plan, namely, whether it will actually work either economically or politically.

The centrepiece of the Monday’s package was not the aforementioned tax increase for the super-rich, but the £12.5bn tax giveaway via the temporary reduction in VAT from 17.5pc to 15pc.

The economic thinking behind this at least is clear. The government hopes it will encourage people to go out and spend, and that the resulting boost to the retail sector will somehow kick-start the rest of the economy.

Unfortunately, there is no evidence that a price-cut that amounts to a fiver off a £200 telly will have anything like the desired effect in this regard.

But if the economic case for the VAT cut is unproven, the politics of it seem even less clear-cut.

Just ask yourself for a moment, if you were Prime Minister and had £12.5bn with which to try and win the next election, what would be the most vote-winning policy you could come up with?

Well, I don’t think Gordon Brown has asked himself this question anything like as hard as he should have done – because I am quite sure the answer is not a 2.5pc cut in VAT.

A cut in direct taxation, that would have put money directly back in people’s pockets rather than making goods very slightly cheaper in the shops, would have been a far, far better option.

One person who seems to have realised this is North Tyneside MP and former Cabinet minister Stephen Byers, who asked a revealing parliamentary question earlier this year.

Mr Byers wanted to know how much it would cost to lift half a million people, a million and a million half out of income tax altogether.

Intriguingly, the answer he received showed that the cost of lifting a million people out of income tax for one year—by raising the personal allowance by £960—was £11.1bn.

Would that not have been a much better use of the £12.5bn at Mr Darling’s disposal? And would not the Tories have had a much harder time arguing against such a tax cut?

It is for these reasons that I cannot see this Pre-Budget Report as anything more than a missed opportunity for Labour.

Unlike some, I don’t view it as a suicide note to the electorate on a par with the party’s infamous “Shadow Budget” in 1992, but neither do I see it as the springboard for a 2010 election victory.

My hunch is that if the economy recovers, and Labour’s political prospects with it, it will be more in spite of this package than because of it.

Once again, a chance to regain the political initiative has been squandered – along with the taxpayers’ billions.

No more the bottler

VAT down from 17.5pc to 15pc. New higher tax band for the super-rich. £3bn of capital spending brought forward. National insurance to go up after the election. New air taxes on long-haul. Increases in pensions and child benefit brought forward. Whatever you make of today's Pre Budget Report, no-one can say it lacks ambition.

The Prime Minister has been called many things over the past fifteen months - but the soubriquet which possibly did him the most damage was the one applied to him in the wake of the decision to postpone a 2007 election - 'Bottler Brown.'

Well, I never believed Gordon Brown was a bottler, and this package today has proved it. He is, and always has been when it comes to the economy, a man of huge political courage.

Not the least courageous bit of it is that Mr Brown is attempting to turn the normal laws of politics on their head by promising tax increases if his party wins the next election, gambling that this will partly help defuse the inevitable Tory claims of a hidden "Labour tax bombshell."

Will it pay-off? Well, if I knew that, I'd be sitting in his chair. It doesn't help the government's case that it is borrowing huge sums of money in the hope of things turning out okay to address a problem caused by banks borrowing huge sums of money in the hope of things turning out okay.

But even if Brown goes on to lose in 2010, and the apparent rebirth of Keynesian economics after decades of monetarist orthodoxy turns out to no more than a fleeting glimmer, I think he's done the right thing by Britain and its neediest families today. Maybe history, if not the electorate, will give him credit for it.

Politics returns to normal

The age of political cross-dressing came to an end this week as David Cameron tore up his pledge to match Labour's spending plans. Here's today's Journal column.

---

Ever since David Cameron became Tory leader nearly three years ago, the shape of British politics has been fixed in a fairly rigid mould.

A Labour Party which had already shifted several degrees to the right under Tony Blair found itself confronted by a Conservative Party suddenly seeking to "detoxify" itself by shifting to the left.

The upshot was what I termed the era of political cross-dressing - an increasingly desperate fight over the political centre ground in which policies drawn up by one party were swiftly and routinely purloined by the other.

Even when Gordon Brown took over the Labour leadership in 2007, he found himself unable to do much to break out of this straitjacket, for fear of ceding vital territory to the opposition.

And there we might have stayed right up until the next election, but for the credit crunch and the ensuing economic recessson that now seemingly grips the UK.

Suddenly, things became politically possible that would once have been quite beyond the pale - nationalisation of the banks being perhaps the foremost example.

Against the odds, the one-time high-priest of "prudence" re-discovered Keynesian economics and tore up his own much-vaunted "fiscal rules" which had previously imposed a strict limit on borrowing.

Suddenly, the Tories found themselves having to rethink their own approach to economic policy, for fear of finding themselves outflanked by Labour on both tax cuts and spending increases.

The result was that, this week, the era of political cross-dressing finally came to an abrupt end, as Mr Cameron announced his party would no longer match Labour's spending plans.

In a keynote speech on the economy, the Conservative leader insisted increased borrowing today would mean higher taxes tomorrow as he ripped up his spending pledge.

"Gordon Brown knows that borrowing today means higher taxes tomorrow and if he doesn't tell you that he's misleading you," he said.

"And in any case, after 11 years of waste and broken promises from Labour, they can see that spending more and more alone does not guarantee that things get better."

In one sense, it takes politics back to where it was before the 1997, 2001 and 2005 elections, when the battle-lines were essentially between Labour "investment" and Tory "cuts."

But in truth, in the case of the most recent contest, that was no more than mendacious spin by Labour - as I pointed out on these pages at the time.

The platform on which the Conservatives fought in 2005 was not cutting spending, merely allowing it to rise at a slower rate than had been proposed by Labour

This is essentially the same as what Mr Cameron is now proposing, despite the inevitable Labour taunts that the Tories are reverting to their slash-and-burn, nasty party stereotype.

It's undoubtedly a big gamble by the Tory leader. Ever since Labour pledged not to exceed the Tories' own spending plans prior to 1997, the watchwords in economic policy have been "don't frighten the horses."

To put it another way, the conventional wisdom for the past decade and a half has been that parties which pledge to change things too much - either by big increases or big cuts in spending - risked electoral suicide.

But the real gamble here is not Mr Cameron's, but Mr Brown's, for it is the Prime Minister who is making the biggest departure from economic orthodoxy.

While Mr Cameron is merely promising lower spending increases and no immediate tax cuts, Mr Brown is promising not just higher spending, but tax cuts into the bargain as well.

People often think the era of economic orthodoxy - of not spending more than the country can strictly afford - began with Mrs Thatcher, but it did not.

It actually began with a Labour Prime Minister, Jim Callaghan, who went to his party conference in 1976 to tell them "the party's over."

"We used to think we could spend our way out of a recession. I tell you in all candour that that option no longer exists," he said at the time.

Well here, 32 years on, is his successor-but-five as Labour leader telling us that we can now do exactly that.

We will see on Monday, when Chancellor Alistair Darling unveils his Pre-Budget Report, just how much Mr Brown is prepared to bet on red as he attempts to beat the slump - but all the talk is that it will be big.

Tax credits for the worse off seems a given in the the light of the Prime Minister's recent comments, so too a decision to bring forward spending on major infrastructure projects - which could potentially be good news for the North-East.

If it works, it will go down as possibly the greatest economic rescue operation since Franklin D. Roosevelt's "New Deal" in the wake of the Great Depression of the 1930s.

If it doesn't, Mr Brown will go down as yet another Labour PM who tried and failed to suspend the normal laws of economics.

Westminster is once again rife with talk about a snap general election - even that it could be announced immediately after the PBR on Monday.

I still don't buy it. For a start, the British don't hold elections in the middle of December. Secondly, Brown got his fingers burned so badly last time that I can't believe he would go down that route again.

But what is true is that battle lines for the next election have now started to become clear - with a classic left versus right battle in prospect for perhaps the first time since 1992.

The outcome will almost certainly determine the shape of British politics for the next decade.

Normal politics returns

Brown to call snap election? Cameron to be replaced by Ken Clarke? Political pundits should stop getting carried away by the idea of a "Brown Renaissance," I argue in my Journal column today.

---

In last week's column, I wrote that it was unclear whether we are currently living in a period where "normal politics" has gone into abeyance, or whether the political landscape has undergone a permanent change.

In the sense that we don't yet know the extent to which the post-Thatcher free market consensus has been changed by the events of the past few weeks - and won't know for some time - that still holds true.

But in another respect, it was pretty clear that "normal politics" had indeed been temporarily put on hold, as the political establishment rallied round Gordon Brown at the height of the banking crisis.

Briefly, we saw the same sort of bipartisanship that was seen, say, in the wake of 9/11, when the then Tory leader Iain Duncan Smith was forced to tear-up his party conference speech and say nice things about Tony Blair instead.

For a fortnight or so, the current Tory leader David Cameron and his Shadow Chancellor George Osborne found themselves in a similar position.

It is often said that the job of an opposition is to oppose, but this is too simplistic. The truth is that sometimes, the job of the opposition is, in fact, to stand shoulder to shoulder with the government.

This week, however, "normal politics" in the sense of the battle between the two main parties returned with a vengeance.

Mr Cameron's speech yesterday, in which he accused Mr Brown of a "complete and utter failure" in economic policy, gave us a flavour of the argument that will rage between now and whenever the next general election finally comes.

"Over the past decade, we have seen a total breakdown of economic responsibility," he told an audience in the City of London.

"We need change to mend our broken economy. This lot cannot do it - not least because they cannot own up to any mistakes.

Mr Cameron said that some people thought his party's decision to support the banking rescue plan meant it now "subscribed to the government's entire economic policy and doctrine."

But he added: "Let me make it crystal clear - we do not. And the complete and utter failure of their economic record has never been more clear to see."

All of this puts in stark perspective the talk of the "Brown renaissance" which has become widespread over the past fortnight or so.

Yes, the Prime Minister has certainly bought himself some breathing space, but talk of a complete turnaround in his political fortunes is still way too premature.

Gossip and rumour are part and parcel of political life, but some of what has appeared on political blogs and even in some national newspapers over the past few days has taken fantastical speculation to new heights of absurdity.

There was talk, for instance, that Mr Brown would hold a snap general election to cash-in on his new-found "popularity" in the wake of the crisis - as if he would even go near the idea after getting his fingers so badly burned last time.

One rumour even had it that backbench Tory MPs have been so angered by Mr Cameron's failure to land a killer blow on Mr Brown over the crisis they planned to replace him with Ken Clarke.

I think that David Davis - freshly vindicated by the collapse of the government's plans for 42-day detention - would have something to say about that, but no matter.

The truth is Mr Cameron is not going to be overthrown this autumn any more than Mr Brown is going to hold an autumn election.

After yesterday, he must know that had he been foolish enough to call one, the whole country would by now have been plastered with posters bearing his picture and the words "no return to boom and bust."

The Prime Minister's only hope is still to play it long and hope that by May 2010, he can actually justifiably claim to have "fixed" the crisis.

Even then, it may still not be enough to secure him another term in 10 Downing Street.

At the risk of repeating what I said a week ago, the prevailing public sentiment towards him may still be a case of "we want you to sort out this mess - and then we want you to go."

The electorate can be an unsentimental lot, and as Winston Churchill found in 1945, saving the country from catastrophe is no guarantee of a further term in power.

If anything is going to do for Mr Brown, it is not an essentially arcane difficulty over whether or not banks will lend to eachother, it is what is happening in what has been dubbed the "real" economy.

People in the North-East know all about that. To paraphrase the old saying about America and Europe, the region is usually the first to catch a cold whenever London sneezes.

It was amusing to hear BBC political editor Nick Robinson say this week that unemployment had not been an issue in British politics for 15 years. He has clearly not spent much of that time in the North.

It is in fact ten years ago this month that the then Governor of the Bank of England, Eddie George, told me that lost North jobs were an "acceptable" price to pay to curb inflation in the South, following a spate of factory closures in the region.

Maybe the region's economy is more resilient these days, but if history is anything to go by, the North-East is once again likely to be in the eye of the economic storm.

The region's construction industry has already been badly hit by the crisis, but that is surely just the start.

I suppose those who are set to lose their jobs in the forthcoming months could always go and lag roofs for a living, as the Prime Minister helpfully appeared to suggest this week.

But as Mr Cameron might say, if he had actually fixed the roof while the sun was shining, they wouldn't need to.