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.

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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.

The collapse of the "progressive consensus"

Do centre-left governments have any room for manoeuvre on tax anymore? Here's my column in today's Newcastle Journal.

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Aneurin Bevan once famously described socialism as the language of priorities. It has been a fairly long time since the Labour Party talked about socialism, but at times like the present, it can't help but talk about priorities.

And few issues go more to the heart of what a centre-left government's priorities should be than the ongoing controversy over fuel taxes.

Is it the primary job of a Labour government, especially in times of economic hardship, to protect the living standards of the worst-off by trying to keep household bills as low as possible?

Or in this era of climate change, do governments of the left have a higher responsibility - to try to save the planet from the potentially deadly effects of the free market by curbing the use of fossil fuels?

The consensus of opinion within the wider public on this score has ebbed and flowed back and forth over the past decade.

Nearly eight years ago, in the autumn of 2000, New Labour's political hegemony was brielfy threatened by the eruption of the fuel protests, following the imposition of a "fuel price escalator" designed to curb greenhouse gas emissions.

Public sympathy at the time was initially with the protesters, though it evaporated pretty swiftly once they started blockading power stations and generally behaving like a bunch of 1970s flying pickets.

And over the ensuing years, opinion swung decisively back in the direction of the "green" lobby, to the point where any government which failed to do something to tackle car use risked being seen as irresponsible.

But that was before the credit crunch. The environment, which at one time was a big enough issue to persuade David Cameron to start cycling to work, has now slipped back down to its customarily more lowly place in the public consciousness.

Instead, we're back on the old, familiar ground of "the economy, stupid."

When the proposed fuel tax increase was first outlined in last year's Pre-Budget Report, inflation was still well under control and the effects of rising food and fuel costs had yet to be seen.

But nine months on, it seems, greenery has once again become a luxury that the nation cannot afford.

The pressure had been on Prime Minister Gordon Brown and Chancellor Alistair Darling over the fuel tax issue since the start of the year when the business and motoring lobbies first begun to hone in on it.

At one time, it might have been seen as a test of the government's resolve. I myself wrote in this column that the question of whether ministers were still prepared to make the case for the tax rise would show whether the Brown administration retained a shred of self-belief.

In the end, though, it was no great surprise when Mr Darling announced on Wednesday that the increase had been postponed once again. He probably had little option.

Indeed, with another crucial by-election for the government coming up in Glasgow East next Thursday, perhaps the only surprise was that he didn't do it sooner.

It won't stop there, either. Now that the government has u-turned on the fuel tax rise, expect it to come under sustained pressure to scrap the planned changes in vehicle excise duty to discourage "gas guzzling" cars.

When this idea was first dreamed up, the government probably had the so-called "Chelsea Tractor Set" in mind - a fairly convenient political target.

But in yet another example of the law of unintended political consequences, it turns out that the cars most likely to be hit by the proposed changes are overwhelmingly owned by the worst-off.

In the end, backbench Labour MPs are no more likely to let this happen than they were likely to allow the government to scrap the 10p tax rate.

I recently saw the planned changes to vehicle excise duty rather unfairly but amusingly caricatured on a satirical website as a spoof news item about Labour's "master plan" to restore its political fortunes.

"Labour will today unveil a detailed plan to alienate its last remaining pockets of support. The central plank of the party's strategy involves identifying the ten most popular family cars in Britain and then making them a nightmare to own," it read.

A “Labour spokesman” was quoted as saying: "We're going for the double whammy of making them too expensive to drive, but also impossible to sell."

Silly? Maybe, but it was a light-hearted way of making the serious political point that Labour simply cannot afford to antagonise its natural supporters any more than it already has done.

But the vehicle taxation issues are an illustration of a much wider political truth, that the government now finds itself in a position on tax where it has virtually no more room for manoeuvre.

Both Tony Blair and Gordon Brown have talked at length over the past decade about the need to build a “progressive consensus” in which people accepted that decent public services required taxes to be maintained at a certain level.

In fact the opposite has happened. People seem increasingly less and less happy to pay their taxes, with the result that the existing tax-take as a proportion of GDP is likely to come more and more into question.

It is this that has essentially brought about the Liberal Democrats’ near-total volte-face under new leader Nick Clegg from being a party of 50p tax rates to a party of tax-cutters.

Back in the early days of New Labour, John Prescott and others dreamed of using the tax system to bring about a major shift in public behaviour, making private transport progressively more expensive and using the proceeds to fund better and more accessible public transport.

However desirable this might once have seemed, the government’s inability to impose even small increases in fuel tax show that it has now become a political impossibility.

When Bevan talked about the “language of priorities,” there was a basic assumption that governments had the ability to choose between competing interests and concerns.

Increasingly, for this government at least, those choices no longer exist.

Darling's U-turns show Labour's lack of self-belief

It's been open season on Alistair Darling at Westminster this week and my Saturday Column published today duly focuses on the Chancellor's performance.

Like Polly Toynbee, I am dismayed by the U-turns on capital gains tax and the taxation of non-domiciles, which provide further proof as it it were needed that this government is adrift without a philosophical anchor.

"As things stand, the Tories will be going into the next election pledged to tax “non-doms” at five times the rate now proposed by Labour – although there has to be a question mark over whether their plans are any more workable than Mr Darling’s.

"Once again, it poses the question whether voters of a leftish inclination are now better off supporting a right-wing party that leans to the left over a centrist one that leans increasingly to the right....what this week’s moves by Mr Darling really demonstrate is a catastrophic loss of confidence by the government in their own values of social justice and fairness."

Inheritance Tax

I hate to say I told you so, but....

Will Brown trump Osborne

Shadow Chancellor George Osborne's announcement that a Conservative government will raise the inheritance tax threshold has predictably gone down a storm in Blackpool, and interestingly, Labour's initial attack seems focused on how the tax cut will be paid for rather than the idea itself.

It begs the question once again in my mind whether the Tories are being too cautious, and whether Gordon Brown's response will now be to pledge to scrap inheritance tax altogether, or, at the very least, exempt all family homes from its ambit.

Restricting inheritance tax to a "millionaires only" tax is a surefire voter winner with the aspirational middle-classes the Tories need to win back, and Brown is far too smart not to realise this.

The Prime Minister has already shown himself a past master in the art of political cross-dressing. Surely this is a case for more shameless stealing of the Tories' clothes.

Inheritance Tax: Tory gain

The reaction from the opposition has been predictable, but I'm afraid the Tories are right about this one. Inheritance Tax should go, or at least be radically reformed, not necessarily for all the reasons John Redwood says it should but because, thanks to the phenomenon of fiscal drag, it has basically become a regressive tax that penalises people who by no stretch of the imagination can be considered rich.

I would be amazed if David Cameron does not put today's proposal straight in the Tory election manifesto, but it makes such obvious political sense that I would also be mildly surprised if some form of it does not also end up being purloined by Labour.

At the very least, ministers ought to consider some of the alternative options to outright abolition, such as exempting the main family home from the tax, or levying it at 20p rather than 40pc, or raising the threshold to £1m, so that it reverted to its original purpose as a tax only on the very wealthy.

Chancellor Alistair Darling today said the Government was "keeping the situation under review." Expect that review to have been completed well before the next General Election.