The Chancellor should offer some forward guidance of his own
March 12, 2014
Politics need not always be a complicated trade. Typically the simplest messages are the ones that work best. Since the Budget provides a staging post on the road to May 2015, the desire to complicate comes at a potential political price to the Conservative wing of the coalition.
For much of the past three years or so the British electorate have, perhaps begrudgingly, recognised that the coalition’s avowed economic plan – the elimination of the structural deficit within the course of this parliament – has been the right path in response to the grisly economic circumstances.
Key to this plan was economic growth. Predicted compound growth of 2.7-2.9 per cent for the duration of the Parliament accounted for over half the deficit reduction programme. The international capital markets maintained their initial confidence in the Coalition, despite its first three years being characterised by stagnant growth. Fears that excessive borrowing on the scale that became necessary in 2010-13 would lead to higher interest rates proved unfounded.
The first glimpses of economic recovery and the healthy, consistent growth since spring 2013 have surprised many economic experts. They also put Ed Miliband and his team into a funk by summer 2013. The Shadow Treasury analysis was like a broken record and now that ‘flat-lining’ had had its day, how best to respond?
Over the next few months furious and furtive planning took place. I am reliably informed that only four people (one of whom was not Ed Balls) were in on the radical shift in strategy heralded by Ed Miliband’s conference speech. The ‘energy price freeze’ promise was designed as the initial salvo in a Living Standards Offensive. As autumn meandered on the theme was rolled out to include smash and grab raids on the Living Wage, utilities bills and, latterly, a return to the tried-and-tested offensive on the banks. For what it’s worth, I predict that an all-out attack on the profits and opaque contractual arrangements of the global telecommunications operators will be next in line.
Labour Party command has been incredulous at the way in which they feel that the Coalition then proceeded to walk straight into the trap set. The initial reaction was to dismiss the Energy Price Freeze as a return to 1970s-style socialism. Next up it was written-off as ‘unworkable’. Finally, after a couple of weeks of media traction, the Coalition hurriedly rolled out its own new proposals trying to emulate and outwit the Labour version. All of which succeeded only in making living standards the economic issue at the expense of deficit recovery, growth and the ever improving employment statistics.
Early New Year has allowed us to regain our footing and reset the Conservative message – we are following a ‘long term economic plan’ that will benefit ‘hard-working people’. If we can overlay this sober foundation with a sense of upbeat optimism and positivity about our nation in the coming months, we should have a solid base from which to bat away Miliband’s attacks. It seems to have worked so far – with a confident dismissal of Ed Balls’ much-derided announcement in January that Labour would raise the top rate of income tax back to 50 per cent.
To complement consistent messaging on the deficit, we must also give the electorate a feeling of hope for the future under a Conservative government. Nevertheless, we should be wary too: if money can be found for tax cuts then our opponents will question the need for further reductions in the welfare budget – this at a time when even the IFS calculates that only 40 per cent of the total planned spending cuts are in place.
So I wonder whether here we might cleverly borrow some tricks from the Bank of England. While the notion of ‘forward guidance’ has proved a mixed success so far for new Governor, Mark Carney, it might be a useful tool for the Chancellor. I have always doubted the wisdom of promising instant, substantial tax cuts as it puts in jeopardy our central mission to restore order to the public finances. However, reducing the tax burden should always be a part of the Conservative offering.
As such, I would suggest that in his Budget speech a week today, the Chancellor offers his own brand of forward guidance, giving a clear signal that when progress on reducing the deficit breaks past a certain point, a series of tax cuts will kick in. That way, the electorate will know full well that while our priority is stability, our ultimate aim is a low tax, competitive economy.
Labour’s messaging over the past six months has blended naïve populism with flagrant opportunism. Their appeal has rested not on their practicality, but their exploitation of a deep sense of unease amongst many in the electorate that the current system does not deliver for them. Our response to this has too often been erratic and confusing, lending greater weight to policies which should rightly be dismissed as dangerous and unworkable. What voters need from us is consistency and simplicity.
Rather than getting blown off course, now is the time to cement our position as the calm, rational team that is slowly and patiently getting the UK economy back on track and the public finances under control. Substantial, radical reductions in taxes should only sensibly come when this mission has been accomplished.