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We would sooner the Tories did spell out exactly where their tax cuts were going to come from. And far from ring-fencing healthcare from cuts, Cameron should take pride in taking the axe to one aspect of NHS spending: the farcical £12 billion IT system ‘Connecting for Health’, which is running four years late and has already been abandoned in one of the few hospitals where it has been introduced. Ditching this grandiose IT project would alone pay for a tax cut on savings income.
Nevertheless, we applaud David Cameron for his change in direction, which has put clear water between the economic policies of the two main parties and presented a clear battleground for the next election. No one need be under any illusion: a vote for Labour will be a vote for tax, borrow-and-spend, central control of the economy and, eventually, high inflation and interest rates, while a vote for the Conservatives will be a vote for lower taxes, lower spending and a path back to sound money.
When Gordon Brown recently announced that he had saved the world, he omitted to say how long for. Perhaps he didn’t need to. It is painfully obvious that Brown’s econ-omic policies are directed at one thing: generating some sort of economic recovery by the summer of 2010, the last possible date for a general election. If that recovery does materialise, it will have been bought at huge expense: a budget deficit of well over £100 billion. Moreover, there is absolutely nothing contained within the government’s economic policy which even tries to prevent a repeat of the credit binge which has caused the current economic problems. On the contrary, Brown couldn’t be trying harder to ensure that recovery is followed by another debt-driven boom which may crash even more spectacularly.
As David Cameron correctly argued this week, we will only achieve a robust recovery if individuals are encouraged to save more. Yet the government’s repeated initiatives to bail out over-mortgaged homeowners are sending a powerful incentive to do the opposite: borrow as much as you can, because the state will always bail you out — and all those miserly old savers can foot the bill.
The ultra-low interest rates being imposed upon the British economy — with more than a bit of encouragement from Brown to the ‘independent’ Bank of England — are similarly acting as a disincentive to save. They are provoking mass withdrawal of deposits from British banks, thus starving them of the capital they need to lend to desperate businesses. In the longer run, who believes that, come the recovery, Brown will allow interest rates to be raised quickly and far enough to prevent inflation on the scale of the 1970s? Of course he won’t. His strategy relies on the promotion of inflation: there is no other way that the government will be able to afford to service its debts.
To what good are these public debts going to be run up in any case? This week, the Prime Minister announced that he will bring forward £10 billion of infrastructure projects which he claimed would create 100,000 jobs. While new infrastructure will in most cases be welcome, it is improbable that these jobs will all be British jobs. There is a big difference between the US in the 1930s, when the New Deal similarly included large infrastructure projects, and Britain now. We don’t have a workforce sufficiently skilled to take up so many positions — as evidenced by the prevalence of Eastern European labour on building sites during the boom. A more likely outcome is that Brown’s Keynesian construction schemes will boost economies overseas.
In attacking the Prime Minister’s faux Keynesianism (a good Keynesian would have paid off debt in the good years), the Tory leader will have to be prepared to face down critics on his own side. There are plenty of Conservatives who would love inflation to pay off their debts for them, or who run businesses looking to cash in on increased government spending. But Cameron should relish the challenge. As the obituaries for Alan Walters, Lady Thatcher’s former economic adviser who died this week aged 82, have reminded us, the economic reforms of the 1980s were not won without Tory opposition. In the 1970s, as now, many Conservatives had a perverse preference for the comforts of high government spending over the tough decisions which ultimately were to enrich the country. The more that David Cameron stakes out his ground as a tax-cutter and government-shrinker now, the more he will achieve in office.
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