Fraser Nelson

Back to his Tory best

Back to his Tory best
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George Osborne has just set the scene for tonight's Chancellors' debate by announcing something neither Darling or Cable will be able to match: a tax cut. It's a real one, it will benefit some 20m workers and (best of all) it will be paid for by spending cuts. While the amount is not huge - everyone on under £43,000 will be £150 better off - it indicates the route the Conservatives would go down in government.  

Trusting people with their own money, and stoking the recovery by cutting the tax on jobs. Here are the main points:

1) Osborne would raise National Insurance threshold in Apr11. One of the many booby traps Brown laid for the country after the next election is a national insurance hike of 1 percent, for both employer and employee. The Tories have long whinged about a tax on jobs but, as Tim Montgomerie predicted, they are now committed to tackling it. Not by abolishing it: the rise remains in place, but it would be offset by raising the threshold of national insurance to £7,100 (from £5,700). This works out at a flat £150. If you're on more than £45k, the extra national insurance you pay means you're still hit - but by no more than you would be under Labour.

2) Gershon is back. The Institute for Fiscal Studies have told the Tories that raising the NI threshold would cost £5.6bn. To pay for it, Osborne is ordering £6bn of cuts, to be overseen by (drum roll) ... Peter Gershon. He's the guy who advised Brown on how to cut waste in 2003, but who - like David Freud - is now advising the Tories. Brown didn't make those cuts (as the NAO later found) and he Gershon has wanted to get back into it. Now he can.

3) Cuts start in 2010-11. Crucially, these £6bn of Tory-era Gershon efficiency savings would come in 2010-11 - and would be on top of the £7bn annual cuts that Osborne announced at the last Tory conference.  

This gives us £13bn of Tory cuts, which is starting to look like an agenda.

4) Brown will now look stupid talking about cruel Tory cuts.  Blanchfower and his pinko mates have had fun writing letters saying how terrible it would be to cut in 2010-11 rather than 2011-12. The Tories are planning £6bn cuts - that's less than 1 percent of government spending or 0.5pc of GDP. It's pretty much impossible to argue that cutting wasteful spending on this scale would somehow "risk the recovery". It always was a bogus argument, and the economists' war was phoney for precisely this reason. Now Osborne has quantified his 2010-11 cuts, this argument can be parked. The 2010-11 cuts will be a gnatbite (unless the IMF arrive, but that's another story).

5) Defence budget protected in 2010-11. This matters because it means the Strategic Defence Review - likely to start just after the election - will not be conducted against a backdrop of demanded cuts. As things stood, Osborne was in danger of trasferring £5bn from the MoD to DfID at a time of war. The DfID rise was defended on the grounds that £5bn was not much money - so why, therefore, should defence be cut? Great to see defence protected, albeit for one year, and I suspect the more Osborne thinks about it the less he will be inclined to cut the military in later years.

6) This includes dynamic tax scoring. The Treasury, notoriously, assumes that an extra £10bn of tax rises will yield £10bn. This is so-called static tax scoring, because it assumes no behavioural change - ie, employers take on exactly the same amount of people even though workers have been made more expensive. And that those people choose to be paid in exactly the same way as before. But behaviour does change, and the Tories use the IFS figure of £5.6bn as the real-world, true impact of the likely tax rises. This sets an encouraging precedent.  

The notorious Treasury 'ready reckoner' has used static tax assumptions for years - exaggerating the amount of money that can be lost by tax cuts, and raised by tax rises. Osborne makes a bold move, and one he should continue in office. He is setting the terms of debate.

7) Raising thresholds: an idea whose time has come. Let's hope Osborne does this to income tax too. Lifting the poorest out of tax altogether - as advocated by Maurice Saatchi and Lord Forsyth - is too good an idea for the Lib Dems to have all to themselves. So the NI threshold rise may set a useful pointer to how a Tory government would behave.

8) Osborne is back to his Tory best. He's realised that he was on a road to nowhere (or, more accurately, oblivion) with the "minimise the difference" strategy of those who, in their heads, never stopped fighting the 2005 leadership campaign and seemed allergic to the concept of cuts. Today's policy is not rocket science: cut taxes, and pay for it by cutting wasteful spending. That's what Tories do. That's how to grow the economy and promote a fairer society. To the question "why vote Tory?" Osborne can now honestly say "because your family will be better off." Because he thinks the money is spent best when it remains with the people who earn it.