Fraser Nelson

Brown has played into the hands of the Tory Bullingdon Boys he loathes

Fraser Nelson says that the Pre-Budget Report killed off New Labour without landing a punch on the Tories. It has paved the way for a new Conservatism, in which Cameron woos aspirational voters, focuses on government debt and looks for responsible spending cuts

Brown has played into the hands of the Tory Bullingdon Boys he loathes
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Conservative backbenchers were in  good voice on Monday, and by prearrangement. The whips had sent around the message that there was to be raucous heckling as Alistair Darling read out what used to be called the Autumn Statement. Duly, there were roars of indignation at the Chancellor’s claims that Britain was best-prepared for a downturn, howls of protest as he claimed to have reduced debt. But then this yielded to unexpected quiet as it slowly became clear that Mr Darling’s giveaways included something the Tories would never have dared dream of: the surrender of everything New Labour once stood for.

David Cameron had been at George Osborne’s house the day before, nervously preparing for the surprise tax cut which they suspected was in store. The pre-briefed VAT cut to 15 per cent, they believed, was a softener. They also supposed, wrongly, that Mr Darling would honour the basic New Labour principle of spelling out how he would repay the borrowing. In the event, there was not even an attempt at a payback plan. The Chancellor said he would double the national debt to £1 trillion — and to hell with the consequences. These were the fiscal rules of the credit card thief.

Mr Darling also declared that he would soak the rich — not because it would save the budget, but because they deserved it. They ‘have seen their incomes almost double’, he noted caustically, so it was time to pay up. Here was an irrevocable philosophical break with the past. Tony Blair used to argue that the richest 1 per cent paid almost a quarter of income tax collected — so his attitude was to say ‘thank you’ and try to attract more such people to Britain. Now, Gordon Brown is coming at these Golden Geese with Denis Healey’s old carving knife.

As a joint architect of New Labour, Brown could argue that — like Frankenstein — he has the right to kill his creation. The truth is that it had already gone bankrupt. The footnotes of the Pre-Budget Report make clear that the scale of government had been fixed on the basis of a false assessment of economic reality. Boom had been mistaken for stability. Sticking to New Labour’s borrowing rules would have meant suicidal tax rises, or genuine public spending cuts — as opposed to the fake cuts he has spent his career pretending the Tories would implement. So option three was to borrow, hugely, and for the foreseeable future.

Mr Osborne noticed this instantly when launching into the angriest and, arguably, finest speech of his parliamentary career to date. His response was symbolic in its cussedness: he had prepared himself for battle not just against Mr Darling but his Tory critics. He knew he was on trial and answered the lot of them with an impassioned j’accuse against the Chancellor. It was the moment that the tables turned, and the time finally came for a Conservative offensive.

To see just how far the game has changed, consider the response last week when Mr Cameron declared Labour’s 2010/11 spending levels unaffordable. Then, he was denounced as a Thatcherite ideologue by Labour and as ‘mad’ by some economic commentators. Yet on Monday, Mr Darling did precisely the same, cutting his own projected spending for the next two years by some £35 billion. By coincidence, this is precisely the sum he accused Michael Howard of planning to cut three years ago. Then, Mr Darling declared such a saving ‘could only be found from cutting deep into front-line public services, including schools, hospitals and the police’. Now he calls it ‘efficiency’.

Spending cuts, made to save taxpayer’s money, are suddenly back on the approved list of economic tools. Ditto tax cuts. As the terms of debate change, so Mr Cameron’s and Mr Osborne’s opportunities multiply. And as Mr Brown takes the public finances on a descent towards hell, then the Tory slogan — ‘responsibility’ — suddenly sounds less nebulous. The Conservatives will make debt their central attack line, with debt clocks clicking away at £2,000 a second to make the case graphically and comprehensibly. Mr Cameron will argue that this trend must be stopped urgently and it will be Mr Brown who is left to argue — as Reagan once did — that the deficit is big enough to look after itself.

The tragedy for Mr Brown is that New Labour perished on Monday without landing a bee-sting on the Tories. His VAT cut from 17.5 per cent to 15 per cent has the twin defects of being horribly expensive and appearing parsimonious. That night, broadcasters struggled to find one approving shopper. A  2 per cent reduction in prices seems risibly small, not least because it only affects half of all spending. The poorest spend a greater share on non-affected goods — like children’s clothes, heating and rent — so they feel forgotten. Other consumers say it is negligible in a market where stores are pleading with passers-by and are already slashing prices by a fifth.

In theory, a VAT cut ought to have electoral traction with the 50 million consumers who thereby get a tax cut. But, as retailers point out, there is a reason why shops never use signs saying ‘2 per cent off everything!’: no one would care. It’s simply not enough of a lure to stimulate spending or change consumer behaviour. Goods are also priced at £4.99 for psychological reasons, and the tags won’t change suddenly to £4.89 to accommodate Mr Darling’s announcement. The shopkeeper will take what little extra margin there is, and save it to prepare for tax hikes facing small businesses.

It is when Mr Brown is most determined to unsettle and outmanoeuvre the Conservatives that he makes his worst misjudgments. The VAT cut must have looked better on his computer than it sounded in the chamber, ticking many boxes in theory but few in practice. As we saw with last year’s speculation about an early election, the Prime Minister can become so bewitched by the destabilising effect such tactics might conceivably have on the opposition that he gives too little thought to how the very same tactics could rebound on him.

And this is surely true of the decision to introduce a new 45p in the pound rate for those earning over £150,000. Set aside the signal this sends about the future intentions of a tax-hungry government. It is useless as a revenue-raising measure because it would yield, according to the Institute of Fiscal Studies, ‘approximately nothing’. Increasing the tax rates on the richest seldom does, because they either work less as a consequence of the new disincentive, or hire better accountants, or both. There is a reason why the top personal rate of tax has been falling in almost all developed countries, as Mr Blair understood very well.

When Mr Brown hosts the G20 summit next spring, he may wonder why none of his guests charge a marginal tax rate higher than the 45 per cent he is proposing. But the truth is that the Prime Minister’s decision was a purely political one. His aim is to wrong-foot Mr Cameron into opposing the 45p tax so he can claim (as Barack Obama did) that his opponent is in favour of tax cuts for the rich. He has ditched the promise not to raise the top rate of tax — a defining feature of the New Labour years — so he can finally resurrect the class war narrative. He longs to portray Mr Cameron and Mr Osborne as shameless toffs, defenders of privilege masquerading as ‘compassionate conservatives’, out to protect their own kind.

The real consequence could be nightmarish for Mr Brown. If his budget backfires, these two Bullingdon Boys may end up jostling the PM — taking a leg each — and shaking him until the borrowed money falls out of his pockets for the public to see. This is most certainly their intention. Mr Cameron has stepped up a gear into campaign mode, and has started to activate the bank of email addresses to which the Tories now intend to send regular updates, Obama-style. Regional campaigns are being accelerated too.

While Mr Cameron is ready for a new year election, most around him suspect Mr Brown is now enjoying his job so much he will not risk losing it until the last possible moment. Those who have seen the Prime Minister in recent days confirm that he is in an almost ebullient mood, talking about sport with relaxed confidence, barely recognisable as the gaunt, haunted figure who stalked Westminster earlier this summer. Politics is once again about economics, his specialist subject. He feels he is moulding a new era, in Britain and internationally.

Mr Cameron meanwhile is rethinking Tory priorities, and taking fresh advice. He has started regular meetings with Lords Howe, Lawson, Lamont and Ken Clarke — both alone and with Mr Osborne. He is happy for them to take to the airwaves, adding clout and experience to the party’s economic message. Veterans of the 1970s can see things swinging full circle: that Labour is once again arguing about redistributing wealth and the Tories are once again talking about the importance of creating it.

The biggest challenge facing Mr Cameron is to seize back from Labour the aspirational voters Mr Blair wooed away in 1997. If Mr Brown is after the rich, then who is next in his sights? Anyone on more than £19,000 a year would be worse off after this week’s PBR, albeit slightly. Would those on £50,000 be next? Fear of how the government might tax you is a potent force in British politics, and one which Mr Blair believed had kept Labour out of power for too long. This is why he made a pledge not to raise the top rate of income tax: it was a fundamental bond of trust, which Mr Brown has now broken.

The more rapidly the economic picture changes, the firmer Mr Cameron becomes in his view that the Tories should make as few pledges as possible before the election. Yet he needs a replacement for the ‘share the proceeds of growth’ message, and ‘share the pain’ does not quite do. He must reconcile the compassionate conservatism of his first phase with the austerity conservatism being forced upon him. But above all, he must take the fight to Mr Brown. The anger which Mr Osborne vented on Monday needs to be kept warm, and regularly decanted. Linking Mr Brown personally and relentlessly to the recession is Mr Osborne’s main job.

This task should become easier as each world power gradually navigates its own way out of the crisis, each with less debt, less unemployment and fewer nationalised banks than Britain. It will become harder for Mr Brown to play the role of innocent bystander, victim of an American virus. The origins of this crisis are becoming ever clearer. As he used to be fond of saying, one ‘cannot build the New Jerusalem on a mountain of debt’. He tried, he failed, and Britain is now about to digest the biggest debt in its history. His rather unoriginal solution is still more debt, for the foreseeable future.

Every couple of decades, a financial disaster comes along which destroys a government’s reputation. For Jim Callaghan it came in 1976 when he asked the IMF for a £2.3 billion bail-out. John Major had his in 1992 with Black Wednesday, which cost £3.4 billion. If we take the almost comically optimistic assumptions of the Pre-Budget Report, Britain is now heading for £1,080 billion of national debt. This is the price of the collapse of New Labour. And this debt, rather than a New Jerusalem, will be Mr Brown’s legacy.