After the news that the UK economy is most likely already in recession, the hare and tortoise debate of a few months ago looks set to return to Tory politics with a vengeance. In today’s Telegraph, Lord Forsyth and John Redwood say that the Tories need to think about an alternative to “sharing the proceeds of growth”, and that that alternative should be based around spending cuts. Here are the relevant passages:
“Lord Forsyth of Drumlean and John Redwood, who chaired Mr Cameron’s policy commissions on the economy, suggested it was no longer adequate for the party to promise to ‘share the proceeds of growth’ between public services and tax cuts now that the economy is at a standstill. They called for a bold commitment to cut public expenditure and taxation in order to stimulate recovery.
Lord Forsyth, the chairman of the Tory tax commission, said it was the ‘end of the road’ for big increases in spending and the Tories needed to ‘cut our cloth’…
…He told The Sunday Telegraph: ‘The problem is that the higher the burden of taxation, the less opportunity there is for growth. If you want to get further growth then the state has got to take less from people in tax. As you reduce the levels of taxation you will get growth’…
…His views were echoed by Mr Redwood, whose economic competitiveness review proposed a £14 billion cut in red tape.
He said: ‘Obviously, a Conservative administration will have to undertake a policy of economic recovery. I’m afraid it’s going to get worse before it gets better.
‘The situation now is the result of this Government’s overspending, overborrowing and overtaxing.
‘There are areas where you could stop spending on unnecessary programmes which will start to relieve pressure. We can cut back on things.'”
You could just dismiss this as the tax-cuts-at-all-costs brigade having their moment in the limelight. But their arguments have extra traction during the current economic downturn, and I expect a few more Tory voices will soon be clamouring for an alternative to the “sharing the proceeds of growth” formula.
This has the potential to be the biggest question for the Tory leadership ahead of conference season, and one which economic circumstances make it difficult for them to ignore. How will they answer it? It would be unwise to rush through a new economic framework over the next couple of weeks, so – for the time being – George Osborne may just have to resort to saying “we’re working on a new fiscal framework”, as he did in an interview with the Telegraph yesterday.
But that response brings new questions with it. Why, the Tory faithful might ask, did a fiscal framework predicated on positive growth not have a negative growth back-up plan in the first place? Why are they waiting until now to think about the possibility of recession? And Osborne – who’s enjoyed skewering Brown’s government with his “failed to fix the roof whilst the sun was shining” mantra – may find those a lot more difficult to answer.
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