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Let's be honest about the state we're in

Westminster has an irregular way with grammar. Perhaps you already know how it conjugates the verb "to inform": I brief, you leak, he or she betrays a confidence. That's nothing. Look what the politicians do to the humble verb "to spend": I invest, you freeze, he or she will cut teachers' jobs and make nurses cry. Not very honest, is it?

So you can imagine the surprise when the shadow health secretary, Andrew Lansley, employed none of the usual circumlocutions last week on the Today programme. He admitted that most other Whitehall budgets would have to be cut by 10% in order to pay for real increases in National Health Service spending after 2011. His unscripted confession made plain what most voters had cottoned on to long ago - the state is running out of our money. How we "invest, freeze or cut", call it what you will, must become the great matter of politics. But how soon?

In this recession, any recession, business has to cut its cloth accordingly, freezing salaries and seeking efficiency savings, hopefully becoming leaner and meaner in the process. Millions of private individuals also have to cut down on their little luxuries and take holidays at home. But as for Whitehall, it is still luxuriating in the equivalent of a five-star hotel in Saint-Tropez.

Last week London was paralysed by striking Underground workers who, despite the benefit of 35-hour weeks and long holidays, are still haggling over the size of their pay rises. In Westminster intense discussion revolves around the amount of compensation that must be paid to MPs for forgoing their misuse of second home allowances and expenses. Generous public sector pensions are doled out without regard for economic reality and increased life expectancy. The Office for National Statistics tells us that the great state spending splurge initiated by Gordon Brown when he was chancellor a decade ago has resulted in lower productivity and massive waste.

You can argue, like the latter-day followers of Keynes, that the depths of a recession is the wrong time for the state to cut spending, but even so, Britain needs to budget for recovery. There is a gaping hole in the government's finances: the City is no longer the goose that lays the golden egg. That presents choices: cut state spending, raise taxes or do both. Fail to offer a secure schedule of repayment and our creditworthiness will be marked down, forcing us to pay more at higher interest rates.

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Yet Brown won't tell us what he intends, in order to wrong-foot Cameron.

Lansley's brief encounter with honesty was the signal for the usual round of dishonest debate. The Tories intend "savage cuts", said Labour. The opposition countered that Labour were the real Scrooges: Lansley was describing the government's plans not Conservative ones. The NHS Confederation also weighed in, arguing that soon the sick will go untreated, waiting lists will go up and the dead will be left unburied. Well I exaggerate a little but not much.

If all this sounds desperately familiar, then it is. A variation on this theme has been played out at every general election since 1983. Each campaign is punctuated by some health scare allegedly caused by a lack of money. Labour then accuses the Tories of conspiring to cut public spending and wreck the health service.

Remember the 2001 general election when Oliver Letwin, today David Cam-eron's policy supremo, went into hiding after he carelessly suggested saving a few bob more wouldn't hurt. That Newsnight eventually tracked him down to the Dorset countryside, kitted out in a Roman toga at a fancy dress party, was considered less embarrassing than his original gaffe. In 2005 the promising career of a Tory MP and party deputy chairman, Howard Flight, was brutally cut short when he was secretly recorded saying that his party in office could make more spending cuts than they were promising in their campaign. He was deselected by his leader, Michael Howard, who probably agreed with every word he said.

Gordon Brown is an old hand at this game. Yet even he is making mistakes. On Tuesday the shadow chancellor, George Osborne, pointed out that Brown's assertion that "public spending is due to rise every year" could hardly be squared with chancellor Alistair Darling's budget plan to make cuts - after inflation - in 2011, 2012 and 2013. The prime minister is having another of his Pinocchio moments. "Honest" Gordon repeated the line at prime minister's questions the next day. That really was a bird's nest you saw on the tip of his four-foot long nose.

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The botched reshuffle, however, means that Darling cannot be forced to toe No 10's line. Like Roy Jenkins when he was chancellor in 1969, Darling may place a higher priority on history's verdict on his legacy than his prime minister's skin. Influential voices are urging him to conduct a spending review spelling out how the government would restore the public finances. Even one of the brightest young hopefuls in cabinet, Liam Byrne, the new chief secretary to the Treasury, has found it hard to explain how efficiency savings will stave off tax rises.

Polling evidence is not firm. The voters lean a little to spending cuts, not tax rises, to pay off the debt. They know what they don't want cut, but not what they do. In focus groups everyone thinks huge amounts of state spending get wasted. But when politicians promise to cut it they always fail. Quite sensible, ordinary folk, aren't they? What they really want is leadership.

In fact, the Tories didn't lose the last election in 2005 because Brown had accused them of wanting to save few billion. They lost because nobody much liked them. Equally, they weren't trusted to look after our schools and hospitals when they were offering tax incentives for the affluent few to go private. David Cameron, hugely grateful for the care given to his disabled son Ivan, is committed to the NHS in its present form - alas - and so has reassured doubting voters on that score.

Some influential Labour voices don't think a rerun of a scare campaign about Tory cuts will save Brown this time. "It's a complete misreading of the public mood," says a former minister. "The public are tightening their belts, we are not. The voters will think that if government won't tighten its belt, then it will raise taxes." Alan Johnson, the new home secretary, may agree. He is calling in the government's disaster-prone and expensive ID-card scheme in for review. This project was once a Brown priority, but in his weakened state the prime minister is hardly in a position to discipline the man most likely to take his job should he fall under a bus driven by Charles Clarke, the backbench rebel.

The Tories say they will not cut health, schools, international development, possibly defence, so they struggle to find some big ticket items and programmes to cancel. Failing that they need to find a Pentagon lavatory seat.

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Let me explain. In the mid-1980s Lockheed charged the US navy $34,560 for 54 toilet covers, or $640 each, for a refit of the P-3C Orion antisubmarine aircraft. It became a symbol of wasteful defence spending. President Reagan even flourished one at a press conference. Hence the wry joke about Pentagon extravagance: "A billion here, a billion there? Soon you'll be talking real money."

Cameron still has a lot of homework to do. As Professor Nick Bosanquet of the think tank Reform suggests, he needs to decide what government can do best, what it should contract out to competitive tendering, what decisions on spending should be made locally and which budgets should be immediately frozen - pay and pensions included. It's not clear his shadow cabinet have got the message.

The voters sense the new Tory message is not yet fully formed, though they have given up listening to Brown; the old arguments from him about heartless Tories won't work when applied to Cameron. So it is now up to the Conservative leader and Osborne to be brave. They should tell us that cutting a billion here and a billion there is no longer a joke but a national ambition.