THE Conservatives relegated their traditional pledge to cut tax yesterday, putting economic stability at the top of the agenda.
George Osborne, the Shadow Chancellor, said that the next Conservative government could inherit a large budget deficit and heavy borrowing that would have to take precedence over tax cuts. At the last election the Conservatives promised to cut tax by £4 billion but, in his first big speech since David Cameron, his close ally, became leader, Mr Osborne said that economic stability was paramount.
“As the economy grows, we will share the proceeds of that growth between spending on public service and reducing taxes. Over an economic cycle, output will grow faster than public spending. We aim to use the surplus growth to lower taxes,” he said in a speech to the Cass Business School in London.
“But let me make this crystal-clear today: we will put economic stability before tax cuts. If the public finances are in a mess, then sorting them out will have to take priority over promises of tax cuts.”
Mr Osborne said that, to make tax cuts sustainable, a Conservative government would reduce the demands of the State to prevent it eating into national wealth. Only then could taxes be reduced.
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The decision to put economic stability before tax cuts mirrors Labour’s decision before the 1997 election to place economic stability before public spending increases. Labour adopted Tory plans for a two-year spending freeze.
Downgrading tax cuts risks irritating MPs on the Right of the party, who believe that they define the Conservatives. They are already alarmed at the decision to rule out a return to the 11-plus, another emblematic Tory policy. Most, however, are willing to stay silent, thankful that the opinion poll gap between the Conservatives and Labour has finally closed.
Mr Osborne announced a new commission to examine economic competitiveness. Simon Wolfson, the chief executive of Next, will be joint chairman with John Redwood, the former Welsh Secretary. Mr Redwood is a rightwinger and an instinctive tax cutter and his appointment will help to keep the Right on board. Mr Osborne said that Mr Redwood’s principle focus would be on regulation and supply-side reforms, not taxation. Another commission, led by Lord Forsyth of Drumlean, is examining ways to simplify the tax system, and any decisions on tax policy would be taken by Mr Cameron and Mr Osborne.
Labour seized on Mr Osborne’s promise that the proceeds of growth would be shared between spending and tax cuts so that public spending would always grow at a lower rate than the overall economy. “We always said that David Cameron was just putting a new gloss on the same old Tory policies, and today we have seen that confirmed,” Des Browne, the Chief Secretary to the Treasury, said. “For the first time, the Tories have admitted that they are committed as a matter of policy to reducing the share of national income spent on public services over the course of the economic cycle.”
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Since becoming Tory leader, David Cameron has: