Tory economic strategy in tatters

By Anthony Painter

Today’s announcement that the Tories are to reverse half of the national insurance increase planned for April 2011 marks a key moment in this election campaign. It will either be seen as a stroke of genius from George Osborne or a monumental strategic error. There is a very strong case for arguing that it will be the latter.

For what he has done this morning is to throw the entire Tory economic strategy under the bus. It is reminiscent of the Republicans – having built their strategy on experience – appointing a woefully inexperienced running mate for John McCain: Sarah Palin. Their entire economic argument has been to focus on the deficit and national debt and assert (no more than that) that they would go “further and faster” than Labour in tackling it. Today’s £6billion proposed tax cut rips apart that claim. As things stand, both Labour and the Liberal Democrats have a more credible approach to tackling the debt. The election discussion has just changed.

Of course, the Tories claim that they have properly identified public spending cuts to fund the proposed national insurance cut. I don’t doubt the authority and credibility of the Sir Peter Gershon and Dr Martin Read’s analysis that has identified £12billion of potential savings that can be made without damaging frontline public services. Great. The problem, though, is two-fold. These savings are available to whoever is in office and there is still a yawning deficit – and a gap of £26billion according to the IFS of tax increases and fiscal savings still to be identified. So why on earth would the priority be tax cuts to reverse the debt-closing impact of any efficiency savings?

The fiscal impact is important but the deeper point is strategic. George Osborne has form when it comes to placing tactics ahead of strategy. His decision to prioritise raising the Inheritance Tax threshold was a good tactical manouevre in October 2007 and may have contributed to a short term Tory popularity boost which staved off a general election that they could well have lost. Strategically, it made much less sense benefiting as did such a small number of (wealthy) people – 97% of the population get nothing and it gives £200,000 to the wealthiest 3,000 estates, and that is the argument that has gained greater force over time.

Now he’s done it again. Any short term boost he’ll get from promising a tax break will quickly unravel. There may not even be any tactical advantage at all to be had from this. My guess is that Channel 4’s Ask the Chancellors debate tonight will be an immediate hammer blow to the Shadow Chancellor’s and, by extension, the Tories’ credibility. We’ll see (and I’ll be tweeting and blogging live this evening from the event) but it seems amazing that this counter-strategy tactic has even been countenanced.

Are the Tories rattled? You bet they are. And today they’ve just made it far, far worse for themselves whatever the immediate impact.

Post script: Left Foot Forward have done some numbers on this showing a tax shortfall of £3billion in the Tories’ plans.

This post was also published on Anthony’s blog.