POLITICS

Abandoning the pledge to cut taxes will make a tax-cut policy more plausible

BRUCE ANDERSON

Though Mr Hague is in favour of hunt- ing with hounds, he is also prepared to shoot the occasional fox. He did so on Tuesday, to the dismay of the Labour party, which had been looking forward to a prolonged pursuit of the tax fox.

To understand why the Tories found themselves locked into a rigid commitment to cut tax irrespective of economic circum- stances, it is necessary to recall the political circumstances in which the pledge was given. In those days — already hard to remember — the Tories were incapable of attracting the media's attention, or at least its favourable attention. No one seemed inter- ested in what Mr Hague had to say. In retro- spect, it is remarkable that he remained so calm when apparently under sentence of ter- minal neglect. But it is hardly surprising that his party did launch one insufficiently thought-out gimmick. Thus the tax pledge, which immediately ran into problems. Almost every serious commentator pointed out the flaws, and so did Michael Portillo.

Since his defeat in 1997, Mr Portillo has undergone an interesting political evolution. This process has been misinterpreted, even by some of his own supporters. There are those who allege that he lost his nerve as well as his seat, while others assume that the whole exercise was just a ploy to secure his status as leader-in-waiting. Neither is true. From the outset, Mr Portillo was determined to use the enforced leisure of seatlessness and opposition to do some new thinking. His basic beliefs have not altered, but he is in search of fresh language in which to articu- late them: 'Fhatcherism for a new century.

There has been one by-product. Mr Por- tillo was always more thoughtful than his earlier public image suggested; he was also more intellectually fastidious. Now, he is even more so: virtually incapable of defend- ing a policy in which he does not believe. A shameless shadow chancellor — lain Macleod, for instance — might have made the tax pledge work. Michael Portillo could not do so.

But he was not alone in his doubts. On Tuesday, there was a sense of relief in Tory circles, as well as the odd chuckle over the party's unwonted tactical cunning in making the announcement on the day of the St Paul's service for Queen Elizabeth. Most Tory MPs are relieved that a potential elec- toral liability has been excised.

There is a further advantage. By scrapping the pledge, the Tories have not only regained tactical flexibility. Paradoxically, they have also made their tax-cutting strategy more plausible. To say that we intend to cut taxes, but only in a responsible manner, lends weight to a policy which would otherwise have invited endless hypothetical questions from every interviewer. No wonder Labour spokesmen sounded vexed.

Tuesday's decision will also make it easier for the Tories to assail Gordon Brown's pub- lic-spending review. It seems curious that a Chancellor with such largesse at his disposal should be unable to stop his critics' mouths with gold, but such is Mr Brown's predica- ment and he has only himself to blame. In political terms, this government's public- spending record falls into two phases: the millions and the billions. The first won plau- dits; the second has bombed.

Early in the Parliament, the government's ability to extract maximum political advan- tage from minuscule spending decisions reduced the Tories to incredulous despair. They had spent 18 years handing out huge sums, but the more they spent, the louder the complaints about the cuts. Then Labour came to power, with ministers trumpeting an extra £10 million here for education or an extra £15 million there for health, and the media relayed all that as if no previous gov- ernment had ever spent anything on educa- tion or health. Never has so much new public spending delivered so little credit as during the Tory years; in their early days, the new ministers achieved an effortless vice versa.

Then they moved on to the billions, and the problems began. This was partly due to Gordon Brown's intellectual dishonesty. The larger the supposed increase he announced, the more certain we could be of three points. The headline total would contain substantial double-counting, it would make no allowance for inflation, and much of it would already have been announced. Mr Brown had assumed that he could get away with all this because the experts would need time to deconstruct his figures and their findings would appear too late for the early news broadcasts. But expert analysis did eventual- ly feed into public scepticism.

There is a further problem. The average voter understands millions, but not billions. I wonder what proportion of voters actually know how many noughts there are in a bil- lion? Politicians may have made a mistake when they finally gave up the thousand mil- lion, which is self-explanatory, and Ameri- canised their financial rhetoric.

But that is not the only credibility gap. Every time Mr Brown announces an extra £20 billion for health, transport or education, people look around them and wonder where the money is going. They then tend to con- clude that the billions are either phantom or being wasted. Many voters have now devel- oped a decoding mechanism for Treasury statements. Millions mean something real; billions, that a minister is telling lies.

This may give the Tories a chance to nulli- fy one of Labour's principal assets. In previ- ous elections, those worried about the public services tended to vote Labour: those more concerned about their tax bills, Tory. If that were to persist, the Tories would be in trou- ble, because the relative weighting of tax versus spending has moved in spending's favour. But Mr Brown's bogus billions will damage Labour; so may a change in the intellectual climate.

In the early months of this Parliament, some ministers were incautious enough to state the obvious: that the social-security budget ought to be cut, and that in both health and education, the existing arrange- ments were often defective. There was no point in simply pouring new money into flawed systems; the quality of public spend- ing mattered more than the quantity. As ministers have proved incapable of tackling those problems, they no longer talk about them, so the Tories should take over. Labour will prevaricate about what they are spending and then waste the money, Mr Hague should say; we will tell the truth and ensure that the cash is spent effectively.

Not that the Tories should give up on tax cuts, where the intellectual arguments are stronger than ever. It is still as true as it was in the Eighties that, within reason, lower rates yield higher revenues; tax cuts promote growth. It is also true that we are benefiting from tax competition with Europe, and could benefit more if our tax levels were cut further.

On tax, the Tories' objective should be Fabian Thatcherism. Circumstances permit- ting, they should try to ensure that year on year, the state . should own less of the nation's wealth and spend less of its income. Over time, such fiscal gradualism would have a dramatic effect on economic perfor- mance, without preventing the state from delivering good public services.