Michael Brown: Cameron must ditch Osborne as Tory shadow chancellor

David Cameron and George Osborne have ten days to sort out the Tory Party's policy on the economy before the pre-Budget report is presented to Parliament by Alastair Darling on Monday week. For months I have been railing at the Tories' lack of an economic policy. While Mr Cameron claimed at his party conference to be "a man with a plan", I'm blowed if I know what it is.

With the Bank of England predicting a contraction of the economy by 2 per cent next year, the mantra of "sharing the proceeds of economic growth between tax cuts and higher public expenditure" is now utterly unsustainable. And the commitment to match Labour's spending plans should be publicly abandoned. The only way "affordable" tax cuts could be made will be by vicious, painful spending cuts – cuts that will be necessary and less painful in the long run.

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All three political parties seem to think there is a pain-free way of getting us out of recession. But it was, ironically, the Labour prime minister Jim Callaghan who said: "We used to think you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step."

In the event of an election victory, it is clear that a Tory government will inherit and preside over a recession every bit as bad as the early 1980s – and possibly worse. Now that the Government and Bank of England have finally admitted what, to the rest of us, has been blindingly obvious for six months – namely that we are already in a deep recession – the only questions are the measures necessary to get us back to growth.

Labour will do, as Gordon Brown has hinted – notwithstanding Callaghan's wise advice – what Labour governments always do: spend and borrow. And when even a Labour government is contemplating tax cuts, then we know the recession will be worse than ever. But at least the Government's response to the current crisis has a certain warped logic.

Notwithstanding the closing of the gap in the opinion polls, Labour marginal seat MPs are facing electoral annihilation at the next general election. So the prospect of short-term tax cuts and resorting to the national credit card has a certain – albeit irresponsible – electoral appeal. But tax cuts presented on the basis that they should be spent, rather than saved, would be the height of folly.

Thankfully, it looks as though most people, recognising the admission from the Employment Minister, Tony McNulty, that such cuts will be grabbed back smartly, will be cautious before heading to the New Year sales for another gigantic spending spree. So if the objective is to get voters spending in the high street, such tax cuts will probably fail anyway.

But when Mr Osborne rises to respond to the pre-Budget report he will need to make clear where the Tory Party stands. And he must recognise that the public will think the greater of him if he publicly states that the circle of borrowing, spending and tax cuts cannot be squared without cuts to the public sector. This will be the moment when the voters, wrestling with their own nasty personal household spending cuts, might actually be interested in what a "nasty" party has to offer.

Until yesterday, in addition to his duties as shadow Chancellor, Mr Osborne was bogged down with running the Conservatives' overall election strategy – a task which should have been the responsibility of the invisible party chairman, Caroline Spelman. And although he has now relinquished this role, his standing as shadow Chancellor among Tory grassroots has taken a serious tumble in the wake of the Corfu caperings. Surely it would make much more sense to confirm Mr Osborne as the party chairman, where his undoubted talents of election planning and strategy could be more appropriately employed.

Mr Cameron must recognise that he faces a wholly changed political climate to that on which he based his optimistic leadership pitch three years ago. Such a recognition means accepting that a front-bench of pretty, young – inexperienced – faces in the top economic portfolios is not necessarily the right image to present in the forthcoming era of austerity.

If the Tories want to be taken more seriously on their economic plans, how about the return of the grizzled features of John Redwood? At least we'd know the economy would be "safe" in Tory hands. Prudence, currently unloved by most politicians, would certainly approve.

mrbrown@talktalk.net