Steve Richards: The party that wins the battle of ideas will win the election

The economic policies of the two main parties are changing so quickly that it is difficult to keep up. Earlier this year Gordon Brown fretted about a tax cut to compensate those on low pay who had lost out from the abolition of the 10p rate: We can't afford it! We are borrowing too much already! My fiscal rules! Now he plans to announce more tax cuts on top of that one.

The Tories will beat him to it. Soon after David Cameron became leader he and his shadow chancellor, George Osborne made a major strategic decision. There was no point offering tax cuts to be paid for out of reductions in expenditure. The Conservatives had tried it in the previous two elections and lost. Instead they would do the same as New Labour in the mid–1990s and make great play out of being counter–intuitive in not cutting taxes and sticking to the Government's spending plans. Today Mr Cameron announces yet another tax cut to be paid for out of savings in spending.

Related articles

• Labour's tax cut gamble
• Brown pledges to revive economy with tax cuts
• Pre-Budget Report 'leaking like a sieve'
• VAT cut brings a Christmas sale for all – but will it work?
• Bruce Anderson: Brown is not after economic recovery, he's after votes
• Leading article: Putting money in the pockets of the consumer makes sense
• Government debt to rise to highest level since war
• Tory back bench disagrees with Cameron over tax cuts
• Stores promise to pass on reduction to shoppers
• Leading article: The Conservatives are still searching for coherence
• Tories axe pledge over Labour spending
• Steve Richards: Osborne is not to be underestimated
• Simon Carr: Mr Keynes' funny farm... a bullock outfoxes the fox
• Cameron predicts £1,500 'tax bombshell'
• Osborne to reveal Tory tax U-turn
• Bruce Anderson: To silence his Tory critics, Osborne must do more. Now
• PM calls for world-wide tax cuts
• Tories offer 'tax holiday' for firms
• Leading article: Tax cuts bounce back on to the political agenda
• Jeremy Warner: It's tough reflating the economy when there's no money
• Tories plan tax breaks for business to get people back to work
• Cameron promises tax cuts to halve job losses
• Brown pledges to help struggling families
• Labour and Tories in 'tax cuts war'

Policies and initiatives descend from grey skies on almost a daily basis. These latest are another short-sighted Machiavellian skirmish. The thinking on each side goes something along these lines. Labour: "If we announce tax cuts we can outmanoeuvre the Tories who will be the only party not proposing to make them". Tories: "Help! Labour is going to announce tax cuts. We better get in there first. It will also please our supporters and columnists who are screaming for us to cut taxes." Only the Liberal Democrats can claim genuinely to be ahead of the curve having proposed tax cuts as a means of boosting the economy some time ago, although how they would pay for them remains vague.

There are precarious arguments for tax cuts when the economy slumps, but they have not been advanced with any coherence or consistency from Labour or the Conservatives. If the Government cuts taxes by borrowing even more, I doubt voters will feel particularly grateful. They know the money will have to be paid back, and at a cost.

In his Mais lecture two weeks ago the Chancellor Alistair Darling made clear that in the "medium term" the Government wants to return to the days of prudent stewardship. That means Labour will put up taxes when the election is safely out of the way.

When the Conservatives claim they have suddenly discovered another tax cut to be paid for out of reductions in public expenditure voters will be at least as sceptical. If it was that easy to find immediate painless savings the Government would introduce them tomorrow.

I doubt if today's tax cutting proposal from the Conservatives will get them very far because they have failed to outline any fresh and coherent thinking in relation to this crisis. One of the reasons why Mr Brown looks a little happier is that he senses, probably for the first time in his political career, a deep underlying shift towards progressive politics.

Mr Brown has always believed that government can be a benevolent force, but has never felt confident about making the case. Now under the protective clothing of the economic crisis and Barak Obama's victory in the US presidential election, he dares to frame a wider argument.

Here he is in an article at the weekend: "The American voters picked a progressive president, inspiring the world with their belief that in difficult times, people need their government to ensure more – not less – help and security is available for families and for businesses".

That sentence is a classic Brownian construction. With extreme caution he makes the case for active government via the newly deified president–elect in the same way that he put the argument for a tax increase in 2003, by quoting repeatedly the senior banker, Derek Wanless: "Wanless has concluded that an increase in national insurance contribution is the fairest and most efficient way to raise the necessary investment in the NHS..." Now it is President Obama who vindicates government activity in the United Kingdom, and who is against the smaller state advocated by the Conservatives.

In the same article, highly significant in the way Mr Brown plans to take the case against the Conservatives in the coming months, he writes that we are witnessing the collapse of a "failed laissez faire dogma" and that "while the privileged can look after themselves in times like these the rest of us need to know we're not on our own".

As someone who has been at the heart of economic policy for the previous ten years Mr Brown can be accused of chutzpah and astonishing opportunism, given that Britain was in considerable economic difficulty before the global financial crash. Nonetheless this is his authentic voice. He has argued for some time that there needs to be a multilateral approach to regulating markets in a global economy and he has been searching for a language that makes a belief in active government reassuring rather than a threat. This is where he stands in the battle of ideas.

Mr Cameron has not made clear where he stands. His approach is the reverse of his early years as leader when he outlined a big picture without the policy detail. Now we are getting lots of policy initiatives without the bigger picture. This is not surprising as Mr Cameron's original purpose was to adapt Thatcherism to what seemed, until recently, like a fairly benevolent era.

Mr Cameron supports light regulation, is opposed to the nationalisation of financial institutions, still believes in the overriding efficacy of the markets against the state and yet, following the Blairite rule book from the mid 1990s, he has committed the Tories to Labour's current spending plans, has admitted that nationalisation of banks might have to be an option and accepts that taxes might have to rise to sort out the current government's mess. The recent opinion polls suggest that he is getting away with this incoherence so far, at least in England. He will not get away withit for much longer.

In the autumn of 1991, during a Commons debate on the economy the former Chancellor Nigel Lawson made am important prophetic insight: "Parties that win the battle of ideas win elections. The Conservatives are still winning that battle now and will win the next election". In spite of polls suggesting that the then-government was deeply unpopular Mr Lawson detected no underlying shift leftwards. A few months later, amidst considerable economic gloom, the Conservative government won a fourth term.

Now in opposition and facing an unpopular government Mr Cameron and his senior colleagues need to do some deep thinking, well beyond decisions about political choreography and media presentation, in order to decide where this epoch changing crisis leaves their party, whether it changes their views on the relationship between the state and the market, and if so in what ways.

This is a time for some genuinely pivotal decision making followed by clarity in some big challenging speeches. It is getting very late in the electoral cycle to do this. But if Mr Cameron does not do so he will lose the battle of ideas and risks defeat at the next election however many taxes he promises to cut.

More from Steve Richards