Andrew Grice: For the first time, the Tories are worried – and with good reason

Inside Politics
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The Independent Online

For David Cameron, the moment of truth has arrived. It was always going to. It is remarkable that it has not happened before.

The Conservative Party is having a wobble. Not about Mr Cameron's leadership. Not really about policy. It is wobbling because it is not used to a united Labour Party turning its guns on the enemy instead of itself – or, more likely, its leader. Nor do the Tories seem prepared for the media spotlight that was bound to fall on them once the general election approached.

I am surprised that the Tories are surprised. Perhaps it tells us something about their inexperience in campaigning. Their strategy, it seems to me, was to glide to victory in May, saying little about what they would do afterwards. Lots of talk about "tough choices" but not much detail of where spending cuts would bite. A bit of vision but not much substance. Then, on taking power, they could say the nation's books were much worse than they thought, announce big spending cuts, put VAT up to 20 per cent and blame it all on Labour's mismanagement. It's an old trick: Tony Blair was still moaning about Labour's inheritance from the Tories after the 2001 election.

The past week has convinced the Tory high command that it needs to rethink its strategy. Not to tear it up, but at least to recalibrate it. The opinion poll gap is narrowing; a safety-first approach may no longer be enough.

The Tories are making mistakes. They suspected a stronger return to growth than the feeble 0.1 per cent seen in the last quarter of 2009. One minute Mr Cameron was calling on Labour to "tear up" its spending plans. The next, he was saying that the Tories would not impose "swingeing" or "particularly extensive" cuts, an admission that doing so could imperil the fragile recovery – as Labour warns. The Tories insist they never planned swingeing cuts this year. But their repeated calls for the public deficit to be tackled certainly gave that impression.

Now they have lowered their sights and are talking about early cuts of about £1bn – a drop in the bucket when the deficit is £178bn. This leaves them with a policy hardly any different to Labour's and raises the hackles of the Tory right, who want the cuts to start yesterday.

It gets worse. Even the £1bn or so was called into question by the respected Institute for Fiscal Studies, which has downgraded its estimates of how much the Tories would save by restricting tax credits from £400m, saying the Treasury's £45m estimate is "more accurate". So either the Tories have a hole in their spending plans or they would have to remove tax credits from households earning more than £31,000 rather than the £50,000 they have announced.

True, it is only one item, but it hardly inspires confidence. Labour would have been shredded by the Tory-dominated media if such a flaw had been exposed while it was in opposition. "It's a shambles," one Tory frontbencher told me.

Labour can hardly believe that its luck has finally turned. At a political strategy session on Tuesday, Lord Mandelson told the Cabinet that the Tories were now at the point of maximum weakness after Mr Cameron's flip-flop on cuts because they now had no policy on this central issue. He told all ministers to go for the Tory jugular. Lord Mandelson also accused his old Corfu foe George Osborne of plagiarising a recent speech of his on going for growth. Privately, senior Tories admit they overdid the "age of austerity" rhetoric and have yet not set out a positive vision of a post-recession economy.

Labour's private polling gave ministers a ray of hope. It concedes that Labour is doing badly in the south, where a desire to get rid of Gordon Brown will help the Tories and may well harm the Liberal Democrats. But the Tories are not doing well enough in the north, where they need to capture a clutch of marginals, particularly in the north west, to win a majority. The Tory cuts message is playing badly there. So, Labour strategists believe, the Midlands could decide it. Labour is honing its message for the region's towns and cities that have no financial or service industries and have lost manufacturing jobs. Some ministers admit Labour needs a new language for the DE bottom social group to show how they can climb the ladder. For "austerity", substitute "aspiration".

Yet Labour faces the same dilemma as the Tories: how to sound optimistic while also talking about cuts There are few easy or popular cuts. Mr Cameron is right when he says that government must learn to "do more with less".

Mr Brown accepts the need to spell out some of the cuts that will be needed once the risk of a slide back into recession has passed. Yet some Cabinet ministers have yet to get the message that they can't have a long shopping list of pet projects in Labour's manifesto unless they fund them from cuts elsewhere.

Again, the two main parties have more in common than they admit. Labour folk sense the Tories have let them back into the game. Yet Mr Cameron remains their most formidable opponent since Margaret Thatcher. He has risen to the challenge before. He now needs to do so again.