Andrew Grice: Tories must adapt policies to the times

Inside Politics
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It seemed a good idea at the time. But the Conservative Party's pledge to cut inheritance tax looks like a bad one in the middle of a recession.

Some Tories wonder whether David Cameron missed a trick this week. He was offered a golden opportunity to drop the promise when Kenneth Clarke, the shadow Business Secretary, downgraded it to an "aspiration". After all, Mr Cameron is hinting he may have to raise taxes as prime minister to fill the massive "black hole" left by Labour. Yet the word came down from Tory high command: raising the inheritance tax threshold to £1m will be in the party's election manifesto. The only tweak was that it would be done during a five-year term, not immediately.

Mr Clarke, bemused by what he called the "hoo-ha" and "daft mayhem" provoked by his BBC interview, happily put his name to the official policy line, whatever his private misgivings.

Inheritance tax arouses great Tory passions. I am told that George Osborne, the shadow Chancellor, came under strong pressure to announce the pledge to reduce it from well-connected and influential Tory donors, who were ravenously hungry for tax cuts, before he did so at the party's 2007 annual conference.

Intriguingly, Mr Cameron, who went into the conference under fire from critics in his party, is said to have been cautious about making the promise, as he was adamantly opposed to offering upfront tax cuts. He soon forgot his doubts. The shadow Chancellor's announcement took the conference by storm and changed the terms of political trade. A Tory bounce in the opinion polls silenced the internal sniping at Mr Cameron and caused panic in Labour.

At the time, Gordon Brown was seriously considering calling a general election. He forced Alistair Darling, the Chancellor, to mirror the Tory pledge in his pre-Budget report (PBR). He doubled the inheritance tax threshold for married couples to £600,000. Asked why that still went ahead when Mr Brown called off the election, one Treasury insider told me: "The PBR was already at the printers. It wasn't a PBR. It was an election manifesto."

So Labour leaders can't crow too much and may privately regret their act of larceny. Whoever forms the next government will have to cut public spending and raise taxes. Even if, as they maintain, the inheritance tax cut is "funded" from a charge on foreign residents with non-domicile status, such giveaways cannot be justified when the nation's finances are in dire straits. Mr Clarke cast further doubt on the Tories' sums when he admitted the party did not know how many non-domiciles there would be because of the economic crisis.

Tories say the daily 9.15am strategy meetings of Mr Cameron's inner circle in his Commons office have been more "jolly" since Mr Clarke joined them on his return to the Shadow Cabinet in January. More seriously, he brought invaluable experience to the relatively inexperienced Team Cameron. "Ken has great qualities," said one party source. "The price you pay is that occasionally he goes off script. It's like Boris [Johnson]." The Tories hope voters will warm to personalities like Mr Clarke and the London Mayor, and they worry less about party "splits" than the media.

Mr Cameron got lucky this week because the spotlight moved on from his party's stance on death duties to the Government's economic woes.

He should send a thank-you note to Mervyn King, the Bank of England Governor and a fellow Aston Villa supporter, who declared there was no scope for another big fiscal stimulus in next month's Budget.

The Tories should learn lessons from their inheritance tax wobble. It showed how quickly their policies can "become the story" – and that they need to have clear answers ready. As the election nears, they won't be able to muddle through. A platform built in good economic times needs major reconstruction. They have not resolved the dilemma between saying very little and hoping to cruise to victory on an anti-Labour protest, and being more open in setting out their stall to fight a more positive campaign.

One Tory insider said: "We have had a salutary warning. We suddenly looked fragile. We've got to be disciplined but also better at handling it when things go wrong. Policy decisions have been put off and need to be resolved, so we have a road-tested programme that will withstand the heat of an election."

Mr Cameron remains the best thing that has happened to the Tories for many years. He has done sterling work in changing his party's image. But the voters like him more than they like his party. People still suspect it is a "party for the rich".

Ironically, one of the measures he took to combat this was to recall Mr Clarke, part of an effort to broaden the Cameron-Osborne duopoly after Mr Osborne's unhappy "yachtgate" holiday in Corfu drew attention to their privileged backgrounds.

As ordinary voters feel the pinch in a recession and bankers become public enemy number one, the need to show that the Tories are more than a "party for the rich" is even more acute. Wisely, Mr Cameron promises to try to reverse Labour's plan to increase national insurance contributions, which will hit the low-paid because it affects all employees, and will not rescind Labour's proposed 45p rate of tax on incomes of more than £150,000 – a Brown trap if ever there was one.

The Tory leader's decision on 45p has caused more consternation in his party, where many still ache for tax cuts even though the cupboard is bare, and dream that huge public spending cuts can be gathered like low-hanging fruit on day one of a Cameron government.

And yet Mr Cameron remains committed to a £2bn inheritance tax cut, allowing Labour to accuse the Tories of handing over an average of £200,000 to 3,000 millionaires. Bad politics and bad economics; they usually go together.

Perhaps Mr Cameron should trust Mr Clarke's instincts the next time he provokes a "hoo-ha".