Andrew Grice: Whether it's a tax cut or a tax con, Brown has given Cameron a problem

“Like the banks, the Tories have seen their world turn upside down”
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The Independent Online

Political cross-dressing is back in fashion. After years of raising spending and taxes, Labour suddenly poses as the party of tax cuts. So do the Liberal Democrats, although they were ahead of the economic curve – and Labour. The Conservatives feel dangerously outflanked on two fronts. They are the natural tax-cutters but have got themselves into a bizarre position where they can't say so. Sensing that the election of Barack Obama and the financial crisis may herald a new world order, they pose as the true progressives of British politics.

Voters must feel confused. Indeed, our politicians are trying to confuse them. Labour didn't invent the global downturn but is using it to cover up the mess it has made of the public finances. There is certainly an economic case for tax cuts to stimulate the economy. But it is also politically convenient for Gordon Brown to put on the Tories' tax-cutting clothes to justify even higher borrowing. The public may buy the Tory line that it is all a "tax con"; when they offered tax cuts at the last two elections, people judged they couldn't have their public services cake and eat tax cuts too. Privately, some ministers worry that people might not spend as much of the extra money Mr Brown will put in their pockets as he would wish. In Washington today the Prime Minister will seek economic and political cover for his tax-cutting strategy at a summit of 20 world leaders. He will almost certainly get it, leaving David Cameron looking isolated abroad and at home.

Like the banks, the Tories have seen their world turn upside down. They could not have guessed that Mr Brown would embrace the very "unfunded tax cuts" that Mr Cameron has spent his three years as party leader denouncing, and which now win support around the world – and even from Mervyn King, the Bank of England Governor.

The Tories oppose what ministers call this "new Keynesianism" but haven't said what they would do instead. For now, the Opposition is stuck with the mantle of fiscal rectitude, arguing that the coming tax cuts will fuel an already "irresponsible" borrowing binge. They are right to warn that taxes will have to rise in the medium term, a point Mr Darling conceded when I interviewed him this week. It will be interesting to see how open he will be about the scale of the tax increases when he delivers his pre-Budget report on Monday week.

Desperate for a "tax cut" headline of their own, the Tories rushed out a plan to reduce national insurance payments for companies who take on the jobless. It smacked of panic, and wasn't discussed widely among shadow ministers. Experts questioned the party's claim that the scheme would be "self-financing" from savings on unemployment benefit. If the Government had launched such a scheme, the Tories would have rightly torn it to shreds.

The Opposition's policies receive surprisingly little media scrutiny. It was widely reported this week that a Tory government would freeze council tax bills for two years. This would be funded by savings of £1.5bn in government spending on outside consultants and advertising – a back-of-an-envelope figure that wouldn't materialise in the real world. If Labour had made such a pledge in opposition, it would have been crucified by the media.

The Tories will have to do much better than that if, as I expect, they embark on a hunt for new savings in the hope they can offer funded rather than unfunded tax cuts. A platform designed in good economic times now looks a lot less solid. Two years ago, Mr Cameron argued that GWB (general well-being) mattered as well as GDP (gross domestic product). Last year, the shadow Chancellor George Osborne won plaudits by pledging to raise the threshold for inheritance tax to £1bn. Neither looks too clever as we enter a recession.

Labour plans to contrast "Tory tax cuts" for the rich with Mr Darling's help for low- and middle-income families. In a well-argued speech yesterday, the Universities Secretary John Denham challenged the Tories' promise to use conservative means to secure progressive ends. He said the "Achilles heel" of the Cameron project is that his party is so trapped by its true values and ideology that it cannot turn its words about "fairness" into policy. One example is the Tories' opposition to "active government" – highly relevant after the financial crisis. The Tories accept that "laissez faire is dead" but their policy from the good times is to call for a "post-bureaucratic age". More work is required on many fronts.

Labour doesn't have a monopoly on "fairness". I suspect the Tories will eventually conjure up billions of pounds of savings and "waste" and promise to spend it on dramatic tax cuts for those at the bottom, perhaps by raising tax allowances. Then we will see a battle between the parties to convince the voters they are the fairest of them all.