John Rentoul: You're ahead, David, but going where?

The Tory leader may mock the environmental steps announced in this week's Budget, but he is running low on green cred himself
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The Independent Online

"This is where I earn my salary," David Cameron has told his advisers as he prepares for the hardest engagement of the Leader of the Opposition's calendar: the reply to the Budget speech on Wednesday. Unlike most responses to government statements, where the Opposition sees a copy in advance, the Budget speech is a closely guarded secret until the moment the Chancellor stands up.

When Gordon Brown was Chancellor, of course, the speech was often secret even from his own Prime Minister. Can you imagine Brown adopting a mock-pleading tone with Alistair Darling, as Blair did with him? "Give us a hint, Alistair."

No, neither can I. Darling is more likely to share the shudder of realisation felt by Harriet Harman when she spoke to Labour conference as Secretary of State for Social Security and discovered that Brown had rewritten the words on her autocue.

This week Darling needs to look out, as he turns the pages of his speech, for unfamiliar paragraphs typed in capital letters.

But it is Cameron who really needs to watch out for surprises. Last year, Brown tried to throw him off balance by announcing a 2p-in-the-pound cut in the basic rate of income tax (which comes into effect next month) in the antepenultimate sentence of his speech. Cameron didn't realise immediately that the cut was paid for by rises elsewhere. His response was awkward, but the ploy backfired on Brown anyway. By the end of the day the Tory line, "a tax con not a tax cut", was running strongly.

This year, both Cameron and Darling have less room for manoeuvre. Since the last Budget, public borrowing has risen further. Even more than last year, tax cuts in one area have to be matched by increases elsewhere.

Already, Darling has run into difficulty with the increase in Capital Gains Tax needed to pay for the cut in Inheritance Tax that he was forced to make during the non-election campaign of the autumn.

Bizarrely, he managed to include in the package of CGT increases a cut in CGT on second homes. (So now ministers are thinking about bureaucratic ways of making it harder to buy them.)

Cameron's space has been constricted too, since George Osborne, his Shadow Chancellor, made the nature of their self-denying ordinance explicit in September. That was when he committed the Conservatives to Labour's spending totals for the next three years. A surprisingly large number of Tories neither like nor understand this policy. So far, their response has been to jump into the river in Egypt – they are in denial. The Daily Mail reported one official, for instance, saying that, as the election is likely to be in 2010, the "Labour" policy would apply for only a few months.

The Tories who believe this are possibly the same people who think that, when Cameron says he will "not let the matter rest" if the Lisbon Treaty is ratified, he means he will not let the matter rest. Don't they realise that the "not" was a mis-typed "now" missed by the spell-checker in William Hague's office?

No, I understand that, when Brown and Darling roll forward their spending plans beyond 2011, Cameron and Osborne will roll forward with them.

The only proviso is that the new spending plans continue to "share the proceeds of growth", a Tory catchphrase that means the rate of increase in public spending must be lower than the forecast growth of the economy as a whole. As it is bound to be.

So, when Cameron rises to respond to the Budget on Wednesday, it is only on details that he can say that the Conservatives would do things differently. The radical tax cutters on the benches behind him are bound to be disappointed.

Some of them were excited when, using the tortoise and hare analogy, it was suggested recently that Osborne was sympathetic to the impatience of the "hares". There were only two things wrong with that analysis: (a) Osborne is the architect of the so-called tortoise strategy; and (b) in the fable, the tortoise won.

Indeed, Osborne began a speech last month on "the principles of taxation" by invoking his predecessor, Iain Macleod. Saying that he hoped to serve as Chancellor longer than Macleod, who died after only a month in office in 1970, he quoted the great man's words to the Tories in opposition: "It is my solemn duty to inform you that there will be taxes under a Conservative government."

What he did not add is that those taxes would be just as high as under a Labour government – for most of a parliamentary term at least, and longer if there is a hung parliament.

If there is no scope for Darling to cut the overall level of taxes and no scope for Cameron to demand that the overall level of taxes be cut, what precisely will the parties be arguing about on Wednesday?

To know the answer to that, you do not need a peek at the draft Budget speech. Its main feature is likely to be crowd-pleasing tax cuts paid for by commentator-pleasing green taxes; and the main feature of Cameron's response is likely to be to deride the cuts as a con and the green taxes as feeble.

This is Cameron's real test. By his response on green taxes he could earn something more important than his salary, namely the right to set the pace in politics again.

For at least six months now, Cameron has failed to say anything notably green. Environmentalism was central to his repositioning of the Tory brand in the early phase of his leadership. But those close to him say that he felt that the idea that he was too interested in photo opportunities was beginning to damage him. And he was stung by criticism from business leaders such as Martin Broughton, the CBI president, last summer.

There is no doubt that green politics is a dangerous balancing act. Any taxes sharp enough to change people's behaviour create winners and losers. But there are two reasons why Cameron needs to take the risk of demanding stronger green incentives than the Government.

One is that the gains of Tory rebranding will slip back if the green edge is lost. The other is that the public mood is ready for leadership on green issues.

We saw that with plastic bags. Even when the Daily Mail ran its campaign against carrier bags, and the Prime Minister came out – the next day – in support, saying "the time to act is now", he promised no action. Cameron could have pre-empted that show of followership long ago. Now, when even The Sun is against a third runway at Heathrow, the mood is right for the green leadership that Cameron showed in his early months.

I'm told that Cameron has mused recently on the lesson of the opinion polls roller-coaster of the past 12 months, that "you can do things when you're ahead", but when you fall behind everything goes wrong. Well, he is ahead now. What is he going to do with it?