Steve Richards: A new era signals that the battle to win the next election is already underway

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The Independent Online

The last election was held only last May, but already it seems like a distant historic event. The outlines of the next one are visible and suddenly the future seems to matter more. Michael Howard retires today. Tony Blair will be gone at some point before the next election. Almost certainly, Gordon Brown will be Prime Minister. Unlike previous pre-budget reports yesterday's exchanges had little to reveal about economic policy, but in political terms they were highly charged and revelatory.

After an abnormally long break, normal party politics is resuming. Since the election Mr Howard has been no more than a caretaker leader. The vacuum is filled formally when David Cameron is elected today as the Conservatives' new leader, but the battle to win the next election began yesterday as Gordon Brown outlined his priorities for the next few years. In response, the shadow Chancellor, George Osborne, gave the clearest indication yet as to how he and Mr Cameron will take on the Government, or to be more precise, a Brown-led government.

Here is my own golden rule: when the economy is sluggish, Gordon Brown is upbeat; as the economy soars, he adopts a gloomy demeanour. In the early years, the Chancellor paid a downbeat homage to Prudence. This was during a heady phase when growth was spectacularly high. He played the role of Scrooge at a time when he was overwhelmed with gifts. In contrast, Mr Brown could not have been happier yesterday as some of the gifts were taken away.

The economy is growing at a more sluggish pace than he had anticipated. This will have some serious consequences and the Chancellor will face some tough choices, to revive a phrase he and Tony Blair deployed during the first term when the economy was performing better and the options were not so challenging as they assumed or pretended to assume at the time. Indeed there is a case to be made that Mr Brown made hard choices in the first term when there was no need and failed to make them when the economy slowed down.

Even so, the current context is nowhere near as bad as Mr Brown's political opponents suggest or hope. For nearly a decade the economy performed beyond the expectations of most forecasters. Now it is performing less well. This is nothing compared with economic crises of recent decades when inflation soared and house prices slumped or when unemployment reached unprecedented heights during long recessions. He is battling with the consequences of slower growth rather than no growth at all.

If this is as bad as it gets the Chancellor has cause for optimism. Most of his recent predecessors in the Treasury would have given quite a lot to be in the midst of a similar economic storm. Even in the doldrums, Mr Brown was able yesterday to cite a smooth fall in the unsustainable rate of house price increases, low inflation and high employment. With some confidence he looked towards the long term, a phrase that recurred in his speech several times. This is no great surprise. On several fronts, politically and economically, Mr Brown has the long term on his mind.

The most significant sections of his speech related therefore to his onslaught on the Conservative Party. At one point he explicitly targeted David Cameron's soundbite that the Conservatives would spend the fruits of growth on tax cuts and increases in public spending. Some commentators have suggested this is a meaningless slogan. They are wrong. It is worse than that. The words are a reiteration of Conservative vote-losing "tax and spend" policies at the past two elections, suggesting that it is both possible and desirable, whatever the economic context, to cut taxes and increase investment in public services. Somehow or other Mr Brown has managed to make an even more precise interpretation of Mr Cameron's slogan. He claimed that it would mean £12bn of spending cuts this year and £17bn next year, undermining public services and infrastructure.

It is not clear how he acquired the figures, but what is evident is that he plans to resurrect the dividing lines over the economy that have served Labour well in the recent past.

He will fight the next election arguing once more for sustained investment in a stable economy against cuts proposed by the Conservatives. But he will do so in different political circumstances. The next public spending round will be tough even if economic growth is higher over the next few years. Although Mr Brown will protect spending on schools and hospitals he will tell other departments to find sweeping savings. There will be some brutal negotiations with other departments over how they spend their money and Mr Brown will make it plain how brutal he plans to be.

This is where the Tories show signs of falling into an early trap under their new leadership. Astutely, Mr Cameron and Mr Osborne make more positive noises about the departing Tony Blair and focus their gunfire on the Prime Minister they will be facing at the next election. But already they are misfiring. Yesterday Mr Osborne repeated several times that the Chancellor is a roadblock to reform and a reckless public spender, one that is holding Britain back. Expect to hear these claims many times over the next few months.

The problem with this analysis is that when Mr Brown becomes Prime Minister he will have completed a rigorously tough public-spending round in which limited generosity will be targetted at health and education. I bet the Conservatives will not oppose the extra spending on schools and hospitals and will probably fail to support some of the cuts that are almost certainly to be imposed on other departments. Until the Conservatives' sums add up they will not be able to attack Mr Brown credibly.

Meanwhile Mr Brown has a bucket-load of reforms he plans to implement as Prime Minister. The Conservatives might oppose some of these, but to suggest that he is "anti-reform" will make them sound increasingly absurd. As Mr Blair prepares to take his bow, the Conservatives - or some of them - have finally worked out a strategy to deal with him. They cause him trouble by offering their support. But they have not yet got an effective strategy for attacking Mr Brown. If Mr Brown sounded too cheerful yesterday, Mr Osborne was even more inappropriately mournful. An early shadow Chancellor, Francis Maude, fell into the trap of predicting a "downturn made in Downing Street". Mr Osborne made Mr Maude seem like a reckless optimist. He rattled out figures that suggested the UK was doomed. What will he say if the economy starts to look up?

Equally significant for the Tories, what will he say if the economy does slide into his abyss? Where will the Conservatives' much-vaunted tax cuts and spending increases come from in those bleak circumstances?

After decades of under-investment, the priority of the main parties must be sustained spending to improve services and a still-stuttering infrastructure. The best line of attack for Tories is to argue that the Government is spending inefficiently rather than to argue for cuts. Above all else therefore, Mr Cameron needs a new approach to tax-and-spend or the Conservatives will fail to make headway. The Chancellor's nightmare scenario is that growth continues to decline and the Tories agree sensible economic policies. The chances of both happening are unlikely.

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