Steve Richards: Will Cameron be tempted to cut with too much severity?

He will be attacked as ‘weak’ if he acts pragmatically and sensibly
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The Independent Online

So far David Cameron has won the pivotal battle over "tax and spend", a significant achievement as this is the policy area which decides general elections. Framing the debate as one between honesty and dishonesty, he has pointed to the obvious need for spending cuts and acquires fresh credibility for his candour. In comparison, Gordon Brown is placed on the defensive by his crude attempt to portray the choice as one between Tory cuts and Labour growth.

But while Cameron has outmanoeuvred Brown in these early skirmishes, he has yet to win the war over tax and spend. In returning the Conservatives to their traditional comfort zone of big public spending cuts, the main theme of the party's election campaigns in 2001 and 2005, Cameron and George Osborne risk making the frail economy even more vulnerable. Already the Conservatives were virtually alone in the western world when they proposed spending cuts at the height of the recession. Now they look to what Cameron calls the "daunting" task ahead and make much bigger spending cuts their defining theme once more.

The Chancellor, Alistair Darling, suggests Cameron and Osborne are wallowing in their new crusade. This is going a little too far. But there is no doubt that the economic crisis has given the duo the chance to realign spending policies with their own small state instincts and that of their activists. In his early years, Cameron talked of the need for a smaller state and yet for reasons of electoral expediency pretended to support Labour's spending levels. He seems more at ease moving on to the terrain of cuts.

In doing so, he leaps over a range of economists on the right as well as the left who fear that big spending cuts imposed too quickly will damage the economy. There is not a single economist who does not believe that substantial cuts are required, but there is an important debate about timing and scale. The debate has been obscured by Brown's clumsy "growth versus cuts" fixation, but Peter Mandelson put the argument with more subtlety in a recent speech to political journalists when he said: "Of course there will be pressures on spending after 2011 and constraints for the next decade. But this depends on our success in preventing short-run unemployment turning into long-term joblessness, and on our investments in those sources of future employment.

"This is why maintaining spending and investment in our underlying strengths throughout the recession is vital. The Conservatives are focusing on the exit strategy of current policies before these have had the chance to work."

That is the danger for the Conservatives, and indeed for the British economy. As Germany contemplates a second fiscal stimulus and the US debates whether President Obama was bold enough in his original economic package, Cameron and Osborne plan an emergency "cuts" budget at a point when Britain might still be in recession or only just precariously creeping out of it.

The question most commonly asked of Cameron is whether he is tough enough to wield the spending axe. The much more pertinent question is whether he is bold enough to resist the pressure to cut with such a severity that he destroys the fragile economy. There are four reasons why his boldness will be tested in this way.

First, away from the economic pages there is a consensus in the British media that unprecedented spending cuts are required and the sooner the better. This view is held especially strongly in Conservative supporting newspapers and on Tory blogs. Cameron will not get slaughtered in the British media if he reduces spending by massive levels, at least until the consequences are felt. He will be attacked as "weak" if he acts more pragmatically and sensibly.

Second, his own instincts and those of his advisers move him towards the more apocalyptic option. The three former Tory chancellors have been a significant influence during the economic crisis. Messrs Howe, Lamont and Clarke are all great fans of the 1981 budget, the axe-wielding one that had so called Tory wets sweating with alarm. It is no surprise that Howe is a fan. He delivered it. The trio has great qualities and insights. Cameron is right to consult them. But they are wrong in applying the same lessons again now. Nonetheless, out of ideological conviction they regard it as something of a model, as will much of the new Conservative parliamentary party.

Third, Cameron has noted rightly that governments are never more powerful than during their first 18 months. Labour could have done much more after 1997. He is determined to make the most of the political capital he will have deservedly acquired if he wins. But that means he will be keen to make all the unpopular spending moves as early as possible even if the economy is still desperately weak, which it will be next summer.

Fourth, Cameron has pointed out to close aides that unpopular administrations have won a second term if they can prove they are moving towards a balanced budget. He is known to cite Thatcher in 1983 and Clinton in 1996 as examples. If he really wants to be able to hail a balanced budget within two or three years, the cuts will be much bigger than many anticipate.

If they proceed on such a basis, I am not sure it will work even in terms of achieving short-term cuts. The state would pay a fortune in redundancies and then have to meet the bills of higher unemployment. If the actions prolong the recession, the costs will be greater still. As Vince Cable has argued, it is the recession that is the biggest drain on resources and returning to growth is the key, a reason why the Liberal Democrats supported the principle of a fiscal stimulus even if they opposed the way the Government chose to stimulate.

So far I write about the dangers of deep cuts if the Conservatives were returned to power. But there are also risks for Cameron in the tax-and-spend debate during the pre-election period. They were highlighted in the aftermath of his win in the Norwich by-election. An army of columnists and leader writers, most sympathetic, argued that while the victory was a triumph for his leadership – which it unquestionably was – Cameron must do more to spell out where he would cut spending.

Eager to oblige, Cameron gave a BBC interview on Sunday in which he enthused about road pricing while ruling out co-payments on the NHS. I was delighted to hear him put the case for road pricing and I support co-payments for the NHS, not as an alternative to the current levels of funding but as an addition. We will need them as the elderly live longer and expensive medical technology gives more costly options. But Cameron's more modest comments provoked a tirade of abuse in normally supportive newspapers, accusing him of penalising the middle classes.

Cameron is discovering that newspapers are fickle in relation to public spending, hating it in theory and yet protesting noisily about any specific cuts. Yet if he refuses to specify how he plans to reduce spending his claims of honesty and credibility are undermined.

He has a pre-election dilemma, but it is tiny compared with the problems that await him in power if he wrecks the economy by succumbing to the hunger for immediate, massive, but conveniently imprecise spending cuts.