These arguments over tax and spend are silly - and highly significant

These policies provide a pivotal indication of competence and readiness for government
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The Independent Online

The raging election debate over the main parties' tax and spending plans is comically absurd and, at the same time, overwhelmingly significant.

The raging election debate over the main parties' tax and spending plans is comically absurd and, at the same time, overwhelmingly significant.

Seemingly silly figures whirl around the campaign. There is a £35bn spending gap here and £4bn of tax cuts there. The Conservatives set aside £8bn to pay back debt. Ministers remind us of the many billions they have already repaid. I am reminded of the line in a Woody Allen film: "Don't ask me to explain the rise of the Nazis. I don't know how a can opener works".

For non-specialists, the figures are vast to the point of incomprehensibility. Margaret Thatcher's genius was to make this debate more accessible and anecdotal even if the implications of her fierce anecdotes made no economic sense. She used to proclaim that back in her Grantham childhood her father never spent more than he earned, and that was a jolly good lesson for the country, too.

Like Thatcher's reminiscences this column will be almost free of statistics. But I will give two concrete examples that highlight the silliness of the current rows. During Labour's first term, Gordon Brown cut the basic rate of income tax, a significant reduction that, over the years, has taken several billion pounds out of the Government's coffers.

If Brown had promised to make such a cut at the preceding election, the entire campaign would have been taken up by questions about whether the proposal was affordable. Yet when he made the announcement in a subsequent Budget, hardly anyone noticed. Indeed, the tax cut was greeted with such indifference that several senior Blairites in Downing Street told me they thought it had been a complete waste of money.

Similarly, during the second term, Brown increased National Insurance contributions. If he had said he was going to do this during the 2001 election, the proposal would have dwarfed all other issues.Yet when Brown made the announcement in the 2002 Budget, polls suggested it was popular and none of the parties have entered this election pledged to reverse the increases.

During election campaigns, the tax and spend policies of the parties are symbolic. It is in this context that they cease to be silly and become important. They send out defining signals on two different fronts. The policies provide a pivotal indication of a party's competence, its readiness for government. They also tell us something about each of the party's ideological instincts.

In terms of political competence, the Liberal Democrats have had an inept start. At the launch of their manifesto last week, Charles Kennedy made two errors about their most distinctive policy, the introduction of a local income tax. Kennedy has got off relatively lightly on the grounds that he had endured a sleepless night because of his new baby. If Tony Blair or Michael Howard had made similar errors, their campaigns would have been as good as over.

If the Liberal Democrats want to be regarded as big players, the real alternative as they put it, they will have to be judged by more demanding criteria. Kennedy has been admirably courageous on big picture issues, such as his refusal to portray immigration as a threat, but his performance on tax and spending plans suggest that he and his party are far from ready for government.

In terms of substance, the Liberal Democrats fare better, daring to recognise the need for a top rate of tax on high earners. Privately, several cabinet ministers support this policy, but fear timidly that it is politically impossible to introduce.

The Conservatives have been more politically astute with their tax and spending plans compared with 2001. By resisting the temptation and the pressure from several senior colleagues to announce sweeping tax cuts, Michael Howard can at least claim a degree of credibility.

Howard proposes to repay a fair amount of national debt, implying that Brown is reckless and he is now the prudent one. The remaining spare cash for tax cuts has been aimed largely at pensioners and future pensioners, a politically active group that may be tempted to show its gratitude on 5 May.

On the negative side, the Conservatives have been forced to clarify during an election campaign when their tax cuts would be implemented (not until next year), a clarification that Labour would never have got away with. As for economic competence, the Conservatives are stuck still promising huge spending cuts, improvements in public services and tax reductions. It is a wildly unrealistic prospectus.

Labour has had so much practice being slaughtered over its tax and spending policies in the 1980s and early 1990s, it is alert to most of the political dangers. In terms of future policy, though, it is stuck hailing the improvements in public services and stressing that it has no plans to put up taxes.

This is also unrealistic. At yesterday's press conference, The Independent's Colin Brown, pointed out to Tony Blair that the rate of spending increases on the NHS were scheduled to fall after 2008. Blair answered vaguely that the National Insurance increases "dealt with this". They do not. They provide the funds for substantial rises until 2008 and then a decline. If Labour wants to keep up with EU spending, it will either have to raise taxes again or to introduce other forms of payment for some services.

Overall, though, Labour's plans on tax and spending manage to combine electoral expediency with a degree of realism about the demands that would follow an election victory.

The difference between the proposed spending plans of Labour and the Conservatives are relatively small, but they symbolise an entirely different view about the role and purpose of government. Instinctively, the Conservatives believe in smaller government. Labour supports an active, enabling state, which is why its manifesto was a lengthy document.

The Liberal Democrats display the strongest faith in the importance of central and local government, a faith that places them slightly to the left of New Labour, although they emphatically deny this.

For much of the 1980s and 1990s, Labour had painful internal debates over tax and spending policies, helping it to be more robust now. Neither the Conservatives nor Liberal Democrats have done so. By comparison with Labour's public anguish, their policies have arrived as if from nowhere. They need the short-term pain of some heated rows about their political purpose in order to acquire longer-term credibility.

In contrast, some Labour strategists have a different concern. They might have been so successful in neutering the debate about tax and public spending that some voters will make their judgement on the basis of other arguably less important policies.