Gruntling the disgruntled

The middle classes are angry. Can the Tories win them back? Stephen Castle reports

ON TUESDAY a large brown envelope will thud on to the doormats of each of Britain's 650 Conservative constituency associations. Inside will be a 10-page document designed to test the opinion of the party faithful on everything from the monarchy to tax cuts and the Citizen's Charter. Optimistically, for a party trailing so far behind Tony Blair's Labour, this document is entitled "Our Nation's Future".

It may be 94 weeks before Mr Major has to go to the country, but his policy-makers are already hard at work conjuring up ideas to tip voters back towards the Tories. The constituency "listening" exercise, which will lead to regional conferences, is not universally admired - "the 0898 chat-line approach to policy-making" is how one Tory described it. But it is only the tip of the iceberg. At Westminster, policy groups of MPs, advisers and ministers are drawing up papers for the Downing Street Policy Unit. Government departments have set up separate manifesto committees which include backbenchers. Michael Heseltine, the Deputy Prime Minister, is trawling the back benches for ideas.

We can already see the direction the Tories are taking. Through announcements made and ideas floated in recent days - nursery vouchers, a reduction in inheritance tax and a switch in taxation policy to help wives staying at home - runs one vital common thread: the needed to win back the middle classes.

BATTERED by negative equity and shaken by job insecurity, Middle England has suffered under Mr Major and is not in a forgiving mood. As one minister puts it: "People are feeling very sore after the last recession and the greatest concentration tends to be in the South and the Midlands. The recession was more acute here than in the North. Because the house price ramp was less acute in the north they haven't had such a roller coaster."

Low inflation and export-led recovery may have delighted the City, but the middle classes have had to adapt to the fact that inflation can no longer be relied upon to erode the cost of their mortgages. Job insecurity remains even though recovery has, technically, been rolling on for three years. Traditional Tory voters are being hit. One MP said: "Any good news on the jobs front is usually accompanied by another insurance company shedding another 3,000 people, all of whom are middle-class, middle-England Tory voters living in Bromley." The joke in Whitehall is that the 1,200- strong empire being set up for Mr Heseltine is one of the biggest job- creation schemes of recent times.

The man charged by John Major with reconquering Middle England is a 42- year-old father of five. When Norman Blackwell was appointed head of Mr Major's policy unit last December he was derided by one Conservative as a "bean counter" and by a newspaper as "Mr Nobody". His appearance is indeed that of the pin-striped management consultant which he was, but his power and influence have grown rapidly.

What he intends to do has quickly become apparent. One insider explained: "In the first half of a Parliament the job is to drive through tough measures. In the second it is to do things which are more popular. That was one of the things acknowledged by Norman Blackwell when he arrived."

Mr Blackwell's team first framed five general policy themes: enterprise and prosperity, first-class public services, opportunity and ownership, law and order, and a sovereign nation. Then they moved on to active policy- making.

The policy unit backed nursery education vouchers, which are now to go ahead after a lengthy Whitehall battle was won against Gillian Shephard, Secretary of State for Education. This step, putting vouchers worth pounds 1,100 in the hands of parents (including those already paying for nursery schooling), was the first announcement to follow Mr Major's leadership election.

The evidence suggests that a whole raft of policy ideas such as this, directed at middle-class voters, is taking shape inside the unit. Leaks last week suggested one was an initiative to bolster the role of the family. The Government was said to be planning to let non-working wives transfer their tax allowance to their husbands. This would stop the tax system penalising women who stayed at home to look after their children. A variant on this is a proposal for a child-tax allowance payable to either parent.

Another report suggested that mortgage interest tax relief might be extended to help first-time home-buyers. Then, last Thursday, at a meeting of the 1922 Committee, Mr Major re-affirmed earlier pledges to abolish taxes on inheritance and capital gains in the long term. Also thought to be in the pipeline are incentives for savers, either in the form of a tax- free savings allowance, or an extension of Peps and Tessas (which were introduced by Mr Major when he was chancellor). The elderly, or those approaching old age, may receive special help with savings. And redundancy insurance schemes could be exempted from tax.

All this is designed to cheer up middle-class voters at the expense, perhaps, of fiscal rectitude. And it is going down well in the constituencies. One Tory parliamentary candidate observed: "The Treasury know nothing about winning elections - look at their insistence on putting VAT on fuel. Some would argue that, when you look at the opinion polls, you see the result of economic policy driven by the Treasury over recent years. Now we are seeing some of the politicians fighting back."

THAT, needless to say, is not a view shared next door to Number 10 in the Chancellor's residence. Mr Clarke, too, has had Middle England on his mind. At a speech last year at the London School of Economics, he encouraged his audience to "imagine the private-sector or public-sector middle manager in Middle England who may be told that his organisation is being 'delayered' or 'down-sized'."

While Mr Clarke backed nursery vouchers, he is much less enthusiastic about many other moves. Instead he pins his faith on an election victory won on the back of economic recovery. This is not quite as senseless as it appears. The Government's fortunes have been tied closely to voters' disposable incomes. The recovery, after the two-stage tax rises ushered in by Norman Lamont as Chancellor, has been depressed. But Treasury figures forecast that real disposable income will grow by two per cent this year and three per cent in 1996. At last, goes the cry, some hope of a feel-good factor.

As for pre-election bribes, Mr Clarke is not in a give-away mood and ministers placing bids for this year's public-spending round have heard tough talk. The Chancellor argues, with some justice, that public-sector borrowing constraints and the pressure of extra spending already pledged on education, leave little room for manoeuvre.

Besides opposition from the Chancellor, the policy unit approach also faces challenges on the nitty-gritty. Kick-starting the housing market, for example, will not please everybody. As one MP put it: "Anything done for the housing market is going to be a disaster. Anyone on whose behalf you don't tinker is going to resent those people on whose behalf you do tinker." And no palliative could rival the need for low interest rates - a little tax-break is not going to win many votes if it is wiped out by a rise in mortgage payments.

By the same token, abolition of inheritance tax may sound good, but it would affect only 20,000 out of the 600,000 estates left each year since inheritances are taxed (at 40 per cent) only when they are larger than pounds 154,000. That may look unpleasantly like making the rich richer.

The view of the Chancellor and his officials remains pretty consistent with that of his predecessors: if there is money to be spent, better to cut the basic rate of income tax.

The battle lines are drawn. As one well-placed observer put it: "Kenneth Clarke would argue that good economics is good politics. That is very brave if you are intending to do nothing but tax cuts. Moreover there is the question of whether you simply hand the money back or target specific disgruntled groups which need gruntling. That is clearly the debate that is happening and it is happening now because there are only two budgets to go."

THERE is, however, another dimension to the Clarke view, which he also expressed in his LSE speech. The "down-sized" Middle England victim of the recession would, he argued, "want to feel that there is a high quality health and education system on which his family can depend. He will also want to know that there is a modernised, affordable welfare system which will assist him with the means to retrain and to find new employment." Investment in the public services, in other words, may actually be a way of winning back the middle classes.

Here there is work to do. After all, Mr Clarke himself, in his former incarnations as secretary of state for health and for education, had much to do with the alienation of doctors, nurses, and teachers, both in schools and higher education.

In education the cuts inflicted last year, prompting an uprising in middle- class areas like Oxfordshire, brought home to Cabinet ministers the anger of Middle England. Mrs Shephard looks set to win pounds 1bn extra this year to smooth over that row. The Government also sees opportunities for bashing Labour on education issues supposedly close to the hearts of the middle classes. It will stress the importance of standards and excellence, and highlight the Labour Party's threat to grant maintained schools and assisted places.

Health is more troublesome. Stephen Dorrell, the new Secretary of State, believes the Tories can do little better than to neutralise the issue. His spending round will be tougher, although some MPs are pressing for a big schools and hospital re-building scheme which would stimulate the building trade. There are also fewer opportunities to build up electoral support. As one Conservative policy-maker put it: "Quiet reform of the NHS can reduce the negatives. There are one million people working within the NHS and maybe we can build some classes of people who have a vested interest in Conservative reforms, like GP fund-holders, but the vast majority are going to be against us".

IN the run-up to this November's budget the battle will be between those seeking palliative measures along Policy Unit lines and the Treasury purists who want to plough any available resources into basic-rate tax cuts and public services. It is a conflict which goes to the heart of Conservatism. What will Mr Major do? At heart he may be the quintessential Treasury man, but expediency looms large: he must retain the momentum he gained after the leadership contest and for that it seems he will need a string of initiatives on the policy unit kind. We should remember that in the past Mr Major has not been too proud to dip into the nation's pocket; large sums were spent in the run-up to the 1992 election.

But he has to be careful. One Tory adviser said last week: "You could reflate the economy, cut taxes and target it all on people who are home- owners but I don't think people would vote for policies without taking a long-term decision about whether they are sustainable. The independent commentators and then the voters would rumble it as panic stuff." Most MPs believe that any initiatives must be seen to be going with the grain of party policy rather than against it.

And an approach which targets potential Tory voters ("our people" as some Tories call them) holds other dangers. The middle class may be the social group that will decide the election, but it has become a very broad and indistinct group. In the US the label can nowadays be applied to almost anyone in work. Here, as one Labour strategist put it, "a large proportion of the population is middle class, thinks it is middle class, aspires to be middle class or wants to change its circumstances so it can have that aspiration".

We are not, then, talking about some segment of the electorate which happens to cast the swing vote in the election, but a large proportion of the nation, embracing people of very different backgrounds, views and lifestyles. Treat them as a target and you can easily over-simplify their wants, displeasing as many as you please.

One influential Tory said last week: "Tony Blair has had the sense, instead of trying to please people defined as 'Labour's people', to switch things around. His aim is to frame policies for everyone, then define them as 'Labour's people'." The Opposition also has, according to one Labour MP, a rather obvious weapon in the battle for middle-class support. "What we need to do," he said, "is put Tony on television every possible night. He appeals to the middle classes - because he's one of them."