thetorydiary

George Osborne has written for The Telegraph today and has warned that "2010 will be the year when the world's focus shifts from the debts in our banks to the enormous debts being run up by governments".

He notes that rating agencies have downgraded Greece and that Britain is the most vulnerable country of any of the top-rated nations in the world.  He lists a number of global banks that reacted negatively to Alistair Darling's PBR, including Barclays who said that "the UK's triple-A sovereign credit rating and the currency are likely to remain vulnerable".

Mr Osborne spells out what would happen to Britain if international investors lose confidence:

"The people of Greece know what happens when the world loses confidence in your ability to pay your bills. It's costing them an additional 2.5% on the interest rates they are paying to borrow. Before Sweden started dealing with their debts in the Nineties, it faced a market penalty of 4.5%. Britain is borrowing more than Greece, and more than Sweden was. All that is saving us at the moment is the expectation that a future Conservative government will get a grip. If Labour get in again, that won't happen. If Britain follows Greece, the interest bill on a £150,000 mortgage could go up by more than £200 a month. The cost of credit for businesses would go up, too, and more jobs would be lost. And we'd be paying billions more in taxes each year just to service the national debt."

Mr Osborne is right to warn Britain that Labour has no plan to cut Britain's deficit. It is also true that he is yet to announce a deficit reduction plan of his own. We have had some austerity measures from the Tories but only a fraction of what is going to be necessary. Every day Tories are in the press attacking the very few measures that Labour has taken. In the FT today, for example, William Hague is criticising David Miliband's cutbacks to Britain's Foreign Embassies.

George Osborne got it right. This was the pre-election report of a government ducking the hard choices.

Over the next six years the British state will borrow £789bn.  The national debt will treble. We heard nothing from Labour on how they will deal with this national crisis.

Despite falling prices the Chancellor promised pensioners a 2.5% cash increase. That's a 4% real terms increase. That's not only a ducked hard choice but a transparent and unaffordable bribe.

Darling ducked an apology for getting his forecasts so wrong. A year ago he said the economy would shrink by 0.75% to 1.25%. It's actually due to shrink by 4.75%. Last year he forecast that this year's deficit would be £78bn. It's actually £178bn. Can you believe a word he says?

Darling didn't tell us how he'd cut spending after the coming [election] year. He's actually spending £7bn MORE this year. Crazy duck.

In the more immediate term he talked about the departmental budgets he will increase but kept silent about those he will cut.

Darling didn't tell us how he hoped to fashion a 3.5% growth rate but based his estimates of future budget deficits on that optimistic level of growth.

It's difficult to see how the economy is going to create more jobs given another increase in National Insurance contributions. It's difficult to see how the economy is going to create jobs given the extra burden he imposed on 40p income taxpayers by failing to link the threshold to prices.

Tim Montgomerie

Two days ahead of the Pre-Budget Report, today's ConHome is very tax-focused.

On CentreRight, Matt Sinclair of The TaxPayers' Alliance warns that higher VAT will undermine the Tory claim to be a pro-poor party. VAT, Sinclair writes, "costs the poorest twice as much - as a portion of their income." The TPA wants a combination of deep spending cuts, public sector reform and pro-growth policies to cut the deficit.

Essential to growing the economy is lower corporation tax, writes Lord Forsyth on Platform. Forsyth, who was chosen by George Osborne to write a landmark report for him on tax in 2005, says that lower corporation tax - he recommends 20p in the pound - and the repeal of the 50p tax band are essential to get the British economy going again.  Britain, he says, is ranked 83rd in the world taxation league table after the Brown-Blair decade of more than one hundred tax increases.

73% of Tory members fear that George Osborne will have to impose larger-than-necessary tax increases because he has only outlined very modest spending reductions so far. The Shadow Chancellor is not being helped by the tendency of his frontbenchers to rush to spend any savings they identify. Last week I suggested he impose a requirement that two-thirds of departmental savings identified by 'spending spokesmen' be earmarked for deficit reduction.

In an interview with the Financial Times George Osborne gives no indication that he is yet ready to bite the bullet on much deeper spending cuts but his pro-business attitude is encouraging. He says he wants Britain to have “the most attractive and competitive corporate tax regime of any major economy in five years’ time”. He is already pledged to fund a 25p corporation tax rate by a process of simplification and Tory Treasurer Michael Spencer last week appeared to reveal Tory hopes to get the rate down to 20p by the end of a parliament.

Mr Osborne tells the FT that he and David Cameron have been talking to global entrepreneurs about how to attract business to the UK and are considering a range of measures that include a much friendlier regime for intellectual property and multinationals.

Aware of the damage done to him by the suggestion that he is a "40% Shadow Chancellor" (because he also serves as General Election Co-ordinator) he tells the FT that Philip Hammond, his powerful Deputy, is undertaking more of the "attack dog" role against Labour's economic record.

Tim Montgomerie

Accusing Labour of failing to fix the roof while the sun was shining doesn't begin to get to the scale of what Brown has done to Britain. On CentreRight on Friday, Neil O'Brien of Policy Exchange reminded us of the scale of Britain's fiscal challenge. Here are just four of the chilling facts he presented:

1. If current trends in borrowing continue for the rest of the financial year, Britain will be borrowing £9,500 every second.
2. £217bn of borrowing (what the Institute of Fiscal Studies fears may be this year's level of borrowing) equals 15% of GDP.
3. 9p in every pound of tax will soon be spent serving (NOT repaying) our debts. That's £50bn - more than we spend on schools.
4. Sweden turned round a similar deficit in seven years with a balance of spending cuts and tax rises. If we followed the Swedish path we'd need the equivalent of an eye-watering 20p increase in income tax to produce a budget surplus of 4% of national income.

It really is crazily irresponsible in this environment for politicians like Ed Balls to be campaigning for even more spending. The man really is unfit for office.

As I've noted elsewhere, I've been in the USA for a gathering of centre right politicians and think tanks. They were absolutely united in their belief that they were glad they didn't have Britain's fiscal problems. One member of Stephen Harper's government said that he wasn't sure that Britain could survive as a major power without a dramatic change of course. He also warned against one view within Team Cameron that Canada's approach to deficit reduction was a model; 'You do know a lot of our deficit was cured by transferring spending from Ottawa to the provinces, don't you?' I didn't.

Michael Portillo used an interview this weekend to say that spending cuts were too tricky. He clearly doesn't get the gravity of Britain's situation. On Thursday Benedict Brogan did get the measure of things:

"It is becoming increasingly apparent that nothing short of a national restoration project is needed, one that would rethink all our assumptions about how Britain works and our place in the world. The questions multiply by the day: If the City is no longer to be the engine of our growth, what replaces it? If the rise of new economic powers mean our capacity as a major player in defence and diplomacy is diminished, where do we stand? In a globalised world, why should we stay in the European Union? If individuals are empowered by the internet and the availability of information, how far back can the boundaries of the state be pushed? Can a broken Parliament be repaired in a 19th-century palace?"

On Marr this morning David Cameron indicated that an emergency budget would be held within fifty days of the Conservative Party being elected (should, I feel it necessary to add for Tom Harris MP's benefit, we get elected). It will be growth-orientated, Cameron said. It needs to be. Simply dividing up the existing cake won't solve things*.

Britain is already over-taxed and large tax rises will make our economy uncompetitive. Radical simplification of corporation tax is likely to feature in George Osborne's first budget but what other measures do we need?  Answering that question must be the focus of the last few months we have before polling day.

Tim Montgomerie

* The Archbishop of Canterbury's intervention this week in arguing against economic growth really did make me temporarily embarrassed to be an Anglican. Let me quote Edward Heath (not something I often do) to Dr Williams: "The alternative to expansion is not, as some occasionally seem to suppose, an England of quiet market towns linked only by steam trains puffing slowly and peacefully through green meadows. The alternative is slums, dangerous roads, old factories, cramped schools, stunted lives.”