IN THE YELLOW CORNER
Vincent Cable should be spitting fury. As the Liberal Democrats’ shadow chancellor, he should be loudly declaiming how Gordon Brown has all but trashed the economy – forcing us to see where it’s all gone horrendously wrong.
But he isn’t. In fact, it’s hard to escape the view that Cable is a very reasonable man with a very reasonable set of beliefs about the government’s economic record.
He is, well, quiet. Unexcited, contemplative and bordering on a certain kind of academic aridity. A little surprising given that a general election is only weeks away.
A born thinker, he is not a man prone to sweeping gestures and rhetorical flourishes. Indeed, he doesn’t even appear to be looking forward to the coming campaign. It’s not the long hours or the demands on his energy, he says. It’s the tribal nature of the whole process, the name-calling and the angry, empty criticism of comments he hasn’t made. It’s all a bit wearing.
No, the Lib Dem treasury chief is a man for studied, calm reflection. This has the unfortunate result of making him appear as if he doesn’t see Labour as opposition at all. Indeed, there are some aspects he finds entirely reasonable about the government and Gordon Brown. Broadly speaking, he believes Brown is responsible for some fairly competent macro economic management of the economy. There’s no point in denying that there has been a long period of steady growth, says Cable. But what about skyrocketing house prices and record levels of personal debt? A worry, says Cable, but not a ‘crisis’.
Lastly there is the black hole in government finances, which has the Tories risking burst blood vessels in their attempt to gain political capital. ‘I’m not sure I believe in the black hole in quite the way it is portrayed at a popular level,’ says Cable.
So is Brown off the Lib Dem hook? Has Cable let the iron chancellor slip through his fingers? Cable’s point is that if you give credit where credit’s due you can move on and have ‘a grown up and intelligent debate about the distinctions’.
Let’s revisit the points above. Brown’s stewardship of the economy may have seen him following ‘sensible fiscal rules’ but, says Cable, the chancellor has ‘enormously over complicated the tax and benefits system’.
House prices may not have brought about a crisis yet, but they are the cause of ‘a lot of latent instability that could come back to haunt the next government’.
And the black hole? Well, Cable says, he doesn’t know for sure if there’s a black hole or not. But because of this, he insists that the government must get public spending under control, make tough choices, and direct the National Audit Office to institute a proper independent assessment of Brown’s Budget assumptions, so that the fiscal mystery is solved once and for all.
Cable is not short of ways to help business, either. He talks at length about the old chestnut of regulation, but as well as wanting to improve fairness by ending tax contributions from those on low incomes, he wants to dump the vast plethora of tax reliefs for business that have sprouted up under Labour.
There’s a quid pro quo for this – businesses would be offered reduced corporation tax rates. But Cable points out that this offer is not in the manifesto for the upcoming campaign, and would rely on the findings of a tax commission that would be set up by the Lib Dems.
Cable is annoyed by Labour’s approach to tax. He saves some of his worst criticism for Brown’s approach to anti-avoidance measures.
‘I would question Brown’s zeal to close down avoidance loopholes. There have been all kinds of negative, unintended consequences,’ such as the treatment of IT professionals using the now notorious IR35 regulation. ‘They didn’t think through the implications it would have for an industry that depends, above all, on flexibility and on people working on an independent basis. It has done great harm to the IT industry.’
But the closest Cable gets to being even remotely worked up is when he talks about the Conservative party’s approach to the economy.
He says the Tories were made to look ‘very foolish’ by proclaiming from day one that Labour’s term in office was an unmitigated disaster for economic policy. ‘That’s clearly utter nonsense,’ he says.
And then there is the James Report, conducted for the Tories on public spending. It’s a ‘shoddy and disreputable piece of work’, says Cable, who insists their plans for public spending just don’t add up.
‘It’s just completely silly. Of the £13bn they are proposing to save, about £5bn is serious and the other £8bn is completely fictitious,’ he declares.
The Lib Dems have issued a list of areas where they plan to make cuts in order to spend £5bn on priority issues. The DTI, ID cards, child trust funds and the Eurofighter would all be scrapped. Cuts would be supplemented by the now-famous intention to boost income tax to 50% for those earning more than £100,000.
But if you think Cable’s ideas seem a little far fetched, he is willing to defend them in public. He invited Tory shadow chancellor Oliver Letwin and Gordon Brown to take part in a televised debate on the economy. Letwin has agreed. Brown, so far, has yet to reply. Cable says he’ll keep trying. He may have to.
AND IN THE BLUE CORNER
Twelve billion. It’s the figure Oliver Letwin, Tory shadow chancellor, can’t leave alone. No matter how unrelated the economic question, it all comes back to that number.
So what is it? It’s the difference, Letwin says, between what Labour party spending will be in the year 2007-08 and the Conservatives’ planned budget, should they win the general election expected on 5 May.
Letwin can’t help hammering home the message. The Tories would spend £12bn less. And that means £4bn for tax cuts and £8bn to chuck at the Budget black hole, generated by Gordon Brown, which he estimates at around £11bn. Obviously, this is the Tory election game plan and Letwin is sticking with it.
And in his offices at Westminster, he does so with the zeal of a class swot, using language sometimes so convoluted it can leave the listener wondering where he began.
Perhaps, though, his phrasing is merely symptomatic of the excitement with which he is clearly brimming for the coming election campaign. Which also explains why he’s sticking so firmly to the Tories’ economic message, though a cynic might argue his focus is redoubled lest his enthusiasm trip him into saying something he shouldn’t. A possibility not unheard of in his career so far.
‘There’s more chance of us winning now than anybody imagined there would be, and than there has been for a very long time. We actually really are now in with a chance. The Labour party machine is showing distinct signs of wear and tear, and we have a considerable amount of momentum as well as a coherent policy framework,’ he enthuses.
He gives Gordon Brown credit for two achievements since taking the Treasury helm in 1997. First, he made the Bank of England independent. That’s the magnanimous one. Secondly, he stuck to the immediate spending plans of the last Tory in the chancellor’s shoes, Ken Clarke. After that, Letwin says, the burgeoning bureaucracy of Whitehall and the public sector, the proliferation of regulation, and the huge increase in taxes (the Tories quote CBI figures that the tax contribution from business alone has risen by £54bn since Labour came to power) have all helped put the country and the economy in a very sorry state.
Letwin claims that the UK’s productivity and competitiveness are deteriorating alarmingly, and he believes he is the man to stop the rot. He wants to simplify the tax system, slash public spending by cutting huge numbers of staff and end the growth in regulation. Most importantly, he pledges to cut spending by the magic £12bn, and reduce expenditure as a proportion of GDP by 2%.
The would-be chancellor is confident that he can make the £12bn cuts, despite the prospect of government having to pay back an estimated £20bn in overpaid tax to businesses fighting a number of group litigation orders at the European Court of Justice.
A ruling in favour of the claimants would only mean that government would have to ‘alter the mix of tax’, says Letwin. What he does emphasise is that the UK can’t go on allowing major tax decisions to be made in Europe. He says the UK must make sure ‘it doesn’t get further into a system where more and more of our tax policy can be decided from Brussels and Luxembourg by seeking ways of restraining the activities of the ECJ in this domain’.
This is one of the reasons why the Tories will be campaigning for a no vote in a referendum on the EU constitution. ‘To prevent the further aggrandisement of powers, competencies and so on over tax structure.’
Two other areas of tax exercise Letwin’s critical faculties. First, what he describes as the government’s habit of talking about tax avoidance as if it was morally reprehensible, and, secondly, its habit of enforcing tax rules retrospectively.
‘They have sometimes talked as if there was no real distinction between illegitimate tax evasion and legitimate tax avoidance. And that, I think, is a very bad mistake,’ he says.
Despite this, he insists there is no quibble with Brown over the recent introduction of new disclosure rules as part of recent anti-avoidance measures. Letwin, is ‘perfectly open’ to this in principle. What he objects to is the rhetoric that appears to be driving policy to the point, Letwin says, of establishing a new tax doctrine that equates avoidance with ‘immorality’.
The result is retrospective rule changes, which he believes are just plain wrong. Indeed, he believes it to be so wrong, it almost sounds like a policy commitment to rule out any restrospective action under a Tory government.
‘I think that we have to adopt a clear principle that where people have acted within the law, we won’t take steps after the fact to penalise them for having done so,’ says Letwin.
It’s all part of the anti-regulation stance that has emerged from the Tories. Going into the election, Letwin wants the business world to know that regulation is in the Tory sights and will be targeted by removing regulatory bodies and individuals, sunset clauses on new regulations and much tougher rules on regulatory impact assessments.
He has a warning, though, if you are expecting UK business to suddenly become an unbridled free-for-all. ‘I’m afraid we are not going to be able to reverse everything that has occurred in the last eight years, and therefore we have to focus on the things we can realistically achieve.’
That’s a measured response and only the election can provide Letwin with the opportunity to put it into practice.