Alistair Darling on Tuesday denounced as “utter madness” a plan by David Cameron, Conservative party leader, to cut public spending by £5bn next year to fund tax breaks for savers.
The chancellor claimed the proposal would be “extremely damaging to the economy”, reducing demand when most countries around the world – including the US and Germany – were boosting spending. Mr Darling attacked the Tory leader’s approach to the recession as “all over the place”, arguing that he had taken inconsistent positions on issues ranging from the nationalisation of Northern Rock to the recapitalisation of the banks.
Yet there is a view growing in Labour circles that Mr Cameron is finally developing an effective Conservative account of the recession – and how to get out of it – after a year of thrashing around for a strategy.
Mr Cameron’s argument, set out on Monday, is that Labour has spent its way into a recession, presiding over “a debt crisis” fuelled by government and personal borrowing, and is now engaged in a futile attempt to spend its way out of it.
The Tory leader will point in coming months to rising jobless figures and collapsing businesses as evidence that the “spend, spend, spend” approach taken by the government has failed.
Mr Cameron would then argue that the Tories have a better answer, based on a traditional Conservative agenda of lower public spending and encouraging thrift. The election battle-lines are being drawn.
Although Mr Darling and his team deride the economics of this approach, there is an acceptance that the Tory leader finally has the makings of a political strategy to exploit the government’s problems in the downturn.
In his Financial Times interview the chancellor made it clear that the government would try to portray Mr Cameron as isolated in his hair-shirt approach to the crisis. Mr Darling pointed to the fiscal expansion about to be mounted by Barack Obama, the incoming US president, and to the fact that Berlin was going down a similar path, in spite of the criticisms by Peer Steinbrück, German finance minister, of the UK government’s fiscal stimulus.
The chancellor also rejected Mr Cameron’s claim that the £12.5bn cut in value-added tax, which runs until January 2010, was “a criminal waste of money” and that it had failed to stimulate demand. “That VAT cut was not just for Christmas – it is for 13 months,” he said.
Mr Darling confirmed the government was also looking to help savers hit by falling interest rates.
“I want to encourage saving,” he said. The government would look at the operation of individual savings accounts (ISAs), he said, but added that cutting taxes on savings income would not help the 60 per cent of pensioners “who don’t pay tax at all”.
