David Cameron’s conference speech may have delighted the Tory faithful and won him his best press for years, but it has exposed the Conservatives to the charge of fiscal irresponsibility. IFS head Paul Johnson warned immediately that it was “very difficult” to see how Cameron would fund his promised tax cuts of £7bn and an editorial in today’s FT concludes that the Tories have “staked out a fiscal position that is neither sober nor realistic.” As I wrote during the summer, given the parlous state of the public finances (the deficit was £106bn last year) it is not credible for the Tories to promise to cut taxes, to avoid tax rises and to eliminate the deficit by 2018.
Labour has today focused its attack on the Tories’ refusal to rule out another VAT rise. Before 2010, Cameron and George Osborne repeatedly said that they had “no plans” to increase the tax before raising it to 20 per cent in their first Budget. (Cameron said during the campaign: “We have absolutely no plans to raise VAT. Our first budget is all about recognising we need to get spending under control rather than putting up tax.”) Asked today whether the party would pledge to avoid another increase, Conservative chairman Grant Shapps replied: “Well I have absolutely no intention of writing future Budgets on your programme.”
To date, while Osborne has signalled that he does not intend to raise taxes again (“I tell you in all candour, that the option of taxing your way out of a deficit no longer exists,” he said in his conference speech), he has avoided an unambiguous, “read-my-lips” pledge. At some point before the election this will have to change if the Tories are not to leave themselves exposed to a “VAT bombshell” attack from Labour. Should the Tories officially rule out any tax rises in the next parliament, the likelihood is that they will allow their deficit targets to slip (as they have in this one).
For now, their wager is that they have earned sufficient fiscal credibility (reflected in their large lead over Labour on the deficit) to ride these attacks out. But the more people warn that their numbers don’t add up, the harder it will become for them to deploy this charge against the opposition.
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