Fresh tax tricks

The Conservative party under David Cameron has become almost embarrassing in the way it apes the early days of New Labour under Tony Blair and Gordon Brown.

Today it was the turn of taxation. Do you remember how Blair and Brown startled everybody, not least their core supporters, by promising a two-year freeze on public spending and ruling out increases in the basic and higher rates of income tax?

Well today, under Cameron's New Conservative party ( we had better not dub it a neo-conservative party - that has an altogether different connotation), fiscal responsibility, not tax cuts, is the order of the day.

Out go flat-earth proposals for flat taxes; ideas about 'sharing the fruits of economic growth between public spending and tax cuts' are on hold. The proposal now is that, while 'over time' the New Conservatives would aim for a low tax economy, 'stability and responsibility come first'.

Given the projections for budget deficits for the foreseeable future - large, according to Treasury calculations, and even larger, according to many private forecasters - tax cuts simply do not fit easily into a programme of 'stability and responsibility'.

This is without doubt a victory for the Ken Clarke wing of the Conservative party, rather than the evangelicals who were promising tax cuts and even a flat tax in the run-up to the last election.

But is it a victory for Brown and the left ? Only up to a point I should surmise. It is certainly a concession to Brown's view that the public, for all the dissatisfaction with how some of the extra public spending has been dissipated, sees genuine advantages in attempts to improve public services and deal with the previously dilapidated condition of the public sector infrastructure, most notably in transport.

The public is almost certainly bored stiff and somewhat confused by all the New Labour mantra about 'choice'. What we want are decent hospitals and decent schools with reach.

But the idea that the public would be receptive to public spending cuts to finance tax cuts is not borne out by opinion polls. Brown has always believed he has been on a winner as long as the Tories are presenting themselves as making tax cuts their priority. It was too easy during the last election campaign to portray them as 'savage cutters of essential services'.

Neverthless, I maintain that this is still only a victory for the left up to a point. Sure, one hears less of the suggestion that tax should come down as a proportion of GDP from around 40% to 35% or even 30%. And certainly the Conservatives have tacitly accepted that their obsession with tax cuts did a lot of damage to public services under what was generally known as Thatcherism.

But the Thatcherites won one big victory in all this. The seminal moment of their tax cutting strategy was when Nigel Lawson, as chancellor, brought the top rate of tax down from 60% to 40% in 1988, and the basic rate to 25%. This was a sensational victory for upper income-bracket conservatives. And nobody has dared to seriously challenge it. · William Keegan is the Observer's senior economics correspondent.