Osborne waters down Tories' pledge to lower taxes

David Cameron's new-look Conservative party announced its latest policy U-turn yesterday when it admitted that sorting out Britain's public finances and ensuring economic stability might make tax cuts impossible in its first term in office.

In a keynote speech in the City, the shadow chancellor, George Osborne, gave no guarantees that the Conservatives would be able to lower taxes in one parliament - providing only a pledge that there would be reductions over the course of an entire economic cycle as and when they could be afforded.

Gordon Brown's latest assessment is that the current economic cycle will last for 12 years but Mr Osborne said yesterday that the chancellor's profligacy had made it necessary for the Conservatives to put one of their main policy objectives on the back burner.

"As the economy grows, we will share the proceeds of that growth between spending on public services and reducing taxes. Over an economic cycle, output will grow faster than public spending. We aim to use the surplus growth to lower taxes.

"But let me make it crystal clear today: we will put stability before tax cuts. If the public finances are in a mess then sorting them out will have to take priority over promises of tax cuts."

After two election defeats in which the Tories have made tax cuts a central plank of their appeal to voters, Mr Osborne said they would now come at the end of a three-stage process. Economic stability, he said, would be paramount, and government under the Conservatives would be "encouraged to look at ways of reducing long-term demands on the state".

Over time, he added, the government would be able to "lower taxes in a way that is sustainable and for the long term. That is crucial for Britain's ability to compete in the new global economy."

The shadow chancellor accused Mr Brown of squandering a "golden economic legacy" and said he was the "roadblock" to the supply-side revolution that was needed to equip Britain to meet the challenges posed by the emerging economies of India and China.

Under Labour, he said, taxes had risen as other countries cut theirs. Borrowing had plugged the gap between government spending and taxes, with Mr Brown "manipulating" his "golden" rule that over an economic cycle the state should only borrow for long-term investment.

"Ever since Gordon Brown departed from Tory spending plans he has predicted that the books would balance in three years' time and they never have. He predicted that he would have to borrow £11bn over the past five years, or £450 for every family. Instead, he has had to borrow £111bn, or £4,450 for every family. He had to increase borrowing again in December as the deficit deteriorated."

Mr Osborne said the Tories would improve economic stability by reforming the Bank of England, making the Office for National Statistics fully independent and ensuring that there was objective scrutiny of the government's fiscal rules. On the supply side, he called for improvements to Britain's transport infrastructure, better skills, simplified planning laws, less red tape and reform of the public sector.

In his speech to the Cass Business School, Mr Osborne said UK productivity was weaker than that in France, while taxes and spending would soon be higher than in Germany. "There could hardly be a worse response to the challenges of the new global economy ... Gordon Brown could have done so much in what Mervyn King recently called 'the nice decade'. With low inflation and low interest rates around the world, harnessing the supply side reforms of the 1980s and fiscal discipline of the 1990s, he had every opportunity to build Britain into one of the most open, dynamic, innovative economies in the world.

"The story of the Brown chancellorship is now writing itself: a golden legacy inherited and a golden opportunity missed."