The Conservatives and the Economy..

It has been fascinating to watch the Conservative response to the enfolding economic crisis in the last year or so. Initially, indeed, there seemed to be little or no response at all. Perhaps the failure of a liberal economic model of de-regulation favoured by and indeed initiaited by centre-right Governments in the 1980s was a tough pill to swallow.

To compound the problem, the response of incumbent Governments - increased spending and taking control of stricken banks - was anathema to that model. However, there was a recognition that retail bank failures were not acceptable in 2009 in the way they had been in the years after 1929. It was of course the guarantee of deposits up to £35k that had prevented larger-scale panics after the Northern Rock episode.

Now, it seems, the Conservatives are trying to carve out a narrative of a response. This was begun by George Osborne in an incredibly dry speech last weekend and has been followed up by David Cameron in a speech to the Birmingham Chamber of Commerce last night.

Apart from the usual political knockabout, the speech gropes around looking for a coherent message. There is the recognition that this recession is a very different animal from that of the early 90s and I've commented on this elsewhere. This is a much harsher and more wide-ranging economic event with global as much as national consequences and indeed requires global as well as national responses.

There seems in the US to be growing resistance to the Obama stimulus packages and Cameron is scathing of the efforts of Brown and Darling. In America, there is a fear, perpetrated by the conservative media, that the stimulus package means "socialism" or, as we might call it, social democracy. In Britain, resistance centres on the impact of future public debt and the resources required to keep it in check. Of course, proponents of the bank rescue argue that the Government shares may well represent a sound long-term investment.

We'll see...

The point is that in the near-panic conditions of last October and November, "doing nothing" wasn't considered an option though with hindsight it might have been.

Indeed, Cameron dwells very little on the past (wisely) and concentrates on what may well be the horrendous economic inheritance of the next Conservative Government.

The four areas of concern - Debt, Economic Inbalance, Welfare Dependency and Regulation are surprisingly traditional Tory totems and, to be honest, much of the speech could have and indeed has been given by Tories over the past thirty years including during periods of Conservative Government.

That said, it is clear that Cameron is positioning the Conservatives toward a policy of tax rises and deep spending cuts though the onus on the latter more than the former (in contrast to the Lib Dem policy of tax cuts at the forefront). Promises of cuts in corporation tax suggest there is still a fervent tax-cutter in there and it will be fascinating to see what levels of spending cuts Osborne moves toward in the coming months.

A policy predicated on deep spending cuts risks becoming a hostage to fortune but there's little doubt there will be strong public support until or unless it impacts directly on local services. The trick will be to cut the fat (which there undoubtedly is) without cutting away the muscle and bone as well. Removing a few "Equality Managers" may play well in the Daily Mail focus group but it's the proverbial drop in the ocean. If Cameron is serious about changing the economic culture, he will have to challenge long-held attitudes to spending and consumption and how people spend their money.