The PM speaking at MK

The PM’s speech in Milton Keynes was among the most important of his political career so far. It defined his position more clearly than anything previously on the defining political question of the decade – how to get Britain back into business.

We can take from it several things – firstly that the PM will lay it on very thick about the economic crisis being Labour’s fault. I think that’s no bad thing – particularly because they are starting to come out with some pretty outrageous criticism of the coalition on a situation they helped, at least, to create. But I think he’s got to be careful and not get too free with this tactic. He needs to be the consensus man, the leader, the unifier and the solution, not the “new” problem.

Secondly, the PM is happy to tell us just how bad it is, unlike Labour. Not everyone will agree with him but it is obviously in his interest to make things seem as bad as possible. I don’t think a great deal of exaggeration is necessary – things are very, very bad – but the openness he is in a political position to afford could be something of an advantage. I think if played well, far from Mervyn King’s prediction being correct, the public could be sympathetic to the Coalition for some time to come. Honest actions go a long way in politics nowadays and the public recognise favourably politicians who are prepared to do the right, if not popular, thing.

Thirdly, Danny Alexander will be right next to him – all the way. There’s no way that the Liberal Democrats are getting off the hook with this one as full members of the Coalition and I don’t think they want to. NC has said that there will be a “cut with kindness” policy that will shield some of the most vulnerable from the worst of what needs to be done but that can only do so much – they can’t be protected from council cuts in many areas.

Nor do I think it’s a good idea for George Osborne to widely consult the public on where to save money. This is a very risky strategy that could puta very considerable rod in his back when Labour organises a Twitter campaign to get people to respond in a particular way. The results could then be FOIed and may not be where the final decision needs to be made. It could look like the public has been consulted and ignored – not great PR.

The simple answer here is that, a bit like Masterchef, this new economic future is going to “change our life”. There are opportunities for efficiency, yes, and looking at different ways of providing services. But the bottom line is that we need to get a £170bn deficit down and there’s a lot of money to hack off budgets. It must be done, it must be done quickly and there is a certainly amount of political risk that is going to come as the pay-off of winning the election (sort of).

I think the Coalition needs to remember that the public has a great deal more of a problem with dishonesty than ineffectiveness. If the government tries to mask the problem, if it breaks its promises over what it is going to cut, if there is a suspicion that certain groups are being unjustly protected or if there is any underhand treasury regulation as with the last government, the considerable goodwill that the public holds will drain quickly.

If the government is straight, calls a cut a cut and acts responsibly for the best interests of the nation, it might just find itself laying down a legacy of decency – if not prosperity – and a chance in 2015 to lead the country properly back into the new world economy with its head held high.

Norman Lamont famously, or infamously, declared in 1991 that unemployment was a “price worth paying” to get inflation down (so much so that the Mirror ran a scare story on this back in 2008). With cuts in public sector jobs inevitable and the knock-0n effects of government cuts likely to be seen in the services area of the private sector, will rising unemployment in 2011/12 be a “price worth paying” to bring the deficit down?

This is a question that must be weighing heavily on the minds of George Osborne and David Laws right now – and probably too on the PM and NC’s as well. Perhaps Vince has got a solution up his sleeve but one suspects not – what to do with all these people whose wages Labour’s wrecked Britain can’t afford to pay right now?

Sending them onto benefits makes no sense at all and is equally ruinous financially. While there are schemes for re-training and skills, there is only so much they can do and in any case, who needs an extra 30,000 people with IT qualifications? There are plenty of other, more manual, jobs around but for most people that’s not something they want to consider. Part-time work and sharing full-time equivalents between two or even three people means that what income is available is more equitably apportioned but again, that’s not going to be able to cope with the scale of what we might be talking about.

My feeling is that as many as 600,000 jobs could be affected both in the public and private sectors during the next five years and even if 100,000 of them have the nous and entrepreneurial spirit to set up their own businesses, that still leaves half a million more people out of work. I firmly believe that this is the fault of Labour, who expanded public sector employment in a shabby vote-fixing exercise to bring more and more people into public pay and into the clutches of Unite.

The truth was we couldn’t afford them and left to their own devices they would have found other ways to contribute to the economy. Now, they will be forced to do so in circumstances not of their own choosing and with an economy that is not conducive to their efforts.

One suspects that if Nick Clegg had decided after May 6 to take up Campbell and Mandelson’s grubby little offer and a Lib/Lab coalition was in power, the BBC would have reported David Laws – rather than Alistair Darling – delivering £6.2bn cuts. As it happens, no such favours are granted to the Conservatives by a corporation whose very skin has been saved by the votes that denied the PM a majority.

The savings identified by the Treasury include some really good things, such as the austerity measures put in place to stop ministers using cars all the time, the abolition of pointless quangos and renegotiating government contracts. The rest of the news emerging from the details is less welcome but regrettably necessary, not least because it goes further than the public sector. The £690m cut from the DfT means contracts put on hold, which has a knock-on effect in the private sector – the A23 scheme and the third phase of the Birmingham Box Managed Motorways project are both, for example, placed on hold and this means uncertainty for the consultants and contractors employed to deliver them.

So too Communities and Local Government, which loses £830m and will have less to spend on meeting its core objectives but also on schemes and projects that are delivered and help fuel a large – and growing – portion of the private sector. Companies like Atkins, Capita, Serco, Halcrow and Balfour Beatty are major employers and cutbacks in local government spending – further underlined by the £1.165bn in savings being expected of local authorities – will mean tougher times ahead for these businesses. The best, of course, will survive – but those who don’t can expect to shed jobs in addition to those that will be shed by the public sector.

And with an emergency budget in June and a Comprehensive Spending Review in October, the bad news is that £6.2bn is only the tip of the iceberg. The total deficit is £157bn and quite how this will be eradicated is anyone’s guess - even ten times what the government announced on Monday is only a third of what is needed. There is a great deal of pain to come and taking the decisions won’t be easy. Although there is a chink of good news in terms of a rise in GDP, the OECD is putting yet more pressure on George Osborne to raise interest rates and avoid cutting too quickly.

It all goes to demonstrate two things: firstly, that there has been – and will continue to be for a while – no real recovery, merely a plot by a Labour-staffed treasury to pump vast amounts of taxpayers’ existing and new money into the economy to delay the onset of recession and the necessity to make fiscal and spending adjustments until after the election. This may turn out to be more damaging than the recession itself.

Secondly, if you vote in a Labour government, sooner or later it runs out of money from which the only recovery is a Conservative government (or in this case coalition) to administer social and economic shock treatment. The only way Labour gets into power is when it promises to spend money - that is the central ethos of democratic socialism. In good times, it will always look more attractive than the more cautious Conservative within-means alternative. But there’s a catch; and we are about to find out exactly what that entails.

Barnes Wallis, inventor of the bouncing bomb, among other things

There’s a very interesting letter published in the Times today that sums up one of the big post-election questions and ties in to the Conservative Political Discussion Group debate that was held tonight at Churchill House.

Conservatives all agree that the public sector needs to be trimmed. We like to think that we can get this from efficiency savings and managed vacancies and possibly that is true. Carl Thomson and John Redwood’s excellent leaflet showed that there is waste all around. But for every time we abolish a Quango, scrap a government scheme or cut a swathe through a government department, there is a risk – although not necessarily a certainty – that jobs could be lost.

I think that the public would be quite approving of 40,000 civil servants and local government officers being stripped from the public liabilities if there wasn’t a recession and memories of redundancy or threats to their own jobs weren’t quite so raw. So the problem for spending-cutting Conservatives is this – how can we invigorate the private sector to create the jobs for those we need to cut from the public sector? Because unless that happens, there won’t be the cuts that some would like to see.

British manufacturing will continue to decline and our financial services sector – the powerhouse behind the 1995-2007 economic boom – looks to have blotted its copybook and is now the target of government ire. So what do we have left? What can Britain give the world? We have a long and established tradition of innovative and creative thinking, invention and a slightly different perspective on a problem. If Britain has any hope of still being great in 2050, this hope lies in science, technology and the support services that surround it.

We can no longer export goods as cheaply as other countries and our services sector will soon be swamped by the rigours of increased scrutiny. But what we can export is patents, ideas and technology – but only if the funding is put into the necessary research.

In Churchill House, we were debating the differences between Labour and the Conservatives in the long and short-term. Labour would maintain and increase the state economy to 60% of GDP or above. Only the Conservatives can challenge this. It’s a risk; but it could change the position of Britain in the world and be the bang that echoes through the next century of our history.

Osborne and Clarke could hold the key to election success

It’s been a strange time in national politics during the past three months. There’s no doubt that Charlie Whelan, Alistair Campbell and PM represent the most devastatingly effective political propaganda team in British history. The results of their work are seen in every media outlet, regardless of its official persuasion and sometimes more so, strikingly, in outlets that are not government supporting. There has been a real gusto about the Labour press campaign during the past three months that, had it been waged by the Conservatives, would undoubtedly have “sealed the deal” for DC.

Meanwhile, my reflections on his performance during the same time are probably best left unstated. The PM remains shatteringly unpopular and won’t survive the election either way. He has led us into a recession of drastic proportions and other than the press management outlined above, his government team is utterly hapless and bereft of ideas – as well as the money to enact any meaningful change or reform. There is simply no reason for the Conservatives to be within striking distance of Labour in the polls.

That we are is down to two things. Firstly, people are fed up of waiting to be told what Conservative policy is. They have waited for three years now in the belief that when the time came, DC and his team would be straightforward and clear about how the Conservative Party would seek to re-shape and change Britain in 2010-14. I can see that we have made some attempts, particularly on education policy, to get these messages across. But too often the position on taxation, family values and criminal justice has overshadowed the NHS and education. That’s partly to do with Labour’s art; but it’s also politics and an experienced team like Andy Coulson and Steve Hilton should foresee the tactics of opponents and build these into Conservative planning.

Let’s take for example the Piers Morgan show on the PM, sycophantic and soporific in equal measure though it was. If the DC team thought that a late-night Sunday show with Trevor McDonald would pull in the same crowd either in numbers or demographic, one wonders what kind of analytics they are using. As it happens, there has been some good poll news today (on the front of the Guardian) but I doubt that was much to do with Sir Trevor. And there needs to be a sea-change in Conservative tactics if it’s to stick.

I’m puzzled that the one issue that will decide the election – and the one that the Conservative are traditionally strongest on – is the one issue we seem to be handing to Labour. Gordon Brown has been given licence by his media friends to paint himself as the experienced hand on the economic tiller, which is akin to the Cray twins applying to the magistracy. This PM has no right whatsoever to claim such a thing – he has shown himself as the most politically expedient of Chancellors and PMs.

There is a clear opporunity for contrast here. A Conservative Party that will plan for 2010-18 rather than just for four years, a Conservative Chancellor who will make the tough decisions necessary to secure long-term prosperity, a Conservative Prime Minister who will formulate policy around what we can pay for rather than what we can borrow against and a Treasury team of Ken Clarke, Phillip Hammond and George Osborne that is both more able, more popular and more trustworthy than Mandelson, Byrne and Darling. To my mind, we have the tools – what I don’t understand is why we are not taking the initiative.

It’s a fluid situation – the level of deficit cuts and savings needed will fluctuate with each pronouncement on how recovery is going – or whether we slip back into recession. But the budget presents an opportunity to brush aside what will be a populist, shameless and cycnical piece of propaganda designed to win votes and create difficult questions for the opposition. We have a clear opportunity to make some assumptions, to take a snapshot of the economic climate and to make our own proposals for the British people.

Without their confidence on the economy, it will be a struggle for DC to gain a majority in parliament. The upcoming industrial action may play into his hands and he needs to capitalise with a clear understanding and strategy for the economy; these two things may alone prove decisive.

In the dark - Broadcasting House seems to have its own view on economics

Apparently two separate blog entries in lightning succession trying to make hay out of the Hatfield House meetings clearly wasn’t enough for Nick Robinson, who surely won’t still be BBC Political Editor by the end of the year. The fact that no other media saw fit to run with this story in a big way shows how isolated he is, how drawn into the Labour spin trap.

We now have another blog post on Tory cuts that tries to have it all ways – saying the Conservatives will cut and if they don’t painting that as a U-turn and another slight on DC. He then helps perpetuate the myth that government spending boosts growth and will therefore aid a recovery. Government spending doesn’t boost growth - it creates its own growth, which then disappears once the subsidy is withdrawn. The UK would still be in recession without the Car Scrappage Scheme – with that scheme over, the car industry can expect a significant downturn in the months ahead.

Today, the Labour group on the LGA announced it would push for a 1% pay increase for the least well paid rather than exercise restraint. Again, the money that goes into propping up more and more public sector wages is a massive ongoing subsidy and one that cannot be withdrawn now it has been enacted without devastating unemployment. The reduction of the public sector headcount must be a target of a Conservative government because it is not healthy for our economy, society or democracy for such a large proportion of the population to be employed by the government.

But now so many are, reducing that number is a hugely painful and expensive thing to do. We mustn’t make the same mistake with the economy by using more government money to prop it up – it needs to be nurtured and kicked into a recovery of its own and the only way to do that is to reduce our debt. Yesterday Bill Gross told investors across the world to avoid the UK because of our huge debts, weak currency and fragile recovery. Like George Osborne, he sees that debt reduction – preferably quickly – is the only way to restore confidence, maintain our credit rating and keep interest rates down.

It’s all very well pumping money into the economy – even if it doesn’t actually promote sustainable growth. But if people’s mortgage rates go from 2.5% up to 6% within 12 months, it isn’t going to leave them with much money to aid the recovery; in fact, many of them will be worse off than they were while we were in recession.

So the BBC needs to stop chucking the last dice all over the place in support of Labour and start understanding that more borrowing and spending in the short-term is going to make the problem far, far worse. If they leave everything as it is, we will fingernail into a slow and drawn out recovery process during which many people will be worse off than they have been for the past two years.

Only by committing to reduce the deficit can we carry the confidence of the markets, which are the real force behind recovery. We need to cut public spending while keeping as many people as possible employed, to raise taxes for those that can afford it most and keep interest rates down while selling on as much of our debt as we can. It’s not going to be easy.

Well, don’t you feel better now? The UK is officially out of recession (link to The Times because the BBC’s coverage reads like a Treasury press release), so we can all get back in our cars, go back to shopping in Waitrose and start thinking about re-mortgaging the house. Not quite. Because the government has been pumping so, so much money into our economy during the past 12 months that anything other than growth – however pitifully small – would have been utter humiliation. It’s also worth pointing out that we still have January and February’s figures to come before Q4 2009 growth is confirmed.

I believe that 0.1% is rather convenient for Gordon Brown and will be revised downwards in a few weeks when the fuss has died down. But there is a fundamental distinction between the two parties on how to maintain recovery – and remember that a second “after-slump” in the face of first recovery is something that has characterised nearly all the post-war recession. Labour wants to continue to prop up the economy with taxpayers’ money and there’s nothing particularly wrong with that in such dire circumstances.

The BBC's graph is stastically nonsense

But at some point, the props have to be taken away – and at the moment, the whole thing would come crashing down if that were the case. This is the graph that the Treasury and the BBC wants people in Britain to see. It looks like we are out of the woods. With another 18 months of quantative easing and borrowing, the figure could quite easily be pushed up to 2 or 3 percent and the government given credit for not just a full recovery but a new boom.

The Guardian's graph not only shows us where we actually are but compares with other recessions

This, though, is the Grauniad’s somewhat more realistic assessment of the situation that shows the recession has wiped out all the growth in the British economy since 2005. I have heard both George Osborne and Phillip Hammond in the media today say that the only thing that will keep us out of recession is the private sector’s profits, jobs and tax revenues and that interest rates must stay low to stimulate that growth. We need to cut the defecit to bolster our credit rating and boost our floundering currency.

A rise in interest rates, which would have an adverse affect on people’s spending power, is the most serious threat to our sustained economic recovery – apart from a fourth term for Labour. More borrowing could mean a softening of Britain’s credit rating and devaluing of the pound, which would make government guilts and bonds less attractive to investors. The government desperately needs to harden these investments to pass Britain’s debt onto those with the money to buy it; cuts in spending alone coupled with tax increases will not be enough to pay off our borrowings.

I want to see Ken Clarke and Phillip Hammond blast through Labour bluster about recovery and remind people that whatever Labour has done to bring us out of recession – and you can argue about the effectiveness vs cost of that – it’s nothing compared to the damage they have done to British business and trade, as well as landing us with a huge debt to pay off. I want to see people reminded about this until Gordon Brown doesn’t want to talk about the economy anymore. Brown’s plans to continue to spend his way out of recession and worry about the economic consequences later should convince that he can’t be trusted on this.

He’s been saying for ages that the Conservatives have made the wrong call on the economy every time. It’s not true and it’s time we hit back. He wants to continue to mollycoddle the nation and extend the pain for longer. The Conservative approach is not just a self-flagellating short, sharp shock; it makes absolute economic sense and it’s about time we said so.

Reality bites - Nick Clegg has ditched some of his key promises

Writing in the Grauniad this morning, a smug Michael White claimed that DC’s appearance on the Andrew Marr Show had clarified nothing and that he had not been able to give firm promises on any of his draft manifesto commitments. Well, I can’t deny that DC is avoiding any more cast-iron guarantees but neither can Mr White deny that the reason he is doing so is because of the total and utter ruin to which the government his newspaper supports has brought the economy.

Furthermore, we know that the government is being deliberately obstructive of Conservative attempts to gain access to Treasury information – both to hide the extent of their failure and deny the opposition any advantage they may derive once in government. DC knows that things are bad but he isn’t sure how bad and until he knows he’s not making any promises. Is Mr White saying this isn’t sensible?

The Liberal Democrats have been busy making quite a bit of hay over that situation in the past. But now it turns out that they too have seen the absurdity of promising free elderly care and scrapping tuition fees when the money most obviously isn’t there to fund it. It’s not the first time they’ve decided they want to scrap some of their policies (Mansion Tax, anyone?) but at least Nick Clegg is shelving these because he can’t afford it, rather than because they are rubbish.

As ever with the Lib Dems though, they don’t have to be properly costed because they aren’t ever going to be enacted. But there comes a time when promising the earth just looks silly - even when you don’t necessarily know the details of the costs involved. Such a point has been reached and Nick Clegg is using the opportunity to launch his own austerity regime.

Which just leaves Labour. The Chancellor has promised cuts, the PM used the word once but thinks he got away with it and one half of the Labour party wants class war and investment and the other half wants the middle class vote and a pair of sharp scissors. It is clear that the government is in total disarray not about the economic policy needed – because both spending cuts and tax rises are coming without a doubt – but how to present this to voters.

The Conservatives went for honesty at their conference last year and it went down well at first but started to wobble once the government comms department got hold of it. The Lib Dems tried honesty, the party didn’t fancy it and so they went back to investment but now Nick Clegg has obviously put his foot down for the sake of credibility – as far as it goes, good on him.

But Labour – Labour is a complete and utter shambles with PM, Alistair Darling and Milipede pulling one way and Balls/Cooper the other. Most of the cabinet seem to have given up, obviously completely bemused with the whole situation and the shattering lack of leadership.

They didn’t go into politics for this. Hopefully, they’ll be put out of their misery before too long.

Has the Icesave money been flushed down the waterfall?

Iceland is apparently a startling beautiful place. And up until quite recently, it was an attractive place to deposit money if you were a local authority. Indeed, the treasury included it on a list of, ahem, approved destinations for local authorities to save, such was the benefit of the interest rates on offer at places like Landsbanki.

Unsurprisingly, many local authorities did so – although not Woking – and when the whole thing went under in 2008, the price of local authorities’ silence on the Treasury’s advice was the government not blaming the councils themselves for incompetence. Many councils, in fact, sussed that there was something wrong in Iceland many months ahead of time but couldn’t get their money – tied in for periods of a year or more – out in time.

As well as councils, around 300,000 depositors in the UK, Netherlands and Germany had Icesave accounts that were guaranteed by the government – it is compensation for this bailout that is being questioned by Icelandic president Olafur Ragnar Grimsson. His government led by prime minister Johanna Sigurdardottir wants to do the right thing by paying back the British and Dutch governments nearly £3.1bn but he has decided the Icelandic people should have a say in a referendum instead.

They are likely to vote against because they believe that the country shouldn’t pay back the money to foreigners that its incompetent and dubiously run banks – the foreign debt of the biggest three was more than five times Iceland’s GDP – took from them in full understanding of their precarious position. The reducing value of the Icelandic currency was also to blame – somewhat more the fault of the people of Iceland than the people of Britain.

What this issue has to do with the people of Iceland is unclear. This is nothing less than nationalism being the last resort of a bankrupt nation and a president keen to gain some political capital out of his government’s stupid actions. Iceland has never been a centre of world finance and was scarcely able to sustain such highly leveraged financial devices – at least the City of London has that excuse.

If Iceland refuses to pay back what it owes to the people who lost out in Icesave, it will actually lose out further in the long term. It is difficult to see how it could ever enter the EU and investment in that country would be very, very hesitant in the future. Icelandic banks would remain a byword for loss and injustice along with the likes of BCCI and Barings.

Let us hope that the President and his people drop the patriotic ardour and start to understand the unfortunate consequences of neighbourly disputes.

The PM spent most of last year talking about how the Conservatives were going to cut their way out of recession. Now, with the publication of the first part of the Conservative manifesto, he has decided to try and say that we are planning to splurge our way out of it with a £34bn black hole.

Labour has form on dodgy dossiers - as we all know - and the compendium of lies that they released in response to the manifesto certainly fell into that category. But they succeeded in one way – the central message of the manifesto, the draft plans for the NHS, did not get an airing on the news. DC has to brush aside this silly question about how much of a promise is a promise and make sure that people know about our ideas and innovations for the future of the country.

As Stephanie Flanders points out, we should be mounting a two-pronged attack here – one with our own ideas and one with some serious hay-making about Labour’s own planned cuts. Where I think she is slightly off the mark is in saying that by talking about the nature of the promises rather than the content, the first day was a Labour success – DC made the point well that the promises are only tentative because of the economic mess Labour has bequeathed.

But he needs to start being more ruthless about ignoring journalists’ questions and getting his own message out. Tony Blair was a master of this art and it contributed a significant part of why he was able to seal the deal in way that DC has yet to. And Nick Robinson is as good a place as any to start.