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Last Updated: Monday, 4 October, 2004, 13:27 GMT 14:27 UK
Oliver Letwin's taxing questions
Evan Davis
By Evan Davis
BBC economics editor

shadow chancellor Oliver Letwin
Can Oliver Letwin's plans pass the credibility test?

Oliver Letwin wants to talk about tax. He wants tax cuts, and so do his party.

He has plenty to say about how Gordon Brown has used small taxes to do some big revenue raising.

About how taxes that were once never talked about, like inheritance tax or stamp duty, have become the pinchpoints of our tax system.

But Mr Letwin has a huge hurdle to overcome before he can make credible promises on tax - he has to sort out public spending, to show he can afford tax cuts.

Doing your sums

Now time was when politicians could promise anything in the run-up to an election, undisturbed by the fact that the promise was undeliverable.

But times have changed. You don't get away with that anymore.

The media and think tanks like the Institute for Fiscal Studies, will expose unaffordable plans. The first inevitable question for any party is - "do the sums add up?". A good shadow chancellor makes sure they do.

Of course, politics is manifestly less fun when constrained by the rules of arithmetic.

But all three main parties have discovered a new way of making promises: it's to ensure the sums add-up, by introducing funny numbers into the calculations.

We are being asked not just to choose between different parties' priorities, we are being asked to judge their competence

These numbers are the savings to be made from cutting waste. Painless savings, the parties can use to fund their other commitments.

By using this kind of accounting, the parties solve one problem - getting the fiscal sums to add up. But create another - delivering painless savings.

It brings to mind an old war joke, that Hitler asked his key scientists to find a way of making margarine out of manure.

The scientists went away with this impossible task, and after a long delay, Hitler demanded to know what progress they'd made. "We're half way there", said the chief scientist. "We've got it to spread evenly".

Cutting waste

The parties have done the easy bit - getting their spending plans to add up - but have left the difficult task of cutting waste ahead of them.

Now I stress, the Conservatives are NOT alone in this, but they are relying on cutting waste rather more than the other parties.

So on Friday, the Conservatives promised - quote - "to spend 2.7bn more than Labour on defence".

This sounded implausible, as the Conservatives are planning to restrain defence spending.

The small print makes clear, the party will spend more on frontline defence - because it will spend a lot less on back-office defence.

It's quite possible that ambitious back-office cuts can be found - it's been done in former nationalised industries.

But how we are to know whether it can occur in Whitehall? Or who'll cut waste best?

We are being asked not just to choose between different parties' priorities - e.g. who'll spend more on health or defence - we are being asked to judge their competence - who'll spend more wisely?

Speaking as someone who's not a management consultant, I find it hard to assess. Will the Tories really cut bureaucrats? Or will they just end up cutting the quality of public services?

That's the credibility test that Mr Letwin faces.

Pass that and he can talk about the nice bit - tax cuts.

Evan Davis examines Oliver Letwin's tax policies


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