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Tuesday, 5 September, 2000, 13:53 GMT 14:53 UK
Tories target the economy
Shadow Chancellor Michael Portillo has had a strong influence
Shadow Chancellor Michael Portillo has toned down policy
by BBC News Online's Steve Schifferes

The Conservative draft manifesto, Believing in Britain, argues that deregulating the economy and tax cuts are vital for future economic growth.

In a broadside against the current government, the Tories say the UK "has to reduce taxes and regulations if we are going to compete" in the global economy.

But many Conservative proposals on the economy are little different from the goals of the Labour government. And others, particularly on trade, seem unrealistic.

It is still the opposition to the single currency that most differentiates the Tories from Labour.

The Conservatives say in the manifesto that they want to keep the pound for economic reasons, and that the government's approach is an "unjustifiable risk".

They argue Britain will compete better globally if it retains control of its currency and sets its own monetary and fiscal policy, fixing interest rates to suit British economic conditions.

However, their hopes that they can re-orient the EU towards a free trade pact with North America seem misplaced.

Neither the US Congress nor either of the main presidential candidates is interested in pursuing this option, and the proposal is unlikely to generate much interest among EU partners.

Economic convergence

Under shadow chancellor Michael Portillo, the Conservatives have ditched a number of economic policies that distinguished them from the government.

Mr Portillo has persuaded the Tories to keep the Bank of England's Monetary Policy Committee in charge of interest rates, although he wants it to be more independent of the government.

He has accepted the minimum wage and the Working Families Tax Credit, and moderated some pledges to roll back the size of the state.

However, two controversial welfare proposals have been added to the Conservative manifesto with relatively little fanfare.

Responsibility for a state benefit, industrial injuries insurance, will be shifted to employers, and plans will be revived to create a funded state pension for young people - a proposal that was floated at the time of the general election.

Spending pledge

The main electoral battleground, other than the pound, is likely to be the Conservatives' pledge to keep taxes down.

"It is not sustainable for the government spending to grow faster than national income", the party's manifesto says. "In all normal circumstances we will reduce the burden of taxation."

Labour will push the Conservatives to say where they will make public spending cuts in order to meet this pledge.

But in reality the two sides are not all that far apart on spending. Labour has accepted a fiscal responsibility pact that limits any spending increases to slightly below the rate of economic growth to avoid increasing public debt.

The Tories, meanwhile, now say that they are in favour of "real annual increases in spending which are within the trend growth rate of the economy," and which will be higher than inflation.

So both sides, it seems, will keep public spending at the current level of about 40% of GDP.

Taxes on business

The Conservatives are, however, targeting a series of unpopular taxes on business for reform or abolition.

They say that as business become more mobile, "it will not stand still to be over-regulated and over-taxed. They will simply leave countries which do not create an attractive environment in which to trade."

Among the taxes they want to abolish are the proposals to tax independent consultants as if they were employees, the so-called IR35 proposals.

They also want to drop the proposed climate charge levy, which will tax energy-intensive businesses more highly the more polluting they are.

However, they say that they are still in favour of the Kyoto pollution targets, and want to introduce trading in pollution permits - which might end up costing industry just as much.

The Tories want to ensure prosperity by targeting red tape at home and in Brussels, promoting flexibility - objectives that the Labour government says it shares.

Like Labour, they also want to promote the high-tech economy, making the internet cheaper.

In general, the new Tory manifesto strikes a sensible tone on economic policy. But with Labour having firmly seized the middle ground, that means there are relatively few policies in this area where they can be distinctive.

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See also:

03 Feb 00 | UK Politics
Portillo springs surprise U-turns
04 Apr 00 | Business
Red tape burden facing cuts
01 Apr 00 | UK Politics
Portillo's spending pledge
11 Jul 00 | UK Politics
Hague under fire for tax backtrack
11 Jul 00 | UK Politics
Portillo behind Tory tax turn
04 Sep 00 | Business
Anti-euro campaign launched
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