Page last updated at 16:18 GMT, Thursday, 10 September 2009 17:18 UK

Parties shift on spending debate

By Iain Watson
Political correspondent, BBC News

Rubbish collectors in London
The Tories are looking to councils for smart ways of saving money

If a week is a long time in politics, a year is an absolute aeon.

As recently as last November, the Conservatives were planning to stick to Labour's spending plans.

But then mounting public debt and plunging economic confidence forced them to change their minds.

The Conservatives still haven't ruled out tax increases to deal with the deficit if they win power nationally next year but there's a feeling that they are now far less sheepish in advocating spending cuts as the main means of restoring the public finances.

So on Thursday shadow chancellor George Osborne made a point of praising those Conservative local authorities which, in his words, "are dealing with the constraints" a Tory government "may face very soon" by cutting costs and rooting out waste.

Follow the councils

They include the borough of Hammersmith and Fulham in London which has cut council tax by 3% but staffing levels by 20% and Essex County Council which has outsourced some back office functions to the private sector.

Not so long ago some Conservative strategists would have worried that public praise for those who slash spending would have allowed the government to claim the choice for voters at the next election was between "Tory cuts" and "Labour investment".

That particular refrain won the day at the 2005 general election.

But the Conservatives are more confident in suspending the sword of Damocles over the heads of Whitehall mandarins because of two developments.

First, they believe voters are worried about the scale of public debt and want to hear what the political parties will do about it.

Showing a willingness to cut the number of central, as well as local, government staff is now seen as signalling to the wider public that a future Conservative administration would share any burden of economic pain more evenly between the public and private sectors.

Second, some in the Labour hierarchy - and that includes a clear majority of the cabinet - have prevailed in persuading the prime minister that the 2005 mantra of government investment versus Conservative cuts sounds less credible with each repetition during a recession.

Charles Clarke
Charles Clarke says the argument of investment versus cuts is obsolete

So David Cameron's Conservatives are being liberated from defining themselves against their cash-cutting Tory predecessors and are now more able to say that all sensible parties will have to cut their cloth according to much-frayed material.

But the government's shift of emphasis has also re-opened the debate on public spending in Labour's ranks.

This week the Chancellor Alistair Darling has said the government will have to "cut costs" and "shift resources to the front line".

There would be "hard choices" ahead, including the possible sale of "non-essential public sector assets", he added.

This, in turn, has given the old Blairite bruiser Charles Clarke permission to re-enter the fray and try to re-draw the dividing line between government and opposition.

In an article for the online magazine Policy Review, he says "it is good news that Labour's leadership seems to have abandoned the misleading and incredible proposition that the general election choice will be between Labour investment and Tory cuts".

Dividing lines

Instead, he says cuts should be made fairly and more transparently. And, in the process, he implicitly criticises his current party leadership for talking about hard choices but not yet setting them out.

He believes "big ticket" items of expenditure will have to be ditched - such as the renewal of Trident.

But he also suggests any future government must set out how it plans to raise, as well as save money - he favours more road tolling and congestion charging, and an extension of 'co-payment'- where better off users of public services contribute more.

But while the former home secretary wants to set out dividing lines with the Conservatives, there is also a degree of consensus with his opponents.

George Osborne wants to publish online all items of government expenditure above £25,000 so that people can, in his words, "follow their money".

Charles Clarke also wants more transparency through what he calls "hypothecation'' - the earmarking of taxes for specific purposes, so that, for example, people who pay road tax would know this slice of cash would be devoted entirely to transport.

The Liberal Democrats will be putting together a programme of spending reductions of their own.

So while it would be ludicrous to suggest that differences between the politicians are diminishing, the tectonic plates are shifting and creating new fault lines between the parties.

Just as a year ago when Conservative and Labour said they would match each other's spending levels, now they both admit that belts need to be tightened.

But the battle will be about how much, and when, to cut spending - and indeed, as Charles Clarke suggests, about who would get squeezed most.

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