What I had expected to happen was that the Conservatives would keep to the line that spending had to be reduced because debt and the deficit were too high. The need for austerity because you have borrowed too much was a simple message that everyone understood, even if it didn’t make much sense when applied to a government during a recession. There would be appropriate nudges and winks that, once elected, this tough fiscal line might be modified to make room for tax cuts, but the official line would be ‘debt implies austerity’.
Those who are better informed about the macroeconomics, whether on the right or left, have always understood that this was cover for a desire to shrink the size of the state. However this perspective hardly ever saw the light of day in the media. It is tempting to lapse into conspiracy mode at this point - to believe that the rules of mediamacro are whatever suits a particular set of interests. I suspect this is too simple. For myths to work well they have to be based on half-truths, and they have to obey some internal logic.
So when John Snow berated Ed Miliband for forgetting to talk about the deficit, I think he actually believed that the deficit was this all important constraint that was driving austerity. People understand that when they borrow too much, hard times have to follow. That cornerstone can support many other beliefs. The bank manager who says you must reduce your spending is not popular, but you know he is being responsible. I suspect a great deal of the advantage that the Conservatives enjoy in terms of economic competence in the polls simply comes from this idea (and associating Labour with creating the debt problem). It is difficult to see where else it comes from, with deficit targets missed and stagnant real wages and productivity.
Now that Cameron has promised large tax cuts, does this blow away the cover? Nice if it happened, but unlikely. The Conservative line that only they were prepared to take the debt problem seriously still works. For every person who, as a result of the promised tax cuts, begins to question whether the size of the deficit really was such a major problem, there will be many more that continue to believe it is and will scold the Conservatives for not being responsible enough (but still vote for them).
As a result, I do not think it will change how voters see the past. Looking to the future, on the other hand, it is will be very difficult for Osborne to argue that his future austerity is a painful necessity, and the plans of others dangerously profligate. The retort ‘how come there is room for large tax cuts’ is too strong. If they have any sense Labour will turn the tables. Whereas they have costed all their new commitments, Cameron’s tax cuts are to be paid for by yet unspecified spending cuts (the ‘magic asterisk’). The political danger of the magic asterisk is that it is left to the voter’s imagination to fill them in. If Labour are clever (which may be a big if) they will make appropriate suggestions depending on the audience. Furthermore, interviewers with any self respect will press the Conservatives to outline exactly where ‘the money will come from’ to pay for the tax cuts.
It also lets Labour free of all those questions about the commitments they do have, and whether the country can really afford them. The choice becomes should we spend money on the NHS or on tax cuts, and that I think is ground Labour should be happy to fight on. (There is also the danger that these tax cuts, which mainly benefit the better off, will be viewed in the same way as the cut in the 50p rate.) It is also a more honest debate. Hopefully Labour will spell out exactly how they will achieve their fiscal targets, so that the contrast between their fully costed plans and the Conservative’s uncosted plans will be crystal clear. Add to this the uncertainty created by the proposed EU referendum (see Roger Liddle here reinforcing some of my own thoughts), and perhaps the Conservatives will no longer be seen as the safer pair of hands. (For an example of this train of thought, see these remarks about UK credit ratings.)
For these reasons, I do not think that announcing large tax breaks was always part of the Conservative’s plan. Of course offering tax cuts will gain some votes, but it puts at risk one of their main political assets, which is the perception of future economic responsibility. This in turn may suggest that the Conservatives are far from confident about winning in 2015, as the polls so far have not shown the hoped for pre-election drift to the governing party. Whatever happens, watching how mediamacro develops just got more interesting.