George Osborne’s speech to the LSE today is well worth reading. In it he sets out his opposition to the Government’s proposals of spending its way out of the impending recession and thereby dismisses as flawed the Keynesian model the Chancellor is advocating. The Tories approach to deal with the inevitable rise in borrowing during a recession is not more borrowing but effective use of monetary policy such as allowing the Bank of England to do its job and cut interest rates. It’s a similar proposal to what Lord Lawson advocated two days ago which I mentioned here. There were no promises of big tax cuts in the speech, but smaller measures previously announced to help families and small businesses such as a council tax freeze, deferring VAT bills for six months for SME’s, a cut in payroll taxes for for the smallest companies and a stop to planned tax rises on family cars and small businesses.
After the cross party agreement on bank bailouts, the difference in approach between Labour and the Conservatives in dealing with the economic slump is becoming clear. I expect the differences will become even more clear after the pre budget report and George Osborne’s response to it. As things stand Labour is in the Keynesian corner, we Conservatives in the corner of the Monetarists. Let the battle commence.