This is not a political blog, so I am reluctant to address David Cameron’s recent tax announcement, which is likely to cause a long-running debate – and raise temperatures by several degrees (which will hardly help slow down global warming).

In suggesting that the Conservatives will not commit to following the government’s spending plans for 2010/11 if they win the next election, he is taking a massive risk and inviting commentators on both sides to take polarised positions (particularly the BBC, which is likely to milk this for all it is worth).

A balanced view
This is unfortunate, because there are clearly arguments on both sides. On the one hand, in recessions the traditional government response has been to increase spending in such a way as to give the economy a boost. Creating jobs for the lower paid is an effective way of doing this. So what the Prime Minister and his poodle Chancellor are likely to announce in the Pre Budget Report should – if as predicted – be a short term palliative that helps the economy; especially if other governments do the same.

On the other hand, the state already represents a disproportionately large proportion of the economy (even by the government’s own figures it is 43.4% of GDP). While the services it provides are very important, they are not ‘productive’ in terms of making anything or providing a service that we can sell overseas. That comes from the hard-pressed and over regulated private sector. So proposals that we should ‘roll back the state’, which was the mantra of Margaret Thatcher and her ‘neo-classical liberals’, make sense … and indicate that Cameron is the true heir of the 1980s party.

A time for each approach
There is clearly a time for bailing out the economy, as Brown says, and a time for making the economy more efficient. The problem is that the press cannot tell the difference between the short- and long-term; so at least part of it will take pleasure in joining the Prime Minister in saying that the Tories are ‘out of step’.

Had the country not been living on borrowings so that taxes could be kept down (at least at headline level – we all know about stealth taxes), we would now be in a better position to pay for the spending plans that the Chancellor has to put in place in order to boost the economy.

Unfortunately, a lack of past prudence means that we will be increasing borrowings to an unsustainable level in order to take the right corrective action. In other words we will certainly pay tomorrow for what we get today. So will our children. So will our Grandchildren. This will mean less for personal investments.

More effective spending
So in calling for a reduction in the rate of increase in state spending, the Tories are taking on board the important message that government has to give (and get) value for money.

It is not a question of spending less of the NHS, or welfare benefits; it is a matter of ensuring that taxpayers’ money is allocated at the ‘front end’ – not wasted on bureaucracy and administration. There must be no more people simply receiving data to be filed away and never seen again, but a focus on providing the benefits and services people actually need.

If you are wondering what to do, about your investments and retirement planning contact Robert Bruce Associates for individual assistance.