CONSERVATIVES ANNOUNCE PLANS TO CONFRONT "CLEAR AND PRESENT

UNCLAS SECTION 01 OF 02 LONDON 002357

SIPDIS

Department for AF/EPS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV PGOV UK
SUBJECT: CONSERVATIVES ANNOUNCE PLANS TO CONFRONT "CLEAR AND PRESENT
DANGER" POSED BY THE UK'S BUDGET DEFICIT

REF: London 2226

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1. (U) Summary: Conservative plans to cut the UK's spiraling budget
deficit were the focus of the recent Tory Party conference. Party
leader David Cameron acknowledged painful cutbacks in public
spending would be necessary to confront what Philip HAMMOND, Shadow
Chief Secretary to the Treasury, called a "clear and present
danger." Shadow Chancellor George Osborne outlined Tory plans to
place public finances on a sustainable footing by freezing public
sector wages, increasing the state retirement age, and delaying tax
cuts. To create a hospitable business environment, the Tories would
cut excessive regulation and introduce regulatory budgets, meaning
no new regulatory burdens without removing old ones. A Tory
government would maintain the UK's commitment to increase aid
expenditure to 0.7 percent of national income by 2013 and would
prioritize aid efforts in Afghanistan, Pakistan and Zimbabwe. The
Conservatives stressed the importance of a binding climate deal in
Copenhagen and called for faster development of clean coal, nuclear
power and renewable energy. End summary.

"A Clear and Present Danger" - The UK Budget Deficit
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2. (U) Painful cutbacks in public spending will have to be made
after the upcoming general election to confront "Labour's Debt
Crisis," party leader David Cameron said during his speech at the
Conservative Party conference, October 5-8 in Manchester. Leaving
the UK's budget deficit unchecked poses a clear and present danger
for the UK economy, one that would ultimately undermine economic
recovery, argued Philip HAMMOND, Shadow Chief Secretary to the
Treasury. During his speech at the Conservative Party conference,
HAMMOND said the hole in public finances is the most urgent
challenge facing the country. In his remarks, Shadow Chancellor
George Osborne unveiled Conservative plans to freeze public sector
wages for one year, for all but the lowest paid workers, in 2011. A
Conservative government, he said, would also increase the state
retirement/pension age. For men, the pension age would rise from 65
to 66, beginning in 2016 and for women, in 2020. Government
ministers would receive a 5 percent pay cut next year, while the
overall number of MPs would be cut by 10 percent. The
Conservatives, HAMMOND said, would create an Office of Financial
Management to ensure value for money in public spending.


3. (U) Most Conservative proposals involved spending cuts, rather
than changes to the tax system. HAMMOND said further significant
tax increases would erode the UK's competitiveness - so public
spending would bear the brunt of the burden. However, Osborne said
the Conservatives would not immediately abolish the 50 percent tax
rate on the highest earners, but said it should not be considered a
permanent feature of the tax system. He said his plans to ensure
only millionaires pay inheritance tax would have to be postponed
beyond the first Conservative Budget, but the pledge would be
honored in the lifetime of a Parliament (i.e. five years).

Conservatives To Cut "Excessive Regulation"
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4. (U) Cutting excessive regulation and making the UK more business
friendly also forms part of the Conservative economic plan. Ken
Clarke, Shadow Business Secretary, stressed the importance of
increasing the amount of tax revenue generated by the private sector
by making the UK more hospitable to business activity. In a Green
Paper, published October 6, the Conservatives outlined plans to
introduce a system of regulatory budgets across government, meaning
no new regulations can be introduced without a compensating
regulatory cut in the costs and burden elsewhere. Additionally,
Clarke said each regulator will be given a 'sunset clause.' They
will automatically cease to exist after a set period unless the
regulators can prove their continuing usefulness. Clarke said
economic recovery is dependent on nurturing high-added value,
technologically advanced, well-managed, aggressively marketed
companies.

Conservative Approach to Development
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5. (U) Conservative development policy will be driven by three core
principles: enterprise, accountability and transparency. During
his speech to Party members, Andrew Mitchell, Shadow International
Development Secretary, said the Conservatives were committed to
reaching the U.N.-agreed goal of spending 0.7 percent of national
income on aid by 2013. However, the aid budget will not be exempt,
he said, from line-by-line scrutiny and "value for money" tests that
will be imposed on all spending. A Tory government would introduce
an Independent Aid Watchdog to scrutinize all aid spending. It will
reduce, or abolish, funding for multilateral agencies like the UN

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Development Program if they fail to deliver.


6. (U) Mitchell said the Conservatives would withdraw aid from
countries such as China and Russia and prioritize aid in Afghanistan
and Pakistan, to ensure it delivers results and supports the wider
British missions. Alongside these countries, a Conservative
government, he said, would focus on Zimbabwe. Once the country was
on a clear path to democracy, a Conservative government would lead
the Commonwealth and international community in a development
program to galvanize Zimbabwe's private sector. (Reftel)

Conservatives Stress Importance of Copenhagen Deal
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7. (U) Any climate deal determined in Copenhagen must be a rigorous
one, argued Greg Clark, Shadow Energy and Climate Secretary. During
his conference speech, Clark said the Copenhagen deal must bind the
world in a common commitment to keep the rise in global temperatures
to below two degrees centigrade. It should outline plans to help
developing countries protect themselves against future floods,
famine and drought and should stop the destruction of the
rainforest.


8. (U) A Conservative government would immediately authorize five
gigawatts of clean coal capacity. It would publish the planning
guidance for new nuclear power to be built by 2017 and would speed
up the deployment of nuclear energy. It would mandate the National
Grid to extend its network out to sea to galvanize the deployment of
offshore wind, marine and tidal energy. Clark said a Conservative
government would provide incentives for biodigestion in towns and
would allow communities that choose to host onshore wind farms to
keep all of the business rates they generate for six years.

Response: Conservatives Fail Economic Credibility Test
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9. (U) The Conservatives failed the economic credibility test
during their conference, according to Liam Byrne, Labour's Chief
Secretary to the Treasury. Speaking to the press, Byrne said George
Osborne delivered a speech that cost even more than it saved and
created chaos and cuts that hit the middle classes to fund tax
breaks for Britain's richest elite. He said David Cameron delivered
an emotive but deceptive speech. It concealed the judgment calls
Cameron has consistently got wrong and the real threat of what he
would do, according to Byrne. Vince Cable, the Treasury spokesman
for the Liberal Democrats, said the Tory plans would not deal with
the structural deficit and amount to nothing more than a drop in the
ocean. He said George Osborne paved the way for a return to
traditional Tory policies - namely hitting the public sector now to
pay for tax cuts for millionaires later.


SUSMAN