CONSERVATIVES ANNOUCE THEIR PLAN FOR RECOVERY

UNCLAS LONDON 000038

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV UK
SUBJECT: CONSERVATIVES ANNOUCE THEIR PLAN FOR RECOVERY


1. (SBU) Summary: Conservative Party leader David Cameron unveiled
his economic plan to deal with the debt crisis in a speech delivered
January 5. Cameron's speech was sharply critical of Gordon Brown's
economic stimulus policies and argued the debt crisis was a result
of Labour's mishandling of the British economy. Cameron proposed
eliminating income tax on savings for those on the basic rate of tax
and raising the tax allowance for pensioners. Reactions to the
proposals were mixed. While some commentators were critical of the
job losses and reduced growth likely to accompany cuts in public
spending, others praised the proposals for highlighting the role
savings can have in helping the UK out of the economic downturn.
End summary.

"A grim life of debt and despair"
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2. (U) David Cameron placed the blame for the debt crisis squarely
on the shoulders of Gordon Brown and the Labour Party, referring
throughout the speech to "Labour's Debt Crisis": "We're in this mess
because of too much debt-too much government debt; too much
corporate debt; too much personal debt. This is Labour's Debt
Crisis." Cameron argued that Gordon Brown's economic stimulus
package had failed and that Labour has "run out of money",
criticized Brown's economic package and bank recapitalization for
failing to restore lending, and denounced Brown's 2.5 percent Value
Added Tax (VAT) reduction calling it "a criminal waste of public
money." He said Brown's recession policy was "both economically
stupid and morally indefensible" and that the British people had
come "to the end of the road under Labour."

Restricting spending; Supporting savers
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3. (U) Cameron argued that the only way out of the debt crisis
would be through saving, saying Conservatives would transform
Britain from an "economy built on debt to an economy built on
savings." He called for a broad package of social, cultural, and
environmental change and spoke of his vision of a less materialistic
country, "a contributor society not a consumer society." To that
end, he proposed eliminating income tax on savings for everyone on
the basic rate of tax and raising the tax allowance for pensioners
by GBP 2,000 ($3,500). These cuts come at a cost of GBP 4.1 billion
($6.2bn) which he said would be funded by restricting public
spending in 2009 to a one percent increase in real terms (down from
an average of 4 percent),while leaving spending levels for schools,
defense, health care and international development untouched. He
noted that while the Labour Party planned to cut spending from 2010
onwards, leaving 2009 spending untouched was wrong. Cameron urged
the Labour Party to adopt these policies in this year's budget
(likely to be announced in March).

Reactions
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5. (U) Reactions to Cameron's proposals were mixed. His plan risks
reducing growth by cutting the amount of money spent in the economy,
according to the Institute for Fiscal Studies, an independent
economic think tank. Carl Emmerson, the think tank's deputy
director, said the plans would inflict "a sharp slowdown of spending
growth" by government departments, while the beneficiaries of the
plans may choose to save their extra cash rather than spend it.
Nick Clegg, leader of the Liberal Democrats, accused Cameron of
offering a "fake giveaway." He said cutting savings tax will mean
someone saving GBP 100 will only receive an extra 40 pence a year.
Cameron's proposals would increase unemployment as a result of the
cuts in public spending, according to the Trades Union Congress
(TUC). Brendan Barber, TUC General Secretary, said the proposals
would benefit big banks, the super-rich and tax avoiders.
Conversely, the Association of British Insurers praised the
proposals and welcomed the acknowledgement of the importance of
savings in helping the UK climb out of the downturn.


6. (SBU) Comment: Cameron's speech created a clear division
between Conservative and government policy on how to steer the UK
through the recession. (Note: Media commentators had previously
criticized Cameron for not establishing a distinct Conservative
economic policy for handling the credit crisis. End note.)
Conservative emphasis on saving contrasts sharply with HMG's capital
investment program. However, the Prime Minister hinted on January 4
that Ministers are looking at measures to help savers who have
suffered from interest rate cuts. Media commentators note that this
is likely to become a political battle to woo savers.

TUTTTLE