Steve Richards: Cut now or cut later: the election decider

Britain is out of recession. Almost certainly the general election will be fought with the economy growing again. The news, formally announced today, will make little difference to any of the party's ratings. The recovery is too fragile for voters to jump with joy, and anyway the Conservatives were well ahead in the polls before Britain slid into recession. In addition, Gordon Brown is in the somewhat perverse position of stressing the economy's fragility in order to justify his policies and, indeed, his pitch as an experienced leader in troubled times. As one of Brown's more influential ministers put it to me, "If the economy was booming Cameron would walk it". Oddly it is almost in Labour's interests if the recovery is precarious.

But even if the official start of the recovery has no electoral impact the economy will still be the decisive issue of the campaign, as it always is. The key theme surfaced clearly for the first time yesterday when both Brown and David Cameron addressed the same question: will the recovery be threatened or assisted by substantial spending cuts this year?

I cannot recall an election where a choice with such immediate consequences has been presented so starkly. Surely voters will not be able to mouth the lazy cliché that "they're all the same as each other" this time around. Without specifying what he would do in terms of immediate cuts, Cameron described the challenge facing the government in terms any voter would understand: "It's like having credit card debt. The longer you leave it, the worse it gets." His simile echoes Margaret Thatcher in the late 1970s when she argued that the economy was like her father's approach to managing the household finance in Grantham. He did not spend more than he earned and nor should a government. Accessibility of argument is an important weapon and, like Thatcher, Cameron speaks in simple terms.

But accessibility is not the same as having the appropriate policies. Cameron and George Osborne have misjudged the nature of the economic crisis from the beginning, reacting as if we were back in the early 1980s, the era in which they were brought up politically. Their opposition to the nationalisation of Northern Rock and their calls for cuts rather than a fiscal stimulus point to an excessive attachment to Thatcherite orthodoxy at a time when governments around the world have sought to learn the lessons from the past rather than repeat the mistakes.

Peter Mandelson gave the best explanation for an alternative approach. He did so on the day of the attempted coup against Brown and therefore no voter would have noticed. His argument was a reminder that, for all the differences within the Government about the centrality of spending cuts, the key figures are in agreement about the short term. "Managing a family's household budget is not the same as managing the public finances prudently. At a time of low private sector activity, government spending provides vital demand. Pull away that prop for the economy and you reduce the tax take, push up spending on unemployment and make the deficit worse. This is the paradox of government thrift."

As Brown pointed out in his press conference, governments around the world have discovered the paradox. If the Conservatives win and go ahead with big cuts this summer they will be doing so when most equivalent administrations will be maintaining or increasing spending for a little longer.

Brown and Mandelson speak of the "triangle" of policies required to reduce the deficit: spending reductions, tax increases and economic growth. Their problem has been that various ministers cling to different sides of the triangle. The Chancellor, Alistair Darling, has become the spokesman for Treasury orthodoxy and has given three newspaper interviews in the space of a few days stressing his commitment to cuts. Since his meeting with Brown on the afternoon of the attempted coup he has behaved like a liberated prisoner, talking about cuts in a way that makes Osborne seem like a reckless spender. Mandelson is subtler, stressing in his speech "of the three, growth is the best antidote to debt both in short term and the long term".

The second key issue therefore is which party has the best policies for growth. The question is partly answered by the economics. The Tories believe that cutting the deficit quickly is in itself the best spur for growth. Labour and the Liberal Democrats agree that this could lead to a second recession. The Liberal Democrats' view on timing is significant. It is hard to see how they could support Osborne's emergency budget even in a hung parliament, unless the budget becomes less of an emergency package than some of the Conservatives' more ardent supporters are looking forward to. More widely, Mandelson admitted in his speech that the Government had become too dependent on the City and financial services for growth and tax revenues.

His theme for the last year or so is that Britain needs other industrial strengths and sources of revenue to grow. He and others are less clear as to how this will happen, uncertain about the degree to which a government can or should intervene, an area on which New Labour avoided discussion, let alone policy decisions, for more than a decade. In a newspaper article yesterday Osborne committed the Conservative government to providing a modern transport infrastructure, a welcome and significant pledge. Otherwise he seems to take the view that the engine for growth will come from elsewhere, although he does not seem sure exactly where.

Questions about how Britain's economy will enjoy sustained growth again after decades living off the the financial markets are too big for an election campaign. Like the more serious questions relating to Iraq they are to do with the country Britain has become and can hope to become in the future. These should be issues for an election, but they will not be, not least because none of the senior figures standing for election are entirely sure how Britain will thrive in the future, although against stereotype Brown is one of the genuine optimists.

But the parties' immediate plans will be a big issue, probably the overwhelming one. By the time of the election, will the prospect of Osborne's emergency budget seem to voters like a threat or a promise? The answer will determine the outcome.

s.richards@independent.co.uk