Steve Richards: David Cameron has some lofty aspirations, but there is one big problem with them

In the current frenzy of hyperbolic reporting about the apparently dire state of the British economy, there is a near consensus about one cause of the problem. At least once a day I read or hear a condemnation of the "splurge" in public spending that took place after the 2001 election, as if the increases were an act of reckless madness implemented without any purpose beyond a desire to spend, spend, spend. Nowhere do I read or hear that Britain's public services were close to being at a third-world level, and that the investment was urgently needed

Admittedly most of these services are still poor, but they are much better than they used to be. There was a reason for the splurge. Without the increases in investment, the Government's debt might be lower than it is now, but we would all be living in even more public squalor.

The debate in Britain about public spending often begins with the assumption that investment is a waste of money. It ends by taking a magical route towards a paradise of low taxes and the best public services in the world free to everyone at the point of use.

In an important speech yesterday, David Cameron did not fall into such a complacent analysis, but he almost did. Mr Cameron's speech was significant because it addressed the issue of "tax and spend", the policy area that matters most in opposition and, let us not forget, once power has been secured. All other policies are determined largely by a party's approach to this one area. His speech mattered too because this is the policy area that has landed the Conservatives in fatal difficulties at the last two elections, where they claimed to have discovered the conjuror's wand which would let them cut taxes and improve public services at the same time.

The Conservative leader has learnt from the tactical errors made by his party in the past. Like his role model Tony Blair, he showed in yesterday's speech why he will be such an elusive target for his frustrated opponents.

Mr Cameron highlighted the problems that arose with the James Review commissioned by the Conservatives before the last election to detail savings that could be made in government. Displaying Blair-like apparent candour, Mr Cameron wondered aloud whether that approach had been credible: "To make a long list of efficiency savings in advance of an election to add them up to produce a great big total; to turn that total into debt reduction, spending increases elsewhere, and a tax cut ... people didn't believe it".

But for the rest of the speech, Mr Cameron proceeded to make the case for generalised savings to pay for tax cuts, debt reduction and improvements in public services. In doing so he put forward one substantial idea. One of the depressing, but not inevitable, downsides of organisations with guaranteed incomes is that they waste money and are over-managed. From the BBC to the NHS, there are terrible examples of overstaffing in all the wrong areas and wider inefficiencies. Cameron argued rightly: "If we can show people exactly how their money is being spent, that will leave no hiding place for waste and inefficiency. It will shame ministers and officials into spending public money wisely."

He plans to set up a website where every item of public spending over £25,000 is listed and, in the meantime, a whistleblowers' mechanism where despairing employees can privately give details of waste. According to a senior figure in the Government, he will come to regret such a commitment if he implements it. I am sure that is correct, but the dismissive observation is a form of commendation. Such transparency would focus the minds of those who deliver public services, even if it led to a frenzy of damaging stories in the media that made the lives of ministers even more nightmarish than they already are.

There is, though, a much more immediate problem with Mr Cameron's aspirations. In order to tackle such evasive inefficiencies, it will cost any government money in the short term. Bureaucrats would have to be appointed to establish which cuts could be made without damaging services. People in non-jobs have to be paid off with generous redundancy deals.

This is merely the start of the dilemma for the Conservatives. In his speech, Mr Cameron suggested that public service reforms would save money. Over time, they might, although I doubt it. For certain, the implementation of ambitious reforms would be expensive at first. If the Conservatives are serious about introducing choice for everyone irrespective of income or ability, they must establish a surplus of good schools and hospitals. That will be very expensive. It is the main reason why Gordon Brown has been wary of the "choice" debate. Mr Brown is not against "choice", but knows how expensive it would be to bring about. Advocates of choice suggest that competition will lift standards. It will only do so when there is a genuine competition brought about by a surplus of excellent services.

A Conservative government would presumably provide the funds for parents to set up their own school if they were dissatisfied with what is on offer, as well as allowing the existing schools to stay open for a time. This will cost a fortune.

Similarly, in order to achieve their vision of a post bureaucratic age, the Conservatives will need to appoint bureaucrats. They have some interesting ideas about devolving budgets to small communities – localism at its most local. But who decides who will get the money and how much? What happens if public money is misspent? Bureaucrats will have to decide. It is one of the dilemmas this government has wrestled with for years. How to devolve responsibilities and cash when much of the money is raised centrally? There are no easy answers and, in the search for them, watch those bureaucrats soar in number.

The harsh truth about public spending was made very clear in the questions asked of Mr Cameron at the end of his speech in Birmingham. Most of them implied a desire for more spending, not less. To take one example, one business leader despaired of the transport infrastructure in the West Midlands and beyond. The Conservative leader acknowledged the importance of the issue and, in fairness, offered some examples of small policy shifts. What he did not do was promise the investment needed to take Britain up to the transport standards of equivalent countries. Perhaps at some point he will promise to wave his own conjurer's wand.

Magic is not enough. Public services cannot be improved without sustained investment. With the investment, the scope for economic growth is greater, as the business leader in Birmingham suggested with his cry for improved transport.

For all the talk of change, Mr Cameron will go into the next election pledging, in subtler ways, to cut taxes, improve public services and reduce debt, the same message as William Hague in 2001 and Michael Howard in 2005. The difference is that this time Mr Cameron might win, in which case he will discover very quickly that it will not be as simple as that in power.

s.richards@independent.co.uk