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The Conservatives are still favourites to win the next election. But, as I said yesterday, things are closer and more uncertain than anyone would have predicted a few months ago. There is no question thus far that the economic crisis has been good for Labour and bad for the Tories. This too was unpredictable. There is no simple correlation between the state of the economy and the ruling party’s fortunes; parties can win in bad times, as the Conservatives demonstrated in 1992. But thinking about moments when stories of economic crisis have dominated the news; devaluation in the pound in November 1967, taking an emergency loan from the IMF in September 1976, and leaving the ERM in September 1992, each has damaged the Government’s standing and each been followed by its defeat at the subsequent General Election.

In all three of these examples plenty of other things went wrong for the ruling party between the point of crisis and the election, and there is an important difference between a short term emergency and a longer term downturn, but there is little in recent history to suggest Governments benefit from economic turmoil (a good thing too given the obvious moral hazard of bad times leading to good polls).

Despite being implicated in the creating the conditions for the crisis, Gordon Brown has been pretty successful in portraying himself as being the kind of leader we need right now. But his team have also been helped by the Conservatives’ decision to open up a clear policy divide on the handling of the crisis. In 1992 John Smith established a lead for Labour which persisted largely unchanged up to 1997. Yet Labour had been a supporter of ERM membership and it didn’t offer any serious economic alternative to the short term measures forced on Major and Lamont. Instead Smith focussed on competence, charging the Tories with being dithering and divided, charges that stuck.

In contrast David Cameron has chosen to argue for a different policy approach. Labour has been able to portray the Conservative alternative as ‘do nothing’, which, I understand, is an attack that is working in Labour focus groups.

There appeared to be a clear switch in Cameron’s strategy marked by his ‘moral responsibility’ speech in Glasgow East in July. Having successfully decontaminated the Conservative brand in his first thirty months, from that point on the focus has been on highlighting what is distinctive abour the Tory approach. But in choosing to differentiate on the economy and public spending the Conservatives appear to setting themselves against the international consensus. They may have more work to do to defend their stance in the new year when is seems that President Obama (someone with whom the Tories have generally been keen to identify) will launch exactly the kind of public spending splurge the Conservatives are seen to oppose in the UK.

The Independent reports this morning that voters have shifted their priorities decisively from public spending to tax cuts. In the medium term as the public sector retrenchment and rising tax levels kick in there will be plenty for the Conservatives to get their teeth into. But now as millions prepare for a Xmas dinner that has more of the feel of a last supper, the issue is how to get through the next six months.

In choosing to oppose the Government on the substance of policy, and not just competence, Osborne and Cameron have displayed political courage. If they win the next election it will be easier for them to argue that they have a mandate for diffcult decisions, echoes here of Thatcher and the economics of the corner shop. But first they have to win that election aganst a Labour Party whose strategists seem keen to splash about in the clear blue water of economic policy.

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