Adam Smith Institute

I heard George Osborne, the shadow chancellor, speak at Demos yesterday on the subject of fairness – something which is set to be the main theme of Gordon Brown's 'relaunch' this September. But while the prime minister appears to believe that expanding the state is the key to creating a fairer society, Osborne had a very different take on the subject. He said there were three elements to 'fairness':

• First of all, people should be properly rewarded for their efforts. That means free markets with lower and fairer taxes.
• Secondly, fairness requires equality of opportunity. That means extending choice in education and healthcare to everyone – not just the wealthy – and reforming welfare so that it empowers people to get back to work, rather trapping them in poverty. 
• Thirdly, the current generation should not make future generations pay for their mistakes. And that means establishing a long-term price for carbon emissions, and coming up with a new fiscal framework to scale-back government borrowing.

It was a good speech. Osborne even cited Adam Smith and Friedrich Hayek as he argued that government planners can never allocate resources as effectively as the market.

Nonetheless, a couple of things troubled me. Firstly, Osborne made only a fleeting reference to pensions in his section on inter-generational fairness. Yet the government's unfunded pension liabilities are already enormous and are only going to get bigger – a massive burden on future taxpayers. The Tories need to start thinking about radical reform now, because any changes will take time to bear fruit.*

Secondly, when asked what he would do if forced to choose between cutting government spending and raising taxes, Osborne refused to rule out the latter. Now, I can understand him not wanting to promise tax cuts – the public finances may be too dire to support them. But I also think the Tories need to make it absolutely clear that taxes are only going to go in one direction when they're in power, and that's down. If they have to cut public spending, then so be it. £600bn a year is more than enough.

* If they need inspiration, they should look at The Fortune Account, our influential 1995 report on overhauling the welfare state.

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