Shadow chancellor George Osborne tells Director why his policies will pack a positive punch for the business community

The Osborne-Cameron leadership, which in 18 months has transformed the Tory party's prospects, is working hard behind the scenes to lure business leaders out of Labour's Big Tent and back into the Tory enclosure.
When challenged about what the Tories are doing to win the support of business leaders, a smiling, slightly exasperated young shadow chancellor says: "It's a bit like asking, 'what has the Conservative Party ever done for us' in a Monty Python kind of way." Despite the humour, there's tension in George Osborne's voice that betrays some frustration that the business community is not exactly rushing to the side of a Cameron administration.
In courting that community, the party has involved business groups unusually closely, not just in providing much-needed donations for party coffers, but also in overhauling Tory policies.

Why? Because Osborne knows he must convince voters that the Tories can, once again, be trusted to run the economy. That trust was abruptly lost under John Major with Sterling's ejection from the Exchange Rate Mechanism on Black Wednesday in 1992.

This, then, is a watershed moment in politics. If the Tories fail to secure the endorsement of British business they will lack an important symbol of their economic competence. And that will help Gordon Brown win the next general election. August's Economic and Competitiveness Policy Review report, with its proposals to reduce red tape and cut inheritance and corporation taxes, certainly got the nod from business organisations. But there is more to do: the new premier has attempted to neutralise Labour's most effective business critics, persuading former CBI director-general Lord Digby Jones to become a minister in a government he spent years excoriating. However much Lord Jones protests that he will continue to speak out, taking the Brown shilling will be interpreted by voters as a tacit declaration that Labour is a safe bet on the economy.

Osborne is convinced Brown's tribal hostility to using the market to deliver public services will ultimately swing business behind the Tories. But he's aware that corporate leaders remain unsettled. Yes, businesses are increasingly critical of Labour policies—many closely associated with Gordon Brown—such as a rising tax burden, escalating regulation, crumbling transport and energy infrastructure and a failure to reform healthcare and education. But businesses are also unhappy about much of what Osborne and Cameron have done to rebrand their party and Cameron's anti-big business rhetoric.

Privately, Tories say the repositioning is an essential manoeuvre to counter perceptions that the party is the poodle of big corporations, just as Labour once had to fight off its reputation as a union stooge.

But Mark Prisk, shadow small business minister, has admitted there is some "hesitancy'' among businesses. Cameron's snubbing of the CBI conference last November ruffled feathers. Then his attacks on named companies such as WH Smith for selling cut-price chocolate, and retailer Bhs for its "harmful and creepy'' sale of padded bras to young girls, caused resentment. His pledges to "stand up to big business" and put employees' work-life balance above profits, as well as intentions to "lead the way on green taxation", caused alarm in some quarters. Small business bosses, though, appear to be less concerned: according to Director magazine's January 2007 Good Director survey, business leaders still view the Tories as better for business.

Osborne should have an affinity with this sector, coming from an entrepreneurial family himself. His privileged education at St Paul's School and Magdalen College Oxford, and his status as the son of a Baronet and heir to the Osborne & Little wallpaper fortune, might suggest he is out of touch with the rough and tumble of enterprise. But neither of Osborne's parents were traditional Tory voters. His mother, Felicity Loxton-Peacock, went on anti-Vietnam war marches. His father, Sir Peter, sold his Mini to launch the family wallpaper business from the kitchen table, in classic start-up fashion.

In person, Osborne comes across as a modern man. He and his novelist wife, Frances, the daughter of former Tory energy minister Lord David Howell, have a couple of young children and a family home in Cheshire awash with toys. Off-duty, Osborne wears Gap T-shirts and relaxes by watching The Sopranos and eating burgers. He has a poster signed by Tracey Emin.

Despite his youth, he is a relative veteran in government, though his initial experience was bitter. He joined the Tory party's research department the week John Major's "Back to Basics" policy fell apart. He was political adviser to agriculture minister Douglas Hogg during the calamitous BSE crisis, worked for Major's defeated 1997 campaign team and was the hapless William Hague's number two aide after Sebastian [Lord] Coe. But Osborne is good at taking calculated risks. He guessed correctly that independent MP Martin Bell would stand down in Tatton, and thereby secured the second safest Tory seat in the country when other candidates shunned the contest.

He has many admirers among the media: The Financial Times, The Observer and The Times have praised aspects of his economic policy. Tory backbenchers grudgingly admit his charm. Economist Ruth Lea, director of the Centre for Policy Studies, enthuses: "Osborne has it all. He knows his subject backwards." But is Osborne's declaration that the Tories are the "heirs to Blair" an untimely one, given that voters want the changes Brown has promised? He insists he never actually used the phrase. The Tories, he explains, would simply take the good things Blair had done, such as city academies and foundation hospitals, and build on them. The bad things, such as excessive taxation, regulation, meddling, spin and distortion, would end.

But the Tory leadership's attempt to adopt parts of Blair's legacy by backing academy schools and downplaying grammar schools created a backbench rebellion. This, and the defection of Tory MP Quentin Davies to Labour, suggests they cannot unite their party behind reforms.

Osborne maintains that in a mere 18 months David Cameron has transformed the electoral fortunes of the Conservatives. "We have gone from being losers to being winners," he says, claiming that most of the party is delighted at the success that has come from refocusing on mainstream issues.

But while pushing their "big idea" of social responsibility—a vision of firms doing good works without relying on the government control favoured by Brown—hadn't Cameron and Osborne fallen into the trap of suggesting some firms were socially irresponsible?

"I don't think that's a fair characterisation," is Osborne's retort. He says that many businesses support the concept. BSkyB's James Murdoch and Tesco's Sir Terry Leahy had sat alongside Osborne at the Conservatives' green summit in March. Together they launched a policy document promising to raise the proportion of taxes on "bad" things like pollution and cutting taxes on "good" things like income.

But he warns: "Business has a choice. It can either leave all this to government and heavy-handed regulation, which is the Labour way. Or there is the Conservative way, which is to work with us, live up to your responsibilities and not have the weight of government on your shoulder."
Would he lift the Treasury's heavy hand and adopt the IoD's proposal for a "third fiscal rule", limiting the rate of growth in public spending to below that of the economy? "No. I have committed the Conservative government to reducing the share of national income spent by the state over an economic cycle," he says. (But the August Review report appears to endorse the proposal.)

The priority is to control spending; only then can you tackle tax. He is not going to set an "absolute target" for bringing total government spending back below the OECD average, either. But his description of the Tories as "the party of the public sector" has worried business. How would he make health and education more productive?

"How we get more bang for our bucks is one of the biggest tasks facing the next Conservative government," he admits. One answer is to "empower patients" and parents and let them choose from an expanding range of private sector providers. Osborne claims that Brown opposes expanding commercial involvement in state services. On the issue of Tory green taxes and their potential to bankrupt some businesses, he says: "I don't believe that's the choice. If we don't tackle climate change, the economic consequences are dire. I don't want to tax people to extinction," he says. Any increases in environmental taxes will be offset by reductions in income tax, the opposite of Brown's approach, he claims.

Perhaps the most crucial question of all is how would Osborne help growing businesses? The shadow chancellor says he is developing plans to legally require ministers, before bringing in a new regulation, to examine every alternative first. He is also looking at a new scheme to oblige government bodies to put all procurement contracts on a single website called Supply2Gov.uk. A Cameron government would also aim to buy 25 per cent of all its goods and services from small firms.

As for countering the investment shifts to cheaper emerging markets in the east, Osborne is clear: "A priority must be competitiveness," he states simply. Osborne's role in increasing the UK's competitiveness will be to simplify tax radically in his first Budget.

In association with PricewaterhouseCoopers, he has looked at reducing the current 28p headline rate of Corporation Tax and paying for this by scrapping Brown's new reliefs. The Tories would also reverse Brown's 19p to 22p increase in the small companies' rate, paying for this by ditching complicated new investment allowances.

Osborne's third measure would be to simplify PAYE and National Insurance with the help of accountants Grant Thornton. He says he "does not know" if he could ever get Corporation Tax down to Ireland's 12.5 per cent. But he's clear the current rates are "a real albatross round the neck" and says he will announce plans to cut rates deeply before the next election.

Osborne sees Britain's creative industries—media, communications, art, music, design—taking a lead over the next decade. The sector contributes twice as much to Britain's balance of trade as pharmaceuticals, according to UK Trade & Invest figures from 2005/06 and, in London, it generates more revenue than financial services and one in five new jobs. "The creative industries are no longer on the fringes. They are the epicentre of the new knowledge economy," he says.

As for the controversial 10p tax rate enjoyed by private equity, Osborne says: "I am critical of some aspects of private equity. I don't think you can own household names these days and not be transparent. But it's very important that we have an entrepreneurial culture in this country. When you see the way the Labour's deputy leadership contenders bashed private equity—and how Gordon Brown remained silent—you know there is still a battle going on about free markets, business and entrepreneurship in this country."