Michael Brown: Forget friends like these, David

A Tory think-tank's gaffe over northern cities risks reviving talk of metropolitanism and elitism

No doubt if Policy Exchange – "David Cameron's favourite think tank" – had entered its latest publication for A-level politics it would have surely have been awarded an A grade for embarrassment even under the current ludicrous marking system . Its recommendation, that northerners living in such towns as Scunthorpe, Sunderland, Bradford, Hull and Liverpool, should move south to suburban strongholds such as Surbiton, ought to remind Mr Cameron that such dangerous talk can cost seats.

Visiting the northern Labour marginals he hopes to win in 2010, Mr Cameron moved swiftly to denounce the report as "insane". But he will have been seriously irritated, and the report showed that the Tory Party still has the ability to snatch defeat from the jaws of victory. Local newspapers all over the North have been making hay.

But this inexcusable gaffe should serve to remind Mr Cameron of Winston Churchill's comment on becoming Prime Minister in 1940: "And now I must lose my friends." Hopefully Mr Cameron might tell Policy Exchange that to win power he has to win seats in the North. They might also be told that even northerners have votes.

The trouble with all this is that it risks reviving the gossip that Mr Cameron seemed to have laid to rest – about the metropolitan set that surrounds him and his supposedly elitist background. Fortunately, even his friends in Notting Hill might recoil at the prospect of the northern hordes descending in their midst from Scunthorpe with their tripe and onions and chip butties.

One can imagine politically bankrupt Labour MPs using this as the last throw of the dice to save a few hundred votes in keenly contested constituencies. Scunthorpe – which I won for the Tories by 486 in 1979 and is home to Mr Cameron's father-in-law, Sir Reggie Sheffield – is particularly sensitive to these types of attacks. Days before polling day Labour reproduced thousands of copies of the infamous letter from Matthew Parris, then Margaret Thatcher's correspondence clerk, to a council house tenant telling her how damned lucky she was to have a council house. I went berserk, and if I had lost by a few votes I would have blamed Mr Parris.

These minor incidents serve voters and commentators not to question Mr Cameron's fitness to lead the Tory Party to victory, but to ask whether, with the likes of Policy Exchange advising him, he will know what to do when – and it is when – he gets into office. The question also raised is whether, in his political DNA, Mr Cameron understands the horrific nightmare of an economy he will confront in 2010. The only measure of his success will be the extent to which he cuts public expenditure.

The Tory talk is not of fixing the broken economy but of "fixing the broken society" and of improving the "general wellbeing index". The formula of "sharing the proceeds of economic growth" between tax cuts and maintaining Labour budgets for public services implies that the Tories have accepted Labour's economic policies.

But it is clear that Mr Cameron will face a broken economy every bit as awful as the incoming Tory government did in 1979. The Thatcher government was mentally prepared for what would confront its ministers. Departmental secretaries of state knew the watchwords would be cuts, cuts and more cuts. After this week's assessment from the Bank of England it is clear that there will be no economic growth next year, and the implications for borrowing mean that the Government will be overdrawn by at least £100bn when Mr Cameron takes over.

Labour ministers are mentally preparing for defeat, which means they will spend their way out of every immediate economic and political crisis. The Crewe and Nantwich by-election cost £2.7bn to buy off the row over the withdrawal of the 10p tax rate. The Glenrothes by-election in November will entail another expensive bribe of billions, leaving the national credit card debt to be picked up by Mr Cameron.

For a few years, even opponents of Labour governments mentally suspended the rule that all Labour governments eventually run out of money. The rule, however, remains absolute. It means that Mr Cameron will be better served by receiving tuition from those that were there in 1979 (since he was only 13 at the time) of just what he and George Osborne will inherit. Think-tanks try to re-invent the wheel. But a simple reading of Lords Hansards can provide many of the answers to a present generation of leaders from those who grappled with the same issues 30 years earlier.

Mr Cameron should start by reading the recent speech of Lord Ryder of Wensum – John Major's former Commons chief whip – in the House of Lords on 18 July during their debate on the Finance Bill. He reminded Mr Cameron that Geoffrey Howe presented a white paper to Parliament in November 1979 entitled "The Government's Expenditure Plans 1980-81" showing the first results of the new government's scrutiny of the public finances. It opened with the statement that "public expenditure is at the heart of Britain's present economic difficulties".

Mr Cameron has promised to establish an independent panel to advise on fiscal policy, but Lord Ryder rightly argued that fiscal policy should not be sub-contracted. "Its creation and execution are the responsibilities of the residents of Downing Street. The re-ordering of our public finances will overwhelmingly dominate the time of the next prime minister and chancellor from the day they take office to the exclusion of much else."

Last year, the Prime Minister invited Lady Thatcher to Downing Street and Mr Cameron was momentarily wrong-footed. This year, Mr Cameron and Mr Osborne, if they are in need of sinew-stiffening, would be best advised checking into tutorials from Lord Howe and Lord Ryder – who also worked in Downing Street during Lady Thatcher's first term. As Lord Ryder concluded: "How they deal with fiscal policy will define the scale of their success."

mrbrown@talktalk.net