By Richard Tomlinson, Robert Hutton and Kitty Donaldson Sept. 3 (Bloomberg) — David Cameron, the man considered by most Britons to be their next prime minister, bounds onto a conference center stage in Leyland, in northwestern England, on a sunny May afternoon. As the applause subsides, the leader of the U.K. Conservative Party tells the 300 voters gathered before him that he’s ready to answer any question. One woman asks about his plans for his first day on the job at 10 Downing Street. “I think the first thing I’d do is find out where the loo is,†Cameron says, as the crowd laughs. Cleaning up politics and sorting out the economy will be big priorities, he adds. The studied casualness and issue-dodging humor reveal the confidence of a party leader who knows he holds the strongest political hand in the country. Cameron, 42, is on track to become Britain’s leader by June 2010, the latest month that Prime Minister Gordon Brown can hold an election. Since February 2008, polls have uniformly shown Cameron’s Conservatives ahead of Brown’s Labour Party, with some surveys giving the party a lead of more than 20 percentage points. Under the U.K. parliamentary system of majority rule, a victory of that scale would end 13 years of Labour government and give Cameron the legislative power to reshape Britain. Should he win, Cameron would be the youngest British prime minister in almost two centuries. So far, Cameron has offered few details about how he’d fix what he calls “Britain’s broken economy.†Economic Enigma He says he’ll abolish the Financial Services Authority and make the Bank of England the main U.K. banking regulator. While Labour has said it’s possible the U.K. would abandon the pound and adopt the euro sometime in the future, Cameron has ruled out joining the single currency under any circumstances. What Cameron hasn’t yet given the electorate is a credible economic program, says Simon Johnson, former chief economist at the International Monetary Fund. “His economic vision is a mystery cloaked in an enigma, and that may be intentional,†says Johnson, who’s now a fellow at the Peterson Institute for International Economics in Washington. “How could it be in his interests to articulate something more precise that Labour could take swings at?†Cameron is riding high as Britain’s economy flounders. From 1997 to 2008, Labour presided over 43 consecutive quarters of economic growth. Brown, who served as chancellor of the Exchequer, or finance minister, under three-term Labour Prime Minister Tony Blair, took over the top job in June 2007. Record Run Brown’s tenure has been shadowed by a global credit crisis. The meltdown halted the record run of growth in the second quarter of 2008 and brought some of the country’s biggest banks to the brink of extinction. Last October, HBOS Plc, Lloyds TSB Group Plc and Royal Bank of Scotland Group Plc were rescued from collapse by a 37 billion-pound ($60 billion) taxpayer bailout. In January, the government effectively took over RBS, the U.K. bank hit hardest by the credit crunch. In March 2009, the Bank of England began pumping as much as 175 billion pounds into the economy by buying debt to stave off a deeper recession. On Aug. 28, the government said U.K. gross domestic product had contracted 5.5 percent in the second quarter from the same period a year earlier. As a result, Brown forecasts that Britain will have a budget deficit of 12.4 percent of GDP for the financial year ending on March 31, 2010, the biggest black hole among the Group of Seven wealthiest nations. Inevitable Cuts “Britain’s fiscal situation is awful for a peacetime U.K. economy,†says Willem Buiter, a professor at the London School of Economics and a former member of the Bank of England’s rate- setting Monetary Policy Committee. “The depth of the recession in Britain is no greater than in most of the rest of the world, but the fiscal situation is much worse.†Finance ministers and central bankers from the Group of 20 leading industrial and emerging economies meet in London Sept. 4-5 to prepare for the Pittsburgh summit of leaders three weeks later. Cameron is telling voters at town meetings throughout Britain that public spending will shrink. “Cuts cannot be avoided, whoever wins the election,†he says. “That would be the worst thing: to go into an election and pretend you are not going to have spending reductions and then you have to make them. Then you really do have riots on the streets.†So far, Cameron has promised that a Conservative government won’t make cuts to Britain’s publicly funded National Health Service, or NHS, which will account this year for almost one- fifth of the U.K.’s 671-billion pound budget. What Cameron doesn’t specify is where his ax will fall. His stock response to voters is that the party is deciding what programs can be trimmed. ‘Nightmare Chaos’ Cameron risks mayhem if he doesn’t develop a convincing economic program ahead of the election, says Robin Harris, who was director of the Conservative Research Department, the party’s policy study group, from 1985 to 1988. “Cameron has not previously prepared anybody for the tough arguments that are now required,†says Harris, who’s now a visiting fellow at the Heritage Foundation’s Margaret Thatcher Center for Freedom in Washington. “I really do dread a first year of nightmare chaos which destroys the Conservatives’ credibility on the economy.†As Cameron fights to take charge of the world’s fifth- largest economy, he has distanced himself from Thatcher, Conservative prime minister from 1979 to 1990, whose social and economic views dominated the party for three decades. Thatcher, who’s 83 and rarely appears in public, advocated the family as a substitute for the welfare safety net, supported a smaller state and curbed the power of unions. In contrast, Cameron has voted for same-sex civil partnerships, blamed bankers for the credit crisis and pledged to fight global warming. Rock Fan To win power, Cameron has stolen the playbook of another former prime minister: Blair , who held office from 1997 to 2007. Like Blair , who marginalized his party’s hard-liners, Cameron is focusing on luring unaligned voters among Britain’s 61.4 million residents . To broaden his party’s appeal, he issues weekly video updates on the Internet, appears on morning rock music radio shows and says one of his favorite albums is The Queen Is Dead by 1980s band The Smiths. He declined to be interviewed for this article. Six feet (1.8 meters) tall with smooth, rosy cheeks, Cameron rarely passes an opportunity to underscore contrasts with his 58-year-old rival, Brown. Wearing a helmet, Cameron bikes to his office in Parliament by negotiating the crowded streets from his west London home. On a seaside vacation in Cornwall in western England in the summer of 2008, Cameron posed for photographers in shorts and a loose polo shirt with his wife, Samantha. When Brown visited the town of Southwold, eastern England, on his own holiday that summer, he strolled around the resort in a gray jacket, black trousers and dark loafers. The Decontaminator The polls, which show the Conservatives, also known as the Tories, well ahead of Labour and the third-party Liberal Democrats , prove that Cameron’s re-branding of the Conservatives as younger and less formal than before has worked. “David Cameron has decontaminated the Conservative Party,†says Vernon Bogdanor, a professor of government at the University of Oxford, who taught Cameron in the 1980s. In interviews and speeches, Cameron has spoken openly of the challenges he and Samantha, 38, faced as the parents of a severely disabled child. Last February, their elder son, Ivan, 6, died from seizures resulting from a rare brain disorder that had left him unable to speak or move. Cameron received more than 10,000 letters after Ivan’s death. To the surprise of his staff, several sacks of mail were addressed to 10 Downing St . by correspondents unaware that Cameron didn’t already live there. ‘Extraordinary Deficit’ The head of Britain’s central bank says the current level of U.K. public spending can’t be sustained and needs to be reduced by whichever party wins the next election. “The scale of the deficit is truly extraordinary,†Bank of England Governor Mervyn King told a cross-party House of Commons Treasury Committee hearing in London on June 24. “There will certainly need to be a plan for the lifetime of the next Parliament, contingent on the state of the economy, to show how those deficits will be brought down.†Brown’s government says borrowing will more than halve to 5.5 percent of GDP by April 2014 as the economy revives and tax revenues increase. Independent forecasters are less optimistic. The only way to reach the deficit target, given rising debt interest payments, welfare costs and other expenditures the government can’t control, is to cut public spending by 2.3 percent in each of the three financial years starting in April 2011, according to the Institute for Fiscal Studies , a research group based in London. Credibility Gap “The outlook for U.K. public spending is the worst it’s been since 1977, when the government brought in the International Monetary Fund,†says Carl Emmerson, director of research on public finances at the institute. High unemployment and budget deficits helped propel Thatcher into office in May 1979. “Nobody believes the Conservatives can ring-fence the NHS,†says Andrew Lilico, chief economist at the Policy Exchange , a free-market research group in London that has hosted events attended by the Conservative leader. “If they did, they’d have to make cuts of up to 20 percent in other government departments.†While Cameron’s political instincts may have led him to obscure his plans, friends and colleagues say he has the intellectual heft to deal with Britain’s worst recession since World War II. He grew up in the village of Peasemore, Berkshire, 50 miles (80 kilometers) west of London, with his brother and two sisters. His father, Ian, worked as a partner at London- based brokerage firm Panmure Gordon & Co., and his mother, Mary, was a magistrate. First-Class Brain In 1979, he entered Eton College , the private boarding school near Windsor, England, that has educated 18 British prime ministers, including William Gladstone and Harold Macmillan. At Oxford University , he studied politics, philosophy and economics, graduating in 1988 with a first-class honors degree. Cameron’s gift for analysis was evident in the 60-page papers he prepared at Oxford on macroeconomic issues such as exchange-rate policy and the best measures to boost employment, says Peter Sinclair, his college tutor, who is now an economics professor at the University of Birmingham. Students were required to present their research in lengthy seminars. “They’d take place in the evening for about three hours or so, with a lot of coffee, and he was a great star,†says Sinclair, who adds that Cameron could have pursued a career as an economist. Rowdy Club At Oxford, Cameron played as hard as he studied. He joined the Bullingdon Club, an all-male student dining group with a dress code of tailcoats and bow ties. The 200-year-old club’s members were known for their rowdy bouts of destruction. “It existed only to be elitist,†says Francis Elliott, coÂauthor of Cameron: The Rise of the New Conservative (Harper, 2009). “Candidates needed to have money, charm and contacts; charm and contacts at a pinch. Charm alone wasn’t enough.†Cameron’s own college room was trashed by Bullingdon members, and in keeping with club traditions, he refused to identify the culprits to college authorities. In 1988, Cameron was hired by Harris at the Conservative Research Department, writing policy documents for ministers in Thatcher’s government. In November 1990, the unpopular Thatcher was ousted by her party in favor of Chancellor of the Exchequer John Major. Cameron subsequently helped Major prepare for daily press conferences during the April 1992 general election that the Conservatives won. The young aide displayed a confidence that drew the attention of his bosses. Teasing Premier “Cameron had a complete lack of stage fright,†says Bill Robinson, a senior economics adviser to Major’s government. “He once made a mistake on some minute detail of fact, and John Major caught him out and teased him about it. David just laughed and said, ‘Well, we can’t get them all right.’†Following the election victory, Cameron became a speechwriter for Norman Lamont, who controlled the U.K. budget as chancellor. The job gave Cameron a ringside seat at the U.K.’s biggest financial crisis of the 1990s. During the summer of 1992, investors sold large quantities of sterling in exchange for deutsche marks, then Europe’s strongest currency, on the assumption that Europe’s exchange- rate mechanism would unravel. The mechanism pegged the region’s national currencies to a limited trading range ahead of the introduction of the euro. ‘Black Wednesday’ On Sept. 16, 1992, which was dubbed “Black Wednesday†by Britain’s financial press, Lamont withdrew from the ERM after having spent 27 billion pounds in a doomed effort to halt the run on the pound. Cameron helped write the statement on the government’s defeat and stood nearby as Lamont read it to the press. “Today has been an extremely difficult and turbulent day,†Lamont said. “The government has concluded that Britain’s best interests are served by suspending our membership of the exchange-rate mechanism.†In September 1994, Cameron joined the corporate affairs department of Carlton Communications, a London-based television production company. He owed his appointment to a phone call by Annabel Astor, mother of his then girlfriend and future wife, Samantha. Annabel was divorced from Samantha’s father, Reginald Sheffield, whose family owns Normanby Hall, a 300-acre (120-hectare) estate near Scunthorpe in northern England. “Annabel said, ‘I want you to meet my son-in-law-to-be David, and I want you to employ him,’†says Michael Green, who was then chairman of Carlton. “When Annabel tells you to do something, you do it, because she’s a very formidable lady.†Heavy Defeat Cameron’s personal political fortunes grew in inverse proportion to his party’s electoral fate. Major lost by a landslide to Blair in 1997, and in 2001, William Hague, Major’s successor as head of the Conservatives, led the party to another heavy defeat. While the party lost, Cameron won a seat in 2001 as a member of Parliament for Witney, a constituency near his home village of Peasemore. Hague resigned as leader immediately after the election. His successor, Iain Duncan Smith, was ousted by MPs from his party just two years later as the Tories continued to lag behind Labour in the polls. Michael Howard, a former interior minister, became leader and then lost the May 2005 general election to Labour. Eager to promote young blood before yet another leadership contest, Howard appointed Cameron as the party’s education spokesman. Leadership Victory In December of that year, Cameron beat rival MPs including Kenneth Clarke, who was chancellor of the Exchequer from 1993 to 1997, to become head of the Conservatives. He appointed as finance spokesman his close friend George Osborne, who would become chancellor in a Cameron government. Cameron began his makeover of the Conservatives immediately. He highlighted the Tories’ conversion to the fight against global warming by installing solar panels at the redbrick, two- story London home he shares with daughter Nancy, 5; son Elwen, 3; and Samantha. The Camerons bought the house in May 2006 for 1.125 million pounds without a mortgage, U.K. Land Registry documents show. In Blair’s final two years in office, Cameron and Osborne, 38, didn’t make economics a central plank of the Tories’ political platform, says Lamont, the former finance minister. “They thought it wouldn’t matter because they probably bought into some of the Gordon Brown myth that the economy had been fixed,†he says. ‘No Clue’ Following the 2007 credit crunch and Brown’s arrival at Downing Street, Cameron changed tack. “One of the things holding back confidence is the sense that the government has no clue,†Cameron said after a London speech on July 20. “I see that getting the deficit under control and getting the economy moving again actually go together.†He also moved to distance the Conservatives from their natural allies in London’s financial district in the wake of massive bank rescue deals. Brown’s government support for lenders totals as much as 1.4 trillion pounds, or 22,800 pounds for every British resident, as the state has underwritten mortgage-backed bonds and other bank assets. “They paid themselves vast rewards when it was all going well, and the minute it went wrong, they came to us to bail them out,†Cameron said in a speech in Birmingham, England, on Sept. 30, 2008. “There will be a day of reckoning.†Electoral Appeal That message is resonating with voters. On a visit in late May to a housing project in Carlisle in northwestern England, Cameron walks the streets accompanied by two aides, with no police to protect him. He’s greeted by Janet Shaw, an unemployed mother of five who says she’s voted for Labour all her life. The financial crisis has persuaded her to switch to the Tories next time. “David Cameron’s going to repair the wreck that Labour’s made of Britain over the last four years,†Shaw says, as the beaming Tory leader moves on. Even so, Cameron’s refusal to be specific may hurt him as the election looms closer. Near the end of a voter event in Luton, England, about 30 miles north of London, Keval Shah, an accountant, raises his hand. Where would a Conservative government make cuts? Shah, 27, asks. Shah isn’t impressed with Cameron’s answer. “I thought: ‘Hang on. It’s easy for him to stand up tonight and say he’s got to make cuts without saying anything more,’†he says. Last January, Cameron moved to shore up his credibility in economics by naming Kenneth Clarke the party’s business spokesman. Duck Trouble In May, Britain’s Daily Telegraph newspaper began reporting details of expenses incurred by MPs across all parties for everything from grocery bills to a duck house for a country estate. Cameron limited the damage to his party — and himself. He returned 947 pounds that had been claimed for gardening work and house maintenance. On June 25, he announced that 90 Conservative lawmakers would return more than 350,000 pounds in expenses. Cameron also pushed 13 Conservative MPs to retire by the next election, following reporting by the newspaper about their expenses. All of them deny wrongdoing. As the expenses row subsides, Cameron and Osborne have shifted the Conservatives’ focus back to what they say are Brown’s policy failures. They blame Brown for weakening U.K. banking regulation in 1997 by splitting responsibility among the Treasury, the Bank of England and the newly established Financial Services Authority. On July 20, Cameron and Osborne announced that a Conservative government would abolish the FSA and restore the Bank of England’s authority as the main regulator. One Step Closer Three days later, the Conservatives won a midterm election for a parliamentary seat in Norwich in eastern England that had been held by Labour. That victory brought Cameron one step closer to power — and more criticism that he’s ill-prepared for governing. “My concern is that there isn’t an adequate amount of serious economic thinking going on in the Tory party,†says Patrick Minford, an economics professor at Cardiff University in Wales and a former adviser to the Thatcher government. “I would contrast this enormously with the Thatcher opposition in the 1970s, which had a terrific amount of consultation with serious economists.†On an early July evening, Cameron addresses the concerns of Thatcher’s acolytes at a party in central London. Champagne glass in hand, Cameron is helping celebrate the 35th anniversary of the Centre for Policy Studies , the research group that developed policies to help Thatcher into power 30 years ago. “I recognize, as in 1979, it wasn’t enough just to have an unpopular and failing Labour government,†Cameron says. “What you need is a great rebirth of ideas, of intellectual vigor and of intellectual leadership — what the CPS and Margaret Thatcher delivered.†With an election due by June, Cameron has only limited time to make good on that promise. To contact the reporters on this story: Richard Tomlinson in London at rtomlinson1@bloomberg.net ; Robert Hutton in London at rhutton1@bloomberg.net ; Kitty Donaldson in London at kdonaldson1@bloomberg.net
