Gordon Brown’s electoral dithering of the past fortnight has transformed the economic, as well as the political, outlook for Britain. I will leave to political analysts the charges of manipulation, indecisiveness and poor judgment that suddenly seem to have confirmed the warnings of the Prime Minister’s personal critics; but there are two economic consequences of this fiasco that remain unexplored.

The first is that the Treasury’s Comprehensive Spending Review and Pre-Budget Report, rushed out tomorrow because Mr Brown insisted on keeping all his electoral options open until absolutely the last moment, will now be treated as a pre-election manifesto and not as a reliable account of the long-term prospects for economic policy and public spending. To put it bluntly, nobody is going to believe the figures in Alistair Darling’s statement tomorrow, since it was planned as the launching-pad for an election campaign. But more of that when we hear the statement itself this week.

Today I want to concentrate on a second and more important economic consequence of Mr Brown’s election fiasco: it has forced the Tories to unite around some radical tax changes, as a result of which Conservative economic policy now has to be taken seriously for the first time since 1997. This is not only because the Tories now have a genuine chance of forming the next government – in Mr Brown’s own estimation – and therefore have to be treated as a plausible alternative government, just as the Labour Party was in the late 1990s. The polling figures will surely wax or wane in the years ahead, but the underlying cause of the sudden Tory resurgence will not disappear. What swayed marginal voters towards the Tories was not David Cameron’s supposed charisma, but something much more concrete: a cast-iron promise of very large tax cuts to a small but clearly targeted and identifiable group.

The discovery – or more precisely the rediscovery – that tax policies can have an overwhelming effect on voting intentions is going to transform the terms of political debate in Britain between now and the next election, whether this is in 2008, 2009 or 2010. The fact that millions of voters will instantly change their party allegiance if offered large, carefully targeted and unconditional tax cuts has come as a shock to politicians of all parties. Yet it was strongly confirmed by the Labour Party’s internal polling, which showed the continuous “tracking polls” moving much more sharply towards the Tories in the hours after George Osborne’s inheritance tax and stamp duty announcements than they did after Mr Cameron’s supposedly climactic conference speech. Moreover, this detailed polling revealed that the people who changed their minds were exactly the ones expected. Young voters trying to climb on to the housing ladder were attracted by the cuts in stamp duty. Even more importantly, middle-aged, middle-class women, eager to maximise the legacies that they can leave to their children and grandchildren, will vote for any party promising to relieve them of inheritance tax.

These findings – and the political devastation they inflicted on Mr Brown this weekend – are hugely significant because they will convince the Tories to keep taxes at the centre of Britain’s political agenda.

This in itself will galvanise the Tories, appease their activists and give some substance to the small-government rhetoric that Mr Cameron has offered as his party’s unifying ideology. The precise nature of the Tory tax breakthrough will also put Labour in a difficult bind.

Inheritance tax is, from an egalitarian standpoint, the fairest and most progressive of all taxes. For a Labour government to cut inheritance tax, while raising income tax or fuel taxes or imposing economies on social services, is ideologically unthinkable. Even if money were available for overall tax cuts (which it won’t be in the foreseeable future), it is hard to see Labour activists accepting that inheritance tax should be reduced, in preference to other less progressive taxes.

Yet such an “immoral” and “regressive” tax policy seems to be exactly what voters – including many marginal Labour and Liberal voters – enthusiastically support. And all over the world – in America, Ireland, Japan and more recently even in France and Sweden – we have seen regressive consumption taxes rising, while “progressive” taxes on wealth and inheritance disappear, providing disproportionate benefits to the wealthiest voters. British politicians of all parties seem to be genuinely mystified by the apparent paradox that democratic majorities vote for tax changes that favour wealthy minorities, yet the explanation is quite simple.

As the American conservative movement discovered 27 years ago with the election of Ronald Reagan, there is a large slice of the population who will always vote for tax cuts, regardless of whether they are financed by higher borrowing or by cuts in public spending, but subject to two very important provisos. The proposed tax cuts have got to be large enough to make a noticeable difference to the voter’s standard of living and they must be unconditional. There is no point in spreading tiny cuts among millions of voters – as John Smith did in his notorious 1992 Shadow Budget – since an extra pound or two a week is not going to motivate anyone to go to the polls. It is equally futile to offer tax cuts “as and when economic circumstances permit”, because voters will never believe that the right conditions are around the corner. They will, therefore, dismiss such conditional promises as pie in the sky.

This point brings me to the fundamental reason why tax-cutting policies now seem to be back into vogue. After many years of disappointment about public service standards, voters are deeply sceptical about promises from all politicians, regardless of party, to improve education, clean up hospitals or make the streets safe. This does not mean that voters are indifferent to policies on crime, health and education. They care about public services a lot and would reject any party that looked like doing major damage in these areas. They may not, however, attach much weight to any promised improvements until these are clearly demonstrated in their own lives. Tax cuts, on the other hand, are palpable as soon as they are announced. If the sums involved are substantial – and a potential inheritance tax change worth up to £240,000 certainly qualifies - a large, unconditional tax cut will, rightly or wrongly, outshine all other differences between the parties in the eyes of many voters. That discovery was last week’s true horror for Gordon Brown.

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