Oliver Letwin: 'I think there is a real chance we can win the election. We have been setting the debate'

At the 2001 general election, Oliver Letwin had to go into hiding after suggesting the Tories would cut taxes by ?20bn a year rather than the ?8bn they had offered. But there will be no hiding place for the shadow Chancellor during the forthcoming campaign. Nor will there be much sleep as he juggles a high-profile national role with the need to defend his 1,414 majority over the Liberal Democrats in Dorset West.

On most days, he will get up by 6am, spend the morning in strategy meetings and press conferences in London before a three-hour drive to his constituency at about 2pm. He will campaign there until about 10pm, when he will be driven back to London for a maximum of five hours' sleep, often less.

Mr Letwin tends to attract trouble at elections. In his first outing in 1987 in Hackney, he was chased down the street by a knifeman and his campaign headquarters was burnt down.

He has come a long way since then and is now regarded as the second most important figure in his party. Like Gordon Brown, with whom he will do battle this week over Wednesday's Budget, his influence extends way beyond the purse strings. "He is the intellectual glue that holds the Shadow Cabinet together," says one senior Tory.

He is in and out of Michael Howard's Westminster office and they speak regularly. There is mutual admiration and trust, which is not the case between Mr Howard and all members of his Shadow Cabinet, some of whom wear their ambition to succeed him on their sleeve.

Mr Letwin believes he has learnt a valuable lesson from his personal fiasco at the 2001 election: the need to be totally open about the party's programme. "You have to lay it all out, so that everybody knows where they are, and there's no secret plan," he says. "I don't think any Opposition has ever laid out more transparently what it intends to do than we have done."

His strategy is about to be put to a big test. Mr Brown may use his Budget to put the Tories' spending plans through the shredder. Mr Letwin does not want to become a casualty of the war between Mr Brown and Alan Milburn as the Chancellor reasserts his authority over the man who supplanted him as Labour's election chief.

He launches a pre-emptive strike in the hope of averting pro-Brown headlines. He warns people to watch out for "a Budget for votes" and that no amount of conjuring by the Chancellor will prevent taxes rising by about ?10bn if Labour wins a third term.

Mr Letwin had his fingers burnt a year ago. His announcement of his medium-term spending plans was ruthlessly trumped by Mr Brown's Budget, which ensured Labour outspent the Tories in key areas. But the shadow Chancellor was playing a long game and senior Tories attribute the party's recent fightback to his painstaking strategy. David James, a company doctor commissioned by the Tories, has diagnosed ?35bn of government waste, allowing Mr Letwin to say that by 2007-08, the Conservatives will match Labour on hospitals, schools, transport, overseas aid and benefits and spend slightly more than it on police, defence and pensions.

Labour tries to portray Mr Letwin as a mad axeman, reflecting his roots as special adviser to the Thatcherite guru Sir Keith Joseph. Mr Letwin insists the Tories have moved on and can offer the best of both worlds - modest tax cuts of ?4bn while protecting key public services, about which the party said little at the last election.

Critics doubt that voters will believe they can have their cake and eat it. Mr Letwin insists: "There is a very clear choice: you can have higher taxes and more waste under Mr Blair or you can have better value for money and lower taxes under the Conservatives."

He says: "It is not complex when you argue that there has been a huge expansion of the numbers of people employed across the bureaucracies. That is the crucial link. If you believe that this growth is not adding value, you can convince people that by cutting back on the waste you can pay not quite so much tax and improve frontline services by getting a higher proportion of the money to them. I don't believe that is a complicated argument."

The next challenge, he admits, is to persuade people the Tories would deliver. "I think people accept Michael Howard is a person with the willpower to make things happen. I can't think of anyone in British politics who is more likely to be regarded in that way," he says.

He is "very much more" confident about his party's prospects than he was six months ago. "I think now there is a real chance we can win the election," he says. "It's an open election. We have been setting the terms of the debate."

Labour strategists doubt the Tories will be able to maintain their recent momentum and believe they have fired their best shots. "We have a very good locker," Mr Letwin replies.

He will be the man who fires back after the Budget, when he will announce which taxes the Tories would cut. Some ?1.3bn has already been allocated to reducing the council tax bills of pensioners. He hints strongly that the low paid will be the main beneficiaries of the remaining ?2.7bn. He repeatedly asserts that the Conservative Party is not about helping millionaires and - borrowing one of Mr Brown's watchwords, insists the Tory tax cuts will be "progressive".

"It is aimed at people who don't have very much money, who are working and have quite a struggle," he says. "We want to make the tax system fairer and simple. There is a social as well as an economic goal."

The modest scale of the tax cuts is, Mr Letwin believes, an answer to Labour's claims that the Tories would slash public services. He admits he was "in the doghouse" with his one-time allies on the free-market right, who wanted bigger tax cuts and an earlier announcement. To them, he has become "Oliver Leftwing".

Mr Letwin and Mr Howard resisted pressure from an impatient party to divert from the path they mapped out in November 2003. Mr Letwin believes the party is now reaping the benefits.

"Lots of people said we were doing too much, or too little or we were not making any progress. We remorselessly went on with the plan that we had. Those of us on the inside knew where we were going. If there are difficulties along the way, you tolerate that.

"It matters a hell of a lot that the person in charge backs you and when there are difficulties, doesn't jump around, panic and disappear off the scene. Michael has been a complete rock. I have heard him under pressure, extreme pressure, where it would have been quite easy to ditch what we had agreed - and blame me - but he has stuck by it."

With his characteristic boyish giggle, Mr Letwin says the Tory party machine is in a much better shape than for a long time. "Miraculously, it is in a state where it is capable of deploying things. That's an extraordinary thing to say. But it is a turn-up for the books. Going into an election with a machine that is well-oiled, serious and reliable is an enormous improvement."

Mr Letwin's candour, which landed him in trouble at the last election, is refreshing for a senior politician. He does not pretend that he was offended by the Labour advert showing him and Mr Howard, who are both Jewish, as flying pigs. He was told about it a week before the row erupted and didn't see it as anti-Semitic. But he does think that a second ad depicting Mr Howard as Fagin was "a bit near the bone".

The shadow Chancellor is honest enough to entertain the possibility that the Tories will fall short of winning an overall majority. He makes clear that he would want Mr Howard to carry on if there is a hung Parliament or a small Labour majority. "I think what you are going to see after the election is a party not only under Michael's leadership but also one that - whether we have won or come close to winning - is hugely resurgent."

Whenever Mr Howard stands down, Mr Letwin is adamant that he will not be a candidate to succeed him. He sets aside time for his wife and 11-year-old twins, keeping a beady eye on their homework at weekends. Working closely with William Hague, Iain Duncan Smith and Mr Howard has reinforced his view that he could not make the "100 per cent, day-in-day-out, morning-noon-and-night commitment" required of a leader. "One of Michael's great strengths is that he doesn't have a young family. I am always astonished that the Prime Minister sustains it with a young family. It's much easier for William who hadn't got one or Michael than it was for Iain and it would be for me. I am terribly lucky that I love my work. But I also like the rest of my life."

When the election is called, the public will see rather more of Mr Letwin than his family will - and more than the voters did in his ill-fated 2001 campaign. "I promise you I will not be hiding anywhere," he says with another chuckle.

THE CV

Born 19 May 1956

Education Eton, Trinity College Cambridge (PhD)

Career

1980 Visiting research fellow, Princeton

1981 research fellow, Darwin College, Cambridge

1982 Special adviser, Department of Education

1983 Downing Street Policy Unit

1991 Director, NM Rothschild

1997 MP Dorset West

1998 Constitutional spokesman

1999 Treasury spokesman

2001 shadow Home Secretary

2003 shadow Chancellor