George Osborne deserves two cheers for preparing his party for the grim realities of power. Not only did his conference speech contain some home truths, but also the Tories' 40-page Reconstruction: Plan for a Strong Economy is the most important publication from the party in opposition since The Right Approach to the Economy, produced by the Thatcher economic team more than 30 years ago. He does not get three cheers because of his gimmicky two-year council tax freeze, justified as showing that even now government can help families under pressure, but still a distraction from the main “cupboard is bare” message.

There are new frameworks for budget policy and for regulation of banking, in effect public and private debt. Current fiscal rules (keeping total debt to less than 40 per cent of national income and borrowing only for investment over the economic cycle) were useful anchors in good times. But they were backward-looking, so revisions to past data and changes in the estimated length of the cycle discredited the rules, especially when they came under pressure from big increases in spending and borrowing.

The Tories propose a forward-looking framework for public finances, with a falling proportion of debt and a balanced current budget. So instead of an upper limit, the focus is on direction; downwards, it is hoped. This could make a real difference. However, nothing is being said yet about timing, and how long it will take to achieve fiscal virtue.

This will be monitored by a new office for budget responsibility, based on similar bodies elsewhere in Europe, with a remit of forecasting the public finances and saying whether current trends are in line with the desired path. But it is not at all comparable to the Monetary Policy Committee, which determines interest rates. The new office will only be advisory and will not recommend tax or spending changes. It will warn but not decide, similar to the Bank of England's published Inflation Report before independence in 1997. It will be less a “rod for our own backs”, as David Cameron has claimed, than a system of traffic lights. Decisions about public spending and taxation will remain with Government.

The second key proposal is to change financial regulation. This involves accepting that interest rates should, as now, mainly be used to influence inflation and not varied to target asset prices and levels of debt. Instead, the Bank of England should regularly assess market-wide risks of debt levels for the economy. The Financial Services Authority would take the Bank's views into account when regulating individual banks. The hope is that the authorities would intervene earlier to stop debt-fuelled bubbles emerging, by imposing tougher capital rules during boom times.

Much detail has to be sorted out, but the broad approach is welcome. Now, wait and see whether the Treasury picks up any of these ideas. There's no law against cherry-picking.

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