Something wicked this way comes: The mystery of deficit reduction after 2015
There is precious little information about how the main political parties plan to meet their deficit reduction targets after the election. While we're debating what a photo of a white van means, somewhere in the backroom of Tory HQ they are formulating plans to fundamentally reshape the state. Quite possibly, they are doing the same thing at Labour HQ. Everything is in darkness, except for the traumatic scale of the cuts.
A report today by the Resolution Foundation outlines the scale of what is coming and the democratic failure of refusing to share these plans with the electorate. As the group's chief economist, Matthew Whitaker, said:
"Meeting the fiscal targets set out by the main political parties could mean a redrawing of the boundaries of the state due to swingeing cuts, significant new taxes, or a slower path of deficit reduction and more debt – or a mix of all three. Yet no party has really made clear which it's going to be.
"The gap between the scale of consolidation implicit in their plans and what the electorate has been told to date is just too large. The electorate shouldn't be subjected to another largely empty fiscal debate like it was at the last election. Currently we are facing a candour deficit as well as a fiscal one."
Chancelor George Osborne has outlined £12 billion in welfare cuts
Of the three main parties, the Tories have the most terrifying proposal, but also provide the most clarity. Not that it's much, but in the valley of the blind, the one-eyed man is king.
They'll follow the existing £85 billion cuts earmarked for 2015-16 with a further £37 billion in the following three years.
Some £12 billion of that will come from welfare cuts, the chancellor has announced, although there's precious little there to cut. It's really the end of the welfare system as we know it. Some people will celebrate that, but the poorest people will suffer extraordinary hardship.
The rest of the £25 billion would need to come from public spending cuts, because Osborne has ruled out any new tax rises.
The Tories will then impose an additional straightjacket on themselves by swapping an aim of current budget surplus, which excludes investment spending, to an overall budget balance. That makes it all-but impossible to ease off on deficit reduction to fund capital spending. It's like putting a brick on the accelerator pedal.
On top of that, they've pledged to raise the tax-free personal allowance to £12,500, the top rate of income tax to £50,000 and sell 100,000 new homes at 20% below asking price for first-time buyers under 40. According to the Institute for Fiscal Studies, that adds up to £7 billion. So that has to be added to the bill. It is like Robin Hood in reverse. They are taking from the poor and giving it to the modestly well-off.
Chief secretary to the Treasury Danny Alexander has kept the door open to tax rises alongside spending cuts
The Liberal Democrats have slightly more wriggle room. They'll maintain the current plans until 2017-18 but will retain the ability to borrow to pay for capital investment. They say this only applies to "productive investment", although exactly what that means is open to interpretation. They're also aiming for an 80:20 ratio of cuts to tax rises.
Depending on the definition of productive investment, the Resolution Foundation estimates that would mean £15-£20 billion in spending cuts, alongside £4-£6 billion.
Labour retains the maximum amount of flexibility. They're committed to a current account surplus rather than an overall budget surplus, thereby allowing them to borrow against the £25-30 billion annual capital budget and invest, if they choose. They wish to achieve this "as soon as possible", which is obviously a rather more flexible timetable than that envisioned by the Tories or Lib Dems.
The scary thing about all these plans is that all the easy cuts have already been made. Any fat has already been removed. All these plans cut against bone. Given education, health and development are protected, the remaining departments will be pummelled.
Ed Miliband and Ed Balls have allowed themselves maximum flexibility – but offered the least information
As the Resolution Foundation points out, even quite modest changes in economic growth projections make very significant differences to these figures. The gap between revenue growth one per cent above Office of Budget Responsibility projections and one per cent below is £55 billion. The signs on this front aren't good. Recent official data showed income tax receipts are weak, despite employment growth, probably due to the flexible, badly-paid nature of much of the work. Here are also concerns about weak North Sea oil revenues and stamp duties on property.
Either way, the gap between the information given to us by the main parties and scale of the cuts to come constitutes an act of disrespect to the British public. It is inane and dispiriting to consider that we have spent days debating a photo of a white van on Twitter when changes are coming which would fundamentally change the face of British society.
Ironically, we have the most details about the Tory plans, even though the party has put itself in a position where the only way it can satisfy its commitments is to nearly eradicate the welfare state and slash public services to the point of uselessness. Labour has rightly given itself more flexibility, but evidently does not consider it important to inform the public of what it actually intends to do after the election. To give some impression of the gap between the reality and the announcements, Labour yesterday announced plans to save money in the police force by clamping down on overpayment for high-visibility jackets.
Either way, it won't be pretty. The parties owe the public considerably more information than they have been prepared to reveal thus far.
