Prior to #bigotgate, I had hoped that the world would tune in, agog, to my take on the IFS’s take on the fiscal situation. Fat chance now. (I think the best observation comes from my favourite tweeter.)
Anyway, back to business. You will have read commentary such as this from the Guardian which tends to gather round one point: none of the parties have revealed anything like the scale of the cuts that are needed. True, but realpolitik makes this impossible. The first to reveal how many Sure Starts they will close/nurses they will fire/tax credits they will freeze will be victim to the other parties’ leaflets – and people don’t look at leaflets like they do an IFS report on all the parties plans, reading between the lines.
As Westminster Blog observes, parties can make spending pledges worth billions in just a matter of minutes; but eking from them a fraction of this in spending cuts is sheer murder, even when it is a mere dent. Staying shtumm is a no-brainer, politically.
The IFS is playing a blinder. It cannot be ‘bought’ or leant on. It still leaves me a bit mystified about what the Conservatives’ OBR would do. Robert Chote’s remarks are all that most of us need to read. They have some very LibDem friendly highlights, or points of general interest:
On the overall shape of plans
- [Conservative plans] would not make an enormous difference to the long term outlook for the public finances. The Conservatives would still end up borrowing £604 billion over the next seven years, just 6% less than Labour and the Lib Dems.
On its composition
- Labour favours a ratio of 2 to 1 between spending cuts and tax increases, the Lib Dems 2½ to 1 and the Conservatives 4 to 1.
- it is worth noting that when the last Conservative government faced the need for a big fiscal tightening in the early 1990s, we estimate that the ratio of tax to spending cuts was roughly 1 to 1 [so this surely makes the Conservative plans the least credible in terms of ‘doability’ (rather than attractiveness)]
- When David Cameron said of the Liberal Democrat income tax cut in the first debate “It’s a beautiful idea. It’s a nice idea. We cannot afford it” that is a slightly odd accusation for a party advocating a net tax cut to make of one advocating a net tax increase.
On the scale of cuts
- Labour and the Liberal Democrats would need to deliver the deepest sustained cuts to spending on public services since the late 1970s. While, starting this year, the Conservatives would need to deliver cuts to spending on public services that have not been delivered over any five-year period since the Second World War.
- The Conservatives would make the pattern less progressive, reducing the losses of households at the top of the income distribution proportionately more than those at the bottom.
- The Liberal Democrats would make the pattern more progressive, redistributing resources from the wealthy to middle-income households (though not the poorest).
- Conservative plans would strength the incentive for many people to be in paid work at all, but would do almost nothing to encourage most existing workers to earn a bit more.
- The Liberal Democrats would probably strengthen the incentive to be in paid work for more people than the Conservatives, as well as increasing the incentive for those earning less than £10,000 to earn more. But they would do more than the other two parties to harm incentives to work and save among richer households.
- The Conservatives would not improve matters. They would partially reverse what is probably Labour’s least bad tax increase and add new complexities and distortions of their own.
- The Liberal Dem package would remove some undesirable distortions and inconsistencies of treatment. But their plan to restrict pension contribution relief is misguided.
Overall verdict: LibDem plans are more realistic and progressive than Conservative ones, leave the debt position roughly the same, distort the tax system less, involve deep spending cuts but unlike the Conservatives don’t involve breaking an all-time record.
I hope Nick reads this carefully before the Economy debate. ‘I agree with the IFS’ …
What are the major Lib Dem weaknesses? (Gosh I am honest). One is their double-taxation of higher rate pension contributions, which are called ‘fundamentally misguided’ here. But I am slightly more worried about their capital gains tax proposal. Yes, I know Nigel Lawson did it first. But a 50% rate for entrepreneurs is surely very damaging. Does Luke Johnson go over the top in today’s column:
their Treasury spokesman Vince Cable, who claims to be an expert in finance and business, (although he has never actually dealt with a payroll in his life) expects entrepreneurs to take all the risk, and the government to take half the reward. At a stroke they would kill initiative, and send a massive signal to wealth-creators: do not invest here.