Party leaders’ unwillingness to spell out harsh financial truths will leave them with little legitimacy when they take office
With the general election now officially under way, the two main parties are ‘carrying on regardless’ to protect spending and/or cut taxes. During the annual teachers’ conference season, Education Secretary Ed Balls promised to increase real-terms school spending by 0.7% per year, to be offset by savings ‘away from the front line’. He challenged the Conservatives to make the same commitment.
Balls’ announcement came on the same day shadow health secretary Andrew Lansley said the Tories would make cancer drugs available more easily, while vetoing the National Insurance increase announced by the chancellor.
For good measure, shadow chancellor George Osborne added: ‘This comes on top of our commitment to provide real increases to the health service budget.’ Labour has, of course, also promised to maintain spending on the NHS.
The Liberal Democrats have accused Labour and the Tories of not providing specific details about cuts. Labour and the Conservatives accuse each other of not explaining how ‘efficiencies’ will be achieved, while claiming the savings they propose are rigorous and supported by experts. Each might be nearer to the truth when accusing the other of having got their sums wrong than in defending their own plans.
The Conservatives, urged on by many business leaders, have claimed the government’s announced NI rise will increase unemployment. Both parties have said they will not put up taxes such as VAT but claim their opponents will. The LibDems have helpfully analysed the situation and said the other parties are ‘treating people like fools’.
The bitterness of the stand-off between Labour and the Tories has forced the LibDems into a ‘plague on both your houses’ middle position. But a search for that party’s proposals produces rather less detail than their ‘above the fray’ line suggests.
They have promised to put more money into schools and abolish tuition fees, as well as carrying out a ‘wholesale review of value for money in the public sector’. This commitment is hardly more detailed than those of the other parties. In fairness, the LibDems have provided some detail by saying the Child Trust Fund would be abolished (saving £500m) and tax credits for higher-earners removed, producing billions of pounds.
There is a long way to go before the three parties explain how the public finances will be improved in the medium term. The election will be fought by parties that will broadly argue they can increase spending on services while preserving frontline provision through imperceptible savings elsewhere. They will say there will be small tax increases for the ultra-rich few and maybe even tax cuts for the hard-working many.
They are unwilling to spell out the reality that it is not possible, year-after-year, to keep taxes and other revenues at or below 38% of gross domestic product while maintaining public expenditure at 45% and above. In reality, taxes on average earners will have to rise sharply or spending will need to be trimmed permanently. This message is so poisonous that no politician will spell it out.
As a result of this failure on the part of would-be MPs, the election will, it appears, be fought between parties who will compete with each other to offer to halve the £167bn deficit while promising higher public expenditure with unchanged or lower taxation. It is hard to exaggerate how unlikely this would be.
On May 7, the chancellor will have to look back on all the promises of higher spending, lower taxes and efficiency savings and decide which programmes to cut, how fast and in what order. If the economy does not grow as fast as the Treasury predicts, the medium-term prognosis will be even more painful.
As the government that takes office in four weeks will not have spelled out the nasty steps it will need to take to sort out the economy, it will have little legitimacy to take hard decisions. The consequences of this failure will make the government’s path dangerous, noisy and potentially destructive.
Tony Travers is head of the Greater London Group at the London School of Economics. He chaired the PF round table on banking (see pages 20–24)
