Different song, same tune

29 Oct 14
Philip Johnston

The next election will be fought on economic competence and the NHS. So no change there then

These are unusual times. The Fixed Term Parliament Act ensures that we know the date of the election – May 7 next year, barring an unexpected collapse of the coalition. This means the current parliament is the lamest of lame ducks. Although there has been a Queen’s Speech and legislation is beginning to appear before MPs and peers, nothing controversial will get through before the election.

Nonetheless, opportunities exist for the Conservatives to score political points, for instance by impaling Labour and the LibDems on the horns of English votes for English laws. Equally, the Tories will be haunted by Ukip’s threat to their seats all the way to election day.

But ministers still have a few chances left to make the political weather and two of them fall to Chancellor George Osborne. On December 3 he will deliver his Autumn Statement. Then, next March, he has one last Budget with which to bribe voters – sorry, make some well-earned adjustments to taxation.

The Autumn Statement is unlikely to be Osborne’s most comfortable appearance in the Commons. He had intended to clear the budget deficit by now and yet it remains stubbornly hard to dent. Even the Office for Budget Responsibility’s revised target of reducing borrowing to £95.5bn in 2014/15 from £105.8bn in 2013/14 may have to be readjusted, to Labour’s glee.

Borrowing from April to August, for instance, was £45.5bn – £2.6bn higher than the same period last year.

To a great extent this has been caused by a fall in income tax receipts caused by pay restraint and an increase in self-employment. Higher VAT revenues and stamp duty income from a booming housing market have failed to offset the shortfall. The chancellor must ponder whether to plug the hole with more spending cuts or tax increases.

He has already hinted at his answer. At the Conservative Party conference in Birmingham, Osborne said taxes had borne enough of the burden of cutting the deficit; so we can expect to see the first signs of the next round of public spending cuts.

Since the NHS is being protected other departments, many of which struggled to achieve the reduced spending levels of the past four years, are going to have to take a serious hit.

There is a trap here for Labour. Although it has promised to run a looser fiscal ship if returned to office there will still be pressure to say how the party will get the deficit down, as promised by Ed Balls, shadow chancellor. If Labour pledges to protect spending, the Tories will say that a vote for Labour means a certain tax rise.

However, things may be looking up for Osborne by Budget day if wages grow and income tax from the self-employed provides a revenue windfall in January. This may give the chancellor leeway to offer some pre-election sweeteners without wrecking his plans.

Although voters clearly have other preoccupations at the moment, most strategists expect the election to be fought – as in 1992 – on the twin issues of economic competence and the future of the NHS. The coalition – and especially the Conservative Party – has set great store by bringing down the deficit and yet it will still be more than £100bn annually by next May.

The Tories will say this shows how dreadful the public finances bequeathed by Labour really were. To which Labour will argue that earlier growth would have increased revenues and reduced borrowing. But most voters want to know if they will be better off and to be sure that the country won’t end up in another recession.

‘Don’t let Labour mess it up’ will be the central Tory campaign pitch, both to floating voters and Ukip renegades. It’s nice to know that some things remain the same even in these unusual times.

Philip Johnston is chief leader writer of the Daily Telegraph

This opinion piece was first published in the November edition of Public Finance magazine

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