Election 2015: a snip here, a snip there

20 Mar 15

As the nation prepares for the polls, there’s a reluctance to discuss the details on cuts and funding of public services.

Running with Scissors cover


Election campaigns are poor places to go looking for openness and honesty. There is, as history has often shown, a big difference between a manifesto pledge and a policy position once a party gets into government. But the run-up to the coming general election seems more opaque than most. Instead of facing up to the urgent need for reform to ensure public finances are sustainable over the coming decades, politicians are making broad fiscal promises without much attempt to explain where the cash will come from.

‘It’s one of the most disingenuous elections I think I’ve ever seen,’ observes CIPFA chief executive Rob Whiteman. ‘Pledges are being made to buy votes – but they’re not affordable.’

The reluctance of all parties to dwell on the financial nitty-gritty of their policies is understandable, not least because the cuts being planned are a tougher sell politically than they were at the last election. In 2010, the backdrop of a global financial crisis meant that the public was more receptive to the idea of austerity.

Five years on,  just 46% of the government’s deficit reduction plan has been achieved. Almost three-quarters of the total tightening is expected to come from spending cuts but, the Institute for Fiscal Studies (IFS) points out, we are only a third of the way through the material reductions to spending. With the easier savings already made, and tax rises already implemented, there is much more pain still to come.

‘The low-hanging fruit has already been picked,’ warns Ben Page, chief executive of pollster Ipsos Mori. ‘Now they’re onto the really difficult stuff and that’s the real challenge.’

With plans set out by the current government in December implying that public services spend may need to be cut by about 14% in real terms over the next five years, politicians would be understandably nervous – especially so close to a general election – about tackling such a sensitive subject.

What is clear, according to commentators across the political spectrum, is that divergence in spending plans between the Conservatives and Labour in the run-up to the Westminster elections in May is greater than it has been in decades. And the implications for public services are not to be sniffed at.

According to the IFS, implementing the package of measures announced so far by the Tories would cut departmental spending by 14% by 2019/20. However, the party could lessen the squeeze to 8.3% (£30bn at 2015/16 prices) and still meet its fiscal target. Labour and Nick Clegg’s Liberal Democrats, meanwhile, have said they would be willing to borrow a bit more to invest. Assuming they funnel all their additional borrowing to departments, the IFS forecasts that they might reduce the required squeeze on public services to under 2% (less than £7bn at 2015/16 prices).

‘The size of the difference between the parties is unusually big, which implies different levels of public services cuts,’ explains Paul Johnson, director of the IFS. ‘Labour wouldn’t have to make very substantial cuts to service spending, whereas the Tories would.’

Regardless of the scale of the numbers or the leaning of the party that ends up holding power, more belt-tightening appears inevitable. And yet austerity is the elephant in the room nobody is talking about. ‘We have headline numbers – for example the Tories have said they will increase spending on the NHS by £8bn – but there is an awful lot we don’t know about how they would do it,’ Johnson says. ‘There is very little meat on the bones from any party in terms of how they plan to achieve their targets and what it means in terms of public services priorities or spending adjustments.’

With most economic indicators suggesting that the economy is back on an even keel, and with the public tiring of the austerity mantra, politicians are well aware that the prospect of further public services curtailment is losing its sheen among the electorate. ‘Historically, services have been cut during the bad times; such major reductions at a time of growth are unprecedented,’ CIPFA’s Whiteman says. ‘Polls show the public still think austerity is the right step forward – as long as it’s not at their own expense.’

While the need to get better value from public services is better understood across Whitehall, Andrew Haldenby, co-founder and director of non-party think- tank Reform says politicians also recognise that austerity isn’t a very appealing political message. ‘It’s difficult territory. The politicians are showing very clearly that they’re not comfortable making speeches about cutting public spending. There are big issues at stake – can we afford services, what shape should they take – it’s a shame we’re not discussing it in detail,’ he adds.

Both Labour and the Conservatives agree we are in a decade-long period of consolidation. The only real question is how you manage that process better, says Simon Parker, director of think-tank the New Local Government Network. ‘The chancellor has said he will reduce public spending as a proportion of GDP but no one is having an honest conversation about what that means to public services. Parties have a problem with their legitimacy so they can’t talk about the hard stuff. They’re doing the country a great disservice.’

Commentators agree useful detail on public services spending is only likely to emerge well after voters have gone to the polls. ‘I’d be surprised if we got any meat on the bones, especially in terms of bad news, before the election,’ the IFS’s Johnson says. ‘I’m almost sure that whatever government we get, there will be a Spending Review before the end of the year.’

In the meantime, parties are playing it safe. ‘Although there are specific politicians such as Theresa May and Iain Duncan Smith who make a good case for specific areas, the Conservatives have struggled to produce a statement on their public services reform so you don’t hear them talking about it,’ Haldenby says. ‘The parties have chosen narrow subjects with which to associate themselves.’

A reluctance to spell out unpalatable truths has led to politicians instead focusing on topics where public funds will be protected – areas such as the NHS, which remains top of the list of voters’ concerns. ‘No one wants to spell out where they will make cuts so it’s a case of reading between the lines. And it’s the unprotected areas – police, prisons, local government and defence – that will likely bear the brunt,’ says Rick Muir, associate director for public service reform at think-tank the Institute for Public Policy Reform.

Where the political battleground has shifted is in terms of nuances. So while the NHS remains one of the core issues for both Labour and Conservatives – Labour’s focus on health is no doubt driven by the fact that it is one clear area where it enjoys a firm lead over the Conservatives – IFS analysis shows that it is gradually taking up a larger share of spending. ‘We are seeing quite a radical change in the shape of the state over this period,’ Johnson remarks.

At the same time, Johnson says a combination of demographics and public policy choice driven by an ageing population is driving a commitment on the part of all parties to invest more in those public services disproportionately consumed by older voters. Both the Conservatives and Labour have committed to retaining the ‘triple lock’ on the state pension – meaning it will rise by inflation, earnings or 2.5%, whichever is the highest – as well as free TV licences and bus passes.

That said, in June 2013, Labour announced it would withdraw the winter fuel allowance (worth £200 to those aged over 60, rising to £300 for those over 80) from the wealthiest 5% of pensioners. While the pledge is of little economic significance – about 600,000 pensioners will be affected, saving just £100m a year – many believe the policy is designed to showcase fiscal discipline from shadow chancellor Ed Balls.

The commitment to pensioners across all three major parties is a less-than-subtle punt for the grey vote, with the over-70s four times more likely to cast a ballot than the under-25s, according to Page at Ipsos MORI. Not surprisingly, details about how the benefits will be funded from the public purse remain thin on the ground.

‘I don’t think any of the parties have said, if we continue to protect pensions there will have to be cuts, or we will have to raise taxes, or find the money by some other means,’ Johnson says. ‘In the long term, we still need a debate about how to pay for public services in an ageing society. We will have to find some more money from somewhere. But no one wants to spell it out,’ Muir adds.

Given the turmoil created by the Scottish referendum on independence, the potential for devolving large amounts of spending could represent a big policy shift. But despite the government announcement in February that Greater Manchester is to become the first region in England to get full control of health spending, devolution is not an issue that people say they’ll vote on, according to Ipsos Mori.

Page describes devolution as a classic case of cognitive polyphasia: ‘People want more local control and have more trust in local government but simultaneously say that things like the NHS should meet national standards.’

Ultimately, Page does not think the lack of detail surrounding the future shape of public services is necessarily a gripe for vast swathes of the electorate: ‘Voters are looking for a sense of overall competence.’ And that’s Labour’s problem, he says, because polls show that people see Ed Miliband as being more in touch but less competent than David Cameron.

‘People want Scandinavian levels of public services and US levels of tax,’ Page adds. ‘There is a broader issue about funding of public services but that debate won’t be had in the short term for fear of confronting people with unpleasant truths.’

Promises, PromisesWith all parties pledging to reduce the deficit in the next parliament, fiscal debate in the election campaign so far has focused on the impact of specific policy pledges on the public finances.

Ed Balls claims that Tory proposals for the next parliament imply an ‘extreme’ £70bn reduction in funding for public services to reach the £23bn surplus forecast for 2019/20. He says this is more than double the £30bn acknowledged by David Cameron, due to pledges to increase the tax-free personal allowance to £12,500 and to boost pensions and capital spending. These would require cuts elsewhere to meet the surplus target.

However, Conservative financial secretary to the Treasury David Gauke says these spending proposals were forecast by the Office for Budget Responsibility to return day-to-day spending on public services to 2002/03 levels in real terms.

Conservatives also highlight that Labour promises to increase NHS spending by £2.5bn a year, and to re-introduce a 10p starting rate of income tax, which would mean higher borrowing. Labour’s pledge to only balance the current budget could add up to £200bn to the national debt over the parliament, they claim.

The Liberal Democrats say their plan to balance the cyclically-adjusted current budget would allow the investment and create the environment for the UK to become the largest economy in Europe by 2035. Nick Clegg believes that both Labour and Tory fiscal plans would jeopardise the UK’s future prosperity.

A Labour majority government would borrow £70bn more than the LibDems plans by 2020, while the Conservatives would cut £38bn above the proposals of their coalition partners, Clegg says.

This feature was first published in the April issue of Public Finance magazine

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