By Lucy Phillips
15 April 2010
National Insurance policy remains the main economic dividing line between Labour and the Conservatives after both parties published election manifestos short on public spending detail.
Labour’s planned 1% rise in National Insurance has been in the campaign-trail spotlight since the Conservatives said they would scrap most of the increase, attracting support from over 100 business leaders.
Branding it a ‘tax on jobs’, the Tories have pledged to make public sector savings to counteract the £7bn that Labour’s NI changes are expected to generate.
Launching the Conservative manifesto, leader David Cameron said there was ‘a real choice on the economy at this election – a jobs tax from Labour that will kill the recovery or action from the Conservatives to boost the recovery’. Reiterating Tory proposals to reduce ‘the bulk’ of the country’s £167bn deficit in the next Parliament, he said a Conservative government would begin making £6bn worth of departmental cuts this year, going ‘faster and further than Labour’.
At the launch of the Labour manifesto a day earlier, Prime Minister Gordon Brown said his priority was economic recovery with policies including cuts to ‘lower priority’ spending and pledges to not raise income tax rates or extend VAT to specific areas. ‘We are determined to halve the deficit – but... we will ensure that every last pound spent on public services delivers the best value for money for you and your family,’ he said.
Cameron committed to an emergency Budget within 50 days of taking office and claimed the Tories had ‘a whole new theory of how government should act to get more for less’ – mainly through encouraging citizens and voluntary bodies to run public services.
He said Sir Peter Gershon, the Tories’ chief efficiency adviser, had identified £12bn of in-year Whitehall savings, including tighter IT spending and recruitment controls that could be achieved without damaging frontline services.
Responding to criticism of the lack of detail on spending cuts in the manifesto, Cameron added: ‘I want us to take the country with us in dealing with the deficit. We understand what a hole the country is in and we have to get out of it. No party has set out every single last point of this.’
Labour said the Tory’s manifesto was not economically credible. Lord Mandelson, chair of Labour’s election strategy, said: ‘This is something-for-nothing Santa Claus economics. It will kill the recovery and mean we would be paying the price for years to come.’
Unions have backed the NI rise, saying a failure to implement it would lead to ‘swingeing cutbacks’ in services.
Colin Talbot, professor of public policy and management at Manchester Business School, claimed that the Tories’ counter-efficiency savings would lead to between 20,000 and 40,000 job losses across the public sector. He accused both parties of ‘trading punches’ over savings and failing to address the public deficit.
Both manifestos also came under fire from Keith Pilbeam, professor of international economics and finance at London’s City University.
He accused the two parties of ‘lying’ about taxes. ‘[The deficit] is so huge that neither of them are telling the truth. It’s quite clear they will raise VAT to 20% minimum straight away. Both parties are going to do that. The danger is it will go up to 25%,’ he told Public Finance.
Pilbeam said reducing the fiscal deficit to a reasonable proportion of gross domestic product (to 3% from the current 12%) would reassure the markets. But this would mean average departmental cuts of 10% and no areas, including health, would be immune. He expected the biggest reductions to come from tighter controls over social security and universal child benefits.
Pilbeam also warned that the economy had been ‘propped up’ by low interest rates and public expenditure for so long that ‘whenever the cuts come, we risk going back into recession’. He added: ‘People are far too optimistic about what’s going to happen after [the election].’
The Institute for Fiscal Studies noted that there had been a £31.1bn net rise in taxes since 1997, despite previous election pledges by Labour to not implement certain tax increases. The manifesto ‘left the door wide open to many other’ increases, it said.
The think-tank also criticised the lack of detail on spending cuts in both manifestos. Given Cameron’s signals that his emphasis will be on spending cuts as opposed to tax rises, the IFS questioned ‘whether it is really realistic to expect spending cuts to bear as much of the burden of fiscal tightening as the Conservatives intend, given the likely consequences for public services’ – meaning tax rises were inevitable whoever formed the next government.
15 April 2010
National Insurance policy remains the main economic dividing line between Labour and the Conservatives after both parties published election manifestos short on public spending detail.
Labour’s planned 1% rise in National Insurance has been in the campaign-trail spotlight since the Conservatives said they would scrap most of the increase, attracting support from over 100 business leaders.
Branding it a ‘tax on jobs’, the Tories have pledged to make public sector savings to counteract the £7bn that Labour’s NI changes are expected to generate.
Launching the Conservative manifesto, leader David Cameron said there was ‘a real choice on the economy at this election – a jobs tax from Labour that will kill the recovery or action from the Conservatives to boost the recovery’. Reiterating Tory proposals to reduce ‘the bulk’ of the country’s £167bn deficit in the next Parliament, he said a Conservative government would begin making £6bn worth of departmental cuts this year, going ‘faster and further than Labour’.
At the launch of the Labour manifesto a day earlier, Prime Minister Gordon Brown said his priority was economic recovery with policies including cuts to ‘lower priority’ spending and pledges to not raise income tax rates or extend VAT to specific areas. ‘We are determined to halve the deficit – but... we will ensure that every last pound spent on public services delivers the best value for money for you and your family,’ he said.
Cameron committed to an emergency Budget within 50 days of taking office and claimed the Tories had ‘a whole new theory of how government should act to get more for less’ – mainly through encouraging citizens and voluntary bodies to run public services.
He said Sir Peter Gershon, the Tories’ chief efficiency adviser, had identified £12bn of in-year Whitehall savings, including tighter IT spending and recruitment controls that could be achieved without damaging frontline services.
Responding to criticism of the lack of detail on spending cuts in the manifesto, Cameron added: ‘I want us to take the country with us in dealing with the deficit. We understand what a hole the country is in and we have to get out of it. No party has set out every single last point of this.’
Labour said the Tory’s manifesto was not economically credible. Lord Mandelson, chair of Labour’s election strategy, said: ‘This is something-for-nothing Santa Claus economics. It will kill the recovery and mean we would be paying the price for years to come.’
Unions have backed the NI rise, saying a failure to implement it would lead to ‘swingeing cutbacks’ in services.
Colin Talbot, professor of public policy and management at Manchester Business School, claimed that the Tories’ counter-efficiency savings would lead to between 20,000 and 40,000 job losses across the public sector. He accused both parties of ‘trading punches’ over savings and failing to address the public deficit.
Both manifestos also came under fire from Keith Pilbeam, professor of international economics and finance at London’s City University.
He accused the two parties of ‘lying’ about taxes. ‘[The deficit] is so huge that neither of them are telling the truth. It’s quite clear they will raise VAT to 20% minimum straight away. Both parties are going to do that. The danger is it will go up to 25%,’ he told Public Finance.
Pilbeam said reducing the fiscal deficit to a reasonable proportion of gross domestic product (to 3% from the current 12%) would reassure the markets. But this would mean average departmental cuts of 10% and no areas, including health, would be immune. He expected the biggest reductions to come from tighter controls over social security and universal child benefits.
Pilbeam also warned that the economy had been ‘propped up’ by low interest rates and public expenditure for so long that ‘whenever the cuts come, we risk going back into recession’. He added: ‘People are far too optimistic about what’s going to happen after [the election].’
The Institute for Fiscal Studies noted that there had been a £31.1bn net rise in taxes since 1997, despite previous election pledges by Labour to not implement certain tax increases. The manifesto ‘left the door wide open to many other’ increases, it said.
The think-tank also criticised the lack of detail on spending cuts in both manifestos. Given Cameron’s signals that his emphasis will be on spending cuts as opposed to tax rises, the IFS questioned ‘whether it is really realistic to expect spending cuts to bear as much of the burden of fiscal tightening as the Conservatives intend, given the likely consequences for public services’ – meaning tax rises were inevitable whoever formed the next government.
