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Friday, March 26, 2010

Darling's Financial black hole

It is less than two days since the Chancellor of the Exchequer sat down after delivering his budget and already his sums are being questioned.

The Institute for Fiscal Studies said hefty tax rises and Whitehall spending cuts of 25% were in prospect during the six-year squeeze lasting until 2017 that would follow the chancellor's "treading water" budget yesterday:

Robert Chote, the IFS's director, said he was wary of the chancellor's claims that he could raise £11bn through efficiency savings, and added that capital investment in Britain's infrastructure would bear the brunt of the cuts. Current Treasury plans implied reductions in capital spending of almost 15% a year for the next four years, Chote said.

The IFS used its post-budget analysis to spell out what was in store for Whitehall departments, but said there appeared to be only a modest difference between the plans of the two main parties.

Assuming that the Conservatives wanted to eliminate Britain's structural deficit over a five-year parliament, a David Cameron government would have to find an extra £8bn of savings.

The thinktank said Labour's plans implied a cumulative decline of 11.9% in departmental spending on public services and administration over four years, a cut of £46bn in inflation-adjusted terms.

But a two-year government pledge to protect spending on the NHS and schools, and to raise overseas aid to the UN target of 0.7% of national output, will result in deeper cuts of 20% for those departments not protected, the IFS said. If the government continued to spare health and education for a further two years, departments such as transport, defence and the Home Office would face budget reductions of 25%.

The IFS said that the planned austerity would reduce public spending as a share of the economy from just over 27% to below 21% and return it to its level in the late 1990s, when it began a decade-long rise. A government that wanted to slash the deficit without inflicting such deep cuts would have to raise taxes or reduce welfare payments instead, the IFS added.

Chote said there was a lack of clarity about how either Labour or the Conservatives planned to tackle deficit reduction. "There are an awful lot of judgments still be made, or revealed, notably with regards to public spending over the next parliament. This greater-than-necessary vagueness allows the opposition to be vaguer than necessary, too."

The budget, Chote added, had failed to provide a detailed picture to voters and the financial markets of the "fiscal repair job" in prospect after the election.


Essentially, the budget has raised more questions than it answers about the choices available to voters at the next General Election. Neither Labour or the Tories are being honest about what they will do if they form the next government.

As if to add insult to injury Darling has also sneaked through another real term tax rise by freezing personal allowances, something spotted straight away by Clegg but later picked up by the Tories.

This £50 a year extra burden for ordinary working people contrasts massively with Liberal Democrat plans to increase the allowance to £10,000, taking millions out of tax altogether and making many more £700 a year better off.

The Liberal Democrats will be going into this election as the party of social justice and honesty on both our financial position and on cleaning up politics. We are offering a clear alternative to the samey mush being put forward by Labour and the Tories. Bring it on!
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