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Tories forced to cut spending under its plans

Austerity under SNP to be slowed down, but last longer, says IFS

Nicola SturgeonThe SNP’s plans to cut austerity will slow down the pace but will mean that it will last longer, according to an influential think tank.

But the Tories will have to cut spending or raise taxes if they are to achieve their borrowing target.

New research into each of the parties’ plans analyses how they intend to tackle the deficit in the public finances but accuses them of ‘leaving the electorate in the dark’ about the size of cuts and tax rises.

The data from the Institute for Fiscal Studies (IFS) and funded by the Nuffield Foundation states that all the political parties have pledged to cut the deficit, which is currently 5% of national income, over the next parliament.

“None of these parties has provided anything like full details of their fiscal plans for each year of the coming parliament, leaving the electorate somewhat in the dark as to both the scale and composition of likely spending cuts and tax increases,” says the IFS.

The research shows that while the Tories plan the biggest reduction in borrowing – 5.2% of national income to eliminate the deficit by 2019 –  this will mean big cuts in spending or tax rises. But it would cut future interest payments and leave the country better placed to deal with future economic shocks.

Labour is described as being vague about much the party wants to borrow. It has pledged to ‘get a surplus on the current budget’ without specifying either exactly when or how much of a surplus. From what the researchers know they say Labour’s plans to reduce borrowing by 3.6% would require lower spending cuts or tax rises.

The Liberal Democrats are said to have been “more transparent” about their overall fiscal plans through to 2017–18 and are aiming for a tightening that is larger than Labour’s but smaller than the Conservatives’, at 3.9% of national income.

The researchers say the SNP’s fiscal numbers imply the same reduction in borrowing over the next parliament as Labour, although the reduction in borrowing under their plans would be slower.

“While their plans imply a slower pace of austerity than those of the other three parties, they imply a longer period of austerity.”

In terms of policy actions, the IFS says the Conservatives’ borrowing reduction is predicated on £5 billion of largely unspecified anti-avoidance measures, £10 billion of unspecified social security cuts, and £30 billion of cuts to unprotected departmental spending.

“Departments outside the NHS, education and aid look to be facing cuts of 17.9% between 2014–15 and 2018–19. This would imply average cuts to these spending areas of one third in real terms from the start of austerity (in 2010-11) up to 2018-19. These ‘unprotected’ areas include defence, transport, law and order and social care.”

The IFS says Labour’s plans include some small net tax increases, and its commitments to increase certain areas of public spending are no bigger than the Conservatives.

“The big difference though is their much looser fiscal rule. If they can find £7.5 billion of revenues from anti-avoidance measures, as they say they can, then they might need to find a mere £1 billion from further real cuts to unprotected departmental spending.”

The Liberal Democrats are noted for acknowledging in the manifesto, that the party’s plans would require £12 billion of cuts to unprotected departments.

“Their plans are predicated on two other optimistic claims. First, the vast majority of their planned cut to social security spending is to come from their ambition to reduce fraud and error in the system and to get better at helping benefit recipients back into work. Second, they wish to raise £10 billion by the end of the parliament from largely unspecified and highly uncertain measures to reduce tax avoidance and evasion. This is twice as much as the Conservatives, and a third more than Labour, expect to raise from such measures.”

The IFS says the SNP is the one major party “not to have used largely made-up assumptions about how much they could raise from clamping down on tax avoidance to try to make their sums add up”.

It says: “Their proposed tax giveaways appear to be offset by their tax takeaways, while they would increase the generosity of the social security system. As a result, even though they propose increasing total spending in real terms each year, departmental spending would need to be broadly frozen between 2014–15 and 2019–20, and departmental spending outside of the NHS and aid could be facing a cut of 4.3%.

“The SNP’s manifesto states that ‘We reject the current trajectory of spending, proposed by the UK government and the limited alternative proposed by the Labour Party’. There is a considerable disconnect between this rhetoric and their stated plans for total spending, which imply a lower level of spending by 2019–20 than Labour’s plans.”

Soumaya Keynes, research economist at the IFS and an author of the report, said: “The Conservatives have said they want to eliminate the deficit but provided next to no detail on how they would do it. They should be forthcoming on the £5 billion of largely unspecified clamp down on tax avoidance, the £10 billion of unspecified cuts to social security spending and, according to our calculations, further real cuts to ‘unprotected’ departments of around £30 billion.”

Rowena Crawford, senior research economist at the IFS and an author of the report, said: “Labour’s proposed measures might be broadly enough to meet their target for only borrowing to invest. But this would leave borrowing at £26 billion a year in today’s terms. If Labour wanted to reduce borrowing to a lower level than this, they would have to spell out more detail of how they would get there.”

Carl Emmerson, IFS deputy director, added: “There are genuinely big differences between the main parties’ fiscal plans.

“The electorate has a real choice, although it can at best see only the broad outlines of that choice. Conservative plans involve a significantly larger reduction in borrowing and debt than Labour plans. But they are predicated on substantial and almost entirely unspecified spending cuts and tax increases. While Labour has been considerably less clear about its overall fiscal ambitions its stated position appears to be consistent with little in the way of further spending cuts after this year.”

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