The position of the main parties on deficit reduction

David Cameron aims to end the deficit by 2017-18, and to run a surplus by the following financial year: “we will go from stuck in the red to back in the black”, as the Conservative Manifesto puts it. “That means we can start properly paying down our debts and reducing the scale of annual interest payments – reducing the UK’s vulnerability to future shocks by fixing the roof while the sun is shining.”

Ed Miliband intends to cut “the deficit every year, with a surplus on the current budget and with national debt falling as soon as possible in the next Parliament”, in the words of Labour’s manifesto.  However, as Mark Wallace noted on this site on Monday, the manifesto deliberately doesn’t say whether Miliband’s plan is to reduce debt as a percentage of GDP or the total amount of debt.  This demonstrates that it isn’t clear by what date Labour plans to eliminate the deficit – and, therefore, what additional tax rises and spending cuts it plans to make by when, if any, and what additional borrowing for capital spending the party will make, if any.

Nick Clegg wants “to eradicate the structural current budget deficit by 2017/18 and have debt falling as
a percentage of national income, so it is back to sustainable levels by the middle of the next decade”, as the Liberal Democrat Manifesto says.  Those words are consistent with running a deficit in government – just not a structural one – and not running a surplus at ll

Now let’s weigh those aims against what’s likely to happen after May 7.

What will happen to these aims if the Commons is hung?

At present and for some time, the polls point and have pointed to a hung parliament – and it’s unlikely that the evidence both from them and from Lord Ashcroft’s surveys of marginal seats will suggest a majority for either of the two bigger parties during the next three weeks.

So after May 7, the Conservative or a Labour-led government in place will probably be forced to rely both on the will of its own MPs and that of other parties to meet its plans.

Labour in a hung Parliament

Labour’s new Ministers in spending departments are very unlikely to work co-operatively with a Chancellor – presumably Ed Balls – who seeks to make new reductions in the rate of spending growth.  Five of the 28 Commons members of the Shadow Cabinet entered the House in 2010, and have never served as Ministers – let alone as Ministers who have to rein in spending.  Many of the others will be ideologically opposed to “cuts”, or unwilling to upset the lobby and interest groups who take that position, or seeking to shore up their support on the left of the party, or all three.

And as this site has pointed out, Labour’s Parliamentary Party after the next election will be even more left-wing than it is now.  John McDonnell, the Campaign Group Chair, has said that up to 40 MPs will oppose “austerity” from a Labour Government.  Forty MPs would be enough in a hung Parliament to prevent Miliband and Ed Balls from making any new spending reductions at all.

The view of the minor parties

All this, of course, would be true even were the other parties in the Commons willing to vote for those.  But the SNP and SDLP, plus any Green or Respect MPs, will not be. And the Liberal Democrats and Conservatives might not be either – or at least, they might not be willing to vote for some of any new spending cuts proposed by Labour, on the ground that they disagree with the specifics.  The position of the other minor parties in this circumstance is ambiguous.

So even in a Coalition (and the numbers of the coming Commons may well not allow for one) Labour looks unlikely to be in a position to meet its deficit reduction aims – vague though these already are.

The Conservatives in a hung Parliament

Government departments other than the protected ones – principally health – were set to face a squeeze even before the new spending announcements of the last week.  It may be that all these can be met out of growth, and that no new spending cuts or tax rises will be required.

However, that growth may not come and, if George Osborne (still presumably in place in this scenario) is unwilling to raise taxes further, the squeeze on the departments will need to be even tighter.

Some Cabinet Ministers are already very unhappy about this prospect.  But, unlike their Labour Shadow counterparts, all the evidence of this Parliament suggests that they will be willing to put their shoulder to the wheel.  After all, they have already delivered very big departmental reductions, as Peter Hoskin has demonstrated on this site.

Tory MPs are always happy in principle about cutting spending, but very often unhappy in practice.  None the less they, too, have done their bit, and can be relied upon to do it again.

However, there is a fly – or rather a giant hornet – in the ointment.  It’s that prospect of the lack of a majority.  None of the other parties will be willing to sign up to the Conservatives’ deficit reduction programme – including the Liberal Democrats, who have made it clear that they will refuse to support the proposed Tory welfare savings (the details of which we don’t know in any event).

Conclusion: the deficit is still likely to be there in 2020

So it looks as though neither of the two main parties will be able to meet their deficit reduction ambitions if the Commons is hung.  If growth doesn’t come to the rescue, the deficit will thus be still there in 2020, and debt will still be climbing.  Even now, public sector debt interest payments are the fourth highest spending item after health, welfare and education.

And a deficit on even the present scale leaves Britain horribly exposed to international shocks – another banking disaster; Eurozone collapse; a major Middle East war, and so on.

P.S: How serious are the parties about deficit reduction anyway?

The question is worth asking simply because even George Osborne, who has cut the deficit in half as a proportion of GDP, won’t “pay any price, bear any burden” to end it.

We know this because, faced in the last Parliament with a choice of whether or not to make further cuts in the rate of growth of spending in order to do, he decided not to – and to stick to his original plans.

This was the right judgement call, because the squeeze on the economy which would have followed this further reduction would have been excessive.  Our argument has always been that the big test for the Chancellor has been for him to deliver the cuts he has planned – a test he has met – although they should have been frontloaded more at the start of the Parliament, and been a bigger element in the spending cuts/tax rises mix.

However, that call by Osborne does highlight a temptation which tests all Chancellors in such circumstances – namely, simply to load new spending commitments (such as the £8 billion a year extra for the NHS) on borrowing if the political price of making cuts or raising taxes becomes too painful, especially within one’s own party.

In this week of manifesto launches, we have seen puffy white clouds of spending promises obscure the needle-sharp peak of the deficit.

On May 7, those clouds will clear, and that mountain top will remain in all its height and sheerness.

33 comments for: “Why don’t you want to conquer the deficit?” “Because it’s there.”

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