Neither party has come even remotely close to addressing the major fiscal questions facing the country at this year’s general election, a leading think tank has said.
In an analysis of Labour and Conservative’s manifestos, Paul Johnson, director of the non-partisan Institute for Fiscal Studies (IFS), said the parties had “singularly failed even to acknowledge some of the most important issues and choices to have faced us for a very long time”.
The IFS called attention—yet again—to the fiscal ‘trilemma’ facing the next government.
Both parties have pledged to reduce debt in five years. To meet this fiscal rule, the next government will either have to proceed with spending cuts in unprotected departments—such as justice and transport—or raise taxes by more than currently promised.
The manifestos provide very little detail on how spending cuts might be implemented or which taxes would rise to avoid another round of austerity.
Without cutting spending or raising taxes, the only other option is to reform the debt rules, something which neither party has shown any willingness to do.
Johnson was not impressed by the details provided by either party on tax and spending. “Their proposals on tax, benefits and public service spending would be barely enough to detain us in analysing a modest one-year fiscal event. They certainly don’t answer the big questions facing us over a five-year parliament,” he said.
Labour has dodged questions on its tax and spending plans by putting growth at the centre of its economic agenda. If the economy grows quicker than expected, then it might be able to avoid making spending cuts.
However, Johnson pointed out that even if growth exceeded the OBR’s forecasts, it would only allow the new government to avoid cuts to spending that are currently pencilled in.
Labour looks certain to win the election, likely with a very large majority. The IFS suggested that the party’s manifesto made a good fist of recognising problems without providing realistic solutions for dealing with them.
“Labour’s manifesto is chock full of reviews and strategies. It contains a detailed diagnosis of ‘the problem’ in many areas, and a welcome recognition that many of these issues are interrelated…But no sense of what it will do when it finds it needs more resources to deal with these issues,” he said.
The scale of the fiscal challenge was laid bare last week when new figures showed that national debt was nearing 100 per cent of GDP, reaching levels last seen in the 1960s. Even so, the tax burden is on track to rise to record levels.
Explaining how national debt could be so high while the government is taking more than ever in tax receipts, Johnson pointed to recent increases in debt interest spending and a ballooning welfare bill.
Looking forward, spending on health is likely to increase while the defence budget is set to rise for the first time in decades.