28 April 2010

Two reasons why no-one has "come clean" about the cuts

Nice analysis by the Institute for Fiscal Studies yesterday on the fact that none of the three major parties have given the electorate any details of what they are going to cut to eliminate the "structural deficit" in the public finances (currently estimated by HMT to be running at around £70 billion per year). IFS reckons that the possible efficiency savings that can be squeezed out of public spending are overstated and so we are looking at much greater tax increases - like the early 1990s for example - rather than spending cuts. Larry Elliott in the Guardian concurs and suggests that VAT will be raised to 20% after the election as part of the tax-rise package.

It is of course shameful that the parties are pulling the wool over our eyes in this way. I suggest two reasons why it's happening:

1. The fallout from John Smith's "shadow budget" in the Labour election campaign in 1992. The impact of the negative press campaign against this carefully costed programme of "tax and spend" cannot be overstated. It shaped Labour thinking on tax for the whole of the Blair era and has made all parties wary of committing to detailed tax increases on the grounds that they will get hammered in the media. The ludicrous furore over the £6bn National Insurance increase, which fortunately seems to have died down in the later stages of the campaign, is a reminder that the press are still not prepared to discuss the election in rational terms, but would rather talk about how Nick Clegg is a Russian aristocrat, or other such ridiculous crap.

2. The fact that Labour moved its Spending Review back to autumn 2010 for no reason whatsoever except that an election was approaching. If a regular spending review was mandatory - in the same way that there has to be a budget every year - then we wouldn't get politicians just moving things around to suit their own ends. (Of course, in Labour's defence it should be pointed out that before 1997 the UK didn't even have medium-term spending reviews in any structured way.)

There is also, I guess, a high level of uncertainty about how large the structural deficit is. If the global (and UK) economy bounces back strongly from the recent severe recession we might well be back in surplus in just a few years. Alternatively, if the banking crisis has altered something fundamental in the economy and recovery is very sluggish, the finances could be much worse. Nonetheless that is no excuse for not setting out plans to deal with the central scenario as well as contingencies for the worst case scenario.

One rather senses that we are in a bubble, a comfort zone which will burst pretty f***ing soon after polling day, when we wake up and see that huge cuts and/or tax rises are on the way to pay for bankers' greed and incompetence. Certainly the final leaders' debate, on the economy, is unlikely to enlighten us further as it's in none of the parties' interest to break ranks and come up with a detailed plan that would no doubt be ripped to shreds by their opponents and the media. So prepare for another evasion of the major issues on Thursday.

No comments: