One Week Down, Seventeen to Go

January 9, 2015

As it was hard to miss, this was the week that the General Election really kicked off. Last Friday, the Conservatives unveiled their first poster of the year, arguing that we needed to “stay on the road to a stronger economy” and boasting of a deficit halved and an extra 1.75 million people in work. On Sunday, Labour responded with their own poster foreshadowing their own theme for the week, claiming that “The Tories want to cut spending on public services back to the levels of the 1930s, when there was no NHS.” (This was at best massively misleading, although is it is certainly true that Conservative spending plans are much more radical than those of the other parties.)

On the Monday, the Conservatives released a rapidly infamous 82 page spending dossier “A Cost Analysis of Labour Party Policy”, claiming that using largely Treasury costings there was a £20.7 billion hole in Labour’s spending plans for 2015/16 alone. According to George Osborne, looking only at the promised policies since June 2013 – when Ed Balls promised iron discipline and no unfunded commitments – Labour had pledged £23.26 billion in new spending or reversed cuts, and only £2.52 billion in extra taxes.

Labour was quick to respond, releasing their own 36 page counter dossier “The Tories Smear Analysis of Labour Party Policy” by the end of the day.  They complained that many of the costings did not come from the Treasury at all, and that even those that did were distorted by the assumptions chosen by political special advisors. They were not actually committed to some of the highlighted policies, such as banning food waste from landfill, and they were not actually going to reverse cuts to council budgets or find more money for public sector pay. They pointed out that the IFS had claimed that they were the only party not to have an announced net giveaway – although they did not highlight that the IFS’ claim was based only on Labour’s own costings. The Tories, by contrast, they protested, had still not shown how they would pay for their £7 billion in tax cuts.

No costing is perfect. Even when done with all the care in the world, there are always assumptions, unknowns and simplifications. How long do you estimate it will take for a policy to be fully implemented? What will the secondary effects be? Will more spending now lead to savings elsewhere or higher tax rates drive offsetting behaviour? Perhaps the most notorious example from this Parliament is lowering the 50p income tax rate to 45p. The Conservative dossier argued that Labour’s restoration of the 50p rate would raise no money, while Labour argues that, “cutting the 50p rate gave a tax cut of £3bn to the top one per cent.”

That said, some of the specifics of the Conservative costings do seem uncharitable. The Treasury costings assumed, for example, that the average claimant duration for Labour’s proposed higher rate of Contributory JSA would be six months based on a Chris Leslie interview, rather than Rachel Reeve’s alternative statement of six weeks. The costings allowed for 150 new Directors of School Standards and no shifting out of existing budgets, rather than David Blunkett’s proposed 40-80. Restricting early release for prisoners serving jail sentences for non-payment of confiscation orders is expected not to change behaviour at all, despite only 2% of criminals currently paying their confiscation orders in full once their sentence is imposed. Giving patients a guaranteed GP appointment within 48 hours is assumed not to save money from lower A&E attendances.

But zooming out, the big decisions remain the same.  The Conservatives have prioritised getting debt down faster and lower taxes to ease the cost of living; Labour believes higher spending is necessary and is going to rely on greater regulation to keep down costs. The real difference between the Labour and Conservative spending plans will come not in 2015-16, but in 2019-20 by which point according to the IFS the Conservatives need to find £33 billion in real cuts and Labour £5 billion. Whoever you vote for, there will be no return to the generous spending boosts of the early 2000s.

The big picture is that every party is committed to £76 billion in unfunded spending commitments in 2015-16 – the OBR’s current forecast for the deficit. There is no realistic way to solve the NHS’s future challenges through higher funding alone, rather than reform – although this week was also noticeable for the Liberal Democrats being the first party to official commit to meeting the £8 billion NHS funding gap identified by Simon Stevens.

This week gave us more detail about what the different parties are planning and the assumptions they are making – but a lot of unknowns remain.

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