As we approach the General Election in May, there will inevitably be a steady flurry of manifesto pledges and pre-election bribes from all of the major political parties.
Just recently, Labour announced plans to cut tax relief for the wealthiest pensioners in order to fund a slash in university tuition fees by one-third. Add this to proposals for a mansion tax, a return to the 50p rate of tax and proposals for a job guarantee scheme for school leavers, and it is not difficult to see the direction in which Ed Miliband is trying to steer his party.
The Tories, meanwhile, have taken a different line, buoyed by their 16-point lead on economic competence in the polls. Apart from presenting himself as the guardian of the public finances, George Osborne has boldly suggested that the country’s £96 billion budget deficit can be eliminated by 2020 without increases to general taxation. In fact, there is enough spare cash under his proposals for tax cuts, like the small crowd-pleasers in the budget.
So the electoral battle lines are being slowly drawn up. But do the numbers really stack up?
Labour have thus far been highly critical of the Coalition’s swingeing cuts to departmental spending, and have argued that the rich should play their part in addressing the country’s dire public finances. This, to many people, seems a fair and reasonable judgement; after all, it was the bankers who got us into this mess, so they should be the ones to get us out.
What the Party has been more guarded on, however, is how big of a dent their tax plans are likely to make to the budget deficit. If, for instance, the revenues from their mansion tax are used to increase NHS spending and reforms to pensioner benefits to slash tuition fees, then where is the additional cash going to come from to actually cut the deficit?
As Ed Balls would soon realise, fiddling around with the tax system is a notoriously tricky exercise. The Exchequer must weigh up the revenues likely to be raised against the administrative costs of implementing reforms. For instance, means testing pensioner benefits would be complicated by the need to measure people’s income and wealth, which can easily be moved around, and this is not to mention the bureaucratic cost of going after pensioner savings.
Over the years, the Labour party has frequently tripped itself up over taxation. In the last Budget, Ed Balls suggested that £7 billion could be raised from a bankers’ bonus tax. But as the Business Secretary pointed out, the total bonus pool for that year was only £1.5 billion. The reality is that in globalised and integrated economy, raising taxation of this kind is an exercise fraught with difficulty and, in the grand scheme of things, is just a drop in the ocean given the overall size of the national debt.
But in many ways, the Conservatives have been equally opaque in their funding commitments, opting to hide behind statistics and rhetoric rather than being straight with voters about the tough decisions that need to be taken.
Surely if in the next parliament, the Party ring-fence the NHS, education and international aid, they don’t have an awful else lot left to cut. Or, as will inevitably be the case, do they intend to leave much of the heavy lifting to be done by cutting the UK’s enormous welfare bill? If this is so, then the burden will be borne principally by the working poor.
The Tories have also been busy making all sorts of promises to pensioners, at an enormous potential cost to the taxpayer. Osborne has made an impressive and concerted effort to woo elderly voters: offering the protection of the triple lock, guaranteeing TV licences, and most recently, a market-leading 4% bond. The Chancellor is clearly a smart political tactician, if not an economic realist.
Really though, the electorate in May faces a choice between two parties, which, from a distance, may appear to be rather similar. Whoever gets the keys to Number 10 will have to make economies in government and both parties have laid out their plans to eliminate the deficit.
So the choice is about means, not ends.
The Tories would look to reduce central and local government spending, and would continue to reduce the burden of taxation. Labour, meanwhile, would go after the rich and big business to squeeze revenue from the most affluent in society.
Ultimately though, you can’t have your cake and eat it. You can’t cut the deficit, maintain public services and have a low tax regime, the numbers simply don’t add up. Whatever happens on May 7th, there is going to be further austerity to come, even if neither of the parties want to tell the electorate that.