Additional UK government departmental spending cuts in the three years after 2015-16 could be anything between £4bn or £37bn based on a new assessment of the main political parties’ announced tax, spending and deficit plans, a Resolution Foundation thinktank shows.
The range of cuts proposed underlines the extent to which the main parties, especially Labour, have yet to spell out their fiscal plans in detail for after the election, and are still trying to give themselves room for manoeuvre.
The foundation describes the parties’ plans six months before the general election “as highly sketchy” and said the electorate was facing a “candour deficit” from the parties as well as a fiscal deficit.
The Resolution Foundation projections also do not take into account suggestions spelled out in a report from the Social Market Foundation that lower than expected tax receipts may add as much as £15bn in additional required fiscal consolidation to be achieved by tax rises, extra spending cuts or slower deficit reduction.
They also do not take into account plans for tax cuts set out by the Conservatives, or for £1.5bn annual increases in health spending proposed on Monday by the Liberal Democrat leader, Nick Clegg, as a central feature of next week’s autumn statement.
The Resolution Foundation suggests the Tory plan – to achieve an overall budget surplus in 2018-19 – is the most specific of three parties and implies total consolidation of £37bn beyond 2016-16, split between a £12bn welfare bill cut and a further £25bn cut in departmental spending. This amounts to a 7% cumulative reduction over three years.
It would also mean that between the election of the coalition government in 2010 and 2018-19, the end of the forecast period, the Minstry of dDefence would have suffered cumulative cuts of one-third, the Home Office of one half and the Foreign Office two-thirds, the thinktank says.
The projection assumes no further tax rises and existing protections for overseas aid, schools and health remain in place.
The Liberal Democrat plan – designed to achieve a current budget balance in 2017-18 and overall balance in 2018-19 – requires a total consolidation beyond 2015-16 of between £18bn and 31bn, the thinktank says, depending on how much of the capital budget would be deemed to be productive, as yet undefined .
These figures assume no cuts to welfare, and no tax rises, so in practice the departmental cuts would be lower since Clegg is committed to a role for tax rises in fiscal consolidation. If only 80% of the consolidation was achieved through spending cuts, and the remainder by tax rises, Clegg’s spending cuts over the period would be reduced to anything between £15bn and £21bn.
Finally, the Resolution Foundation examines two Labour scenarios based on its commitment to ensure the current account is in surplus as early as possible in the next parliament.
If Labour aimed to achieve a small current account surplus in 2018-19 it would need to find £13bn of departmental cuts beyond 2015-16 in the absence of any reductions in the welfare bill or tax rises.
If Labour delayed reaching a current budget surplus until 2019-20 the required consolidation amounts to just £4bn in the three years beyond 2016-17, a surprisingly small amount but reflecting the vagueness of the party’s commitment. The £4bn does not include £8.5bn-worth of cuts scheduled for 2015-16 to which all parties are committed.
Labour will for the first time try to set out some of its spending cuts when on Tuesday it publishes its zero-based review for the Home Office, saving a total of £350m.
The Resolution Foundation also point out that all these projections could be rendered meaningless if growth is either significantly better or worse than currently projected by the Office for Budget Responsibility. The Ffoundation says if the economy were to reach its expected size in 2018-19, a year earlier than Office of Budger Responsibility projections, and tax receipts along with it, the deficit might be £17bn lower in 2017-18 than projected.
Mathew Whitaker, chief economist at the Resolution Foundation, said lon Monday: “Political parties have a point when they say that the uncertainty over the public finances makes it impossible to provide complete detail on their fiscal plans. But the gap between the scale of consolidation implicit in their plans and what the electorate has been told to date is just too large.
“The electorate shouldn’t be subjected to another largely empty fiscal debate like it was at the last election. Currently we are facing a candour deficit as well as a fiscal one.”
