The IFS has published a review of political parties’ public finance plans, ahead of May’s general election. Post-election Austerity: Parties’ plans compared examines the public finance plans of the Conservative, Labour, Liberal Democrat and SNP parties, and estimates potential implications of each party’s manifesto pledges.
Paul Johnson, director of the IFS, said, “The difference between the parties is bigger than what we have seen in the past."
Each of the four party’s plans imply further austerity, the IFS said, but with the Conservative party aiming to reduce borrowing over the next parliament by 5.2% of national income, the party will need to make deeper cuts than either Labour or the SNP.
Indeed, according to IFS estimates, the Conservatives would need to make real terms spending cuts of £30bn to unprotected departmental spending over the next parliament, if it is to keep its manifesto pledges.
“The £30bn from the Conservatives isn’t mentioned anywhere in their manifesto,” said Gemma Tetlow, one of the report’s authors.
If correct, this means that departments outside of the NHS, education and foreign aid could be facing cuts of 17.9% between the financial years 2014-15 and 2018-19. From the start of austerity (2010-11), departments including defence, transport, social care and law and order would have seen average cuts of one third.
Soumaya Keynes, a research economist at the IFS, said, “The Conservatives have said they want to eliminate the deficit but provided next to no detail on how they would do it.
“They should be forthcoming on the £5bn of largely unspecified clamp down on tax avoidance, the £10bn of unspecified cuts to social security spending and, according to out calculations, further real cuts to unprotected departments of around £30bn,” Keynes added.
Compared to the Conservatives, Labour public finance plans require just £1.2bn over the next parliament. Although considerably smaller than cuts proposed by the Conservatives, this estimate does come with some notable disadvantages.
Firstly, as noted by the IFS, Labour’s current NHS pledge – £2.5bn more than the Conservatives – would be a historically tight settlement for the health service, and the IFS predicts that Labour spending in this area would be greater.
The electorate has a real choice, although it can at best only see the broad outlines of that choice
Additionally while the Conservative party is looking to reduce debt to 71.7% of national income by the end of the next parliament, Labour’s current finance plans would see debt at around 76.7%. This means that debt would be £90bn higher under a Labour government.
The IFS criticised the Labour manifesto for being too vague, however, and said that the party needed to “spell out in detail” how they would reduce borrowing further.
“Labour’s proposed measures might be broadly enough to meet their target for only borrowing to invest,” said report author and IFS research economist Rowena Crawford.
“[However] this would leave borrowing at £26bn a year in today’s terms. If Labour wanted to reduce borrowing to a lower level than this, they would have to spell out more detail of how they would get there.”
While the Conservatives do not mention where they would target cuts if elected, the Liberal Democrats – praised by the IFS for greater transparency than the other three parties – did allude to £12bn worth of cuts needed in their manifesto.
This is because the Liberal Democrats hope to achieve their planned borrowing reduction by the financial year 2017-18. If they were to achieve their aim to provide free childcare to all two-four year olds, the IFS estimate this would require a further £2bn of cuts to unprotected spending.
The IFS also questioned the Lib Dem target of raising £10bn by reducing tax avoidance and evasion through "largely unspecified and highly uncertain measures".
The SNP received praise for being the only party not to make finance plans predicated on “made up assumptions” about how much could be raised through tax avoidance crackdowns.
But SNP finance plans also appear contradictory. While the party’s manifesto claims to reject the “current trajectory” of spending from both the government and the Labour party, SNP fiscal plans imply lower level spending than that of the Labour party by 2019-20.
While SNP austerity would start at a slower rate than that proposed by other parties, it would continue for longer and the last year of the next parliament would see more spending cuts than the previous four years.
Carl Emmerson, deputy director of the IFS, said there was a “varying degree of detail” from the four parties, although more information was available than in the last election.
Discussing the differences between the fiscal policies, Emmerson played down the significance of running a budget surplus by the end of the next government but acknowledged that it could better prepare future governments for economic difficulty.
“Surpluses are pretty rare,” Emmerson said. “What matters is your debt as a share of GDP [and] we are going to have relatively high debt for a while.
“There are generally big difference between the main parties’ fiscal plans,’ Emmerson continued. “The electorate has a real choice, although it can at best only see the broad outlines of that choice.”