None of the political parties has a plan for the deficitby Bronwen Maddox / October 16, 2014 / Leave a comment
The ritual coda to the British party conference season is not the moment when the last party leader speaks, but when the International Monetary Fund, holding its annual get-together in the still summery streets of Washington, awards its marks for the health of the United Kingdom’s economy. In the past few years, Christine Lagarde excoriated George Osborne for the dangers of his austerity programme. This time, her team praised the UK for consigning the effects of the financial crisis to the past, and reckoned that it would be the fastest-growing large economy in the developed world this year, outstripped only by the United States in 2015.
The criticism of the past was too harsh; this pronouncement is too generous. It ignores the twin uncertainties facing the UK now: how the deficit is to be closed, and the impact of higher interest rates when those come. It also makes too light of the other intractable problems: the housing crisis and the failure of wages to rise faster than inflation (a problem shared with other leading developed economies, which Prospect has focused extensively on this year). But the IMF is not alone in glancing over these issues. Leaving aside Ed Miliband’s failure to mention the deficit in what was rightly called one of the worst political speeches of modern times, the Conservative and Labour conferences failed to answer the question of how the deficit is to be closed. The Liberal Democrats did—by proposing to raise taxes on businesses and households—but not in a way that explained why growth would not suffer.
Take the Conservatives first. The Chancellor has set himself the target of eliminating the budget deficit—which in 2013-14 stood at £107.7bn, or 6.6 per cent of GDP—by 2018-19. He includes in his target both current spending and infrastructure, and says that will mean cuts of £25bn. The independent Institute for Fiscal Studies (IFS) reckons he will need cuts (or tax rises) of £37.6bn over the first three years of the next parliament.
In his most controversial proposal, Osborne said the party would freeze some benefit payments for two years. Why he thought this…