George Osborne, shadow chancellor, has today given a keynote speech to the Conservative Party conference, promising “honest choices” over the deficit and risking public intolerance of specific spending cuts.
Using the end of the next Parliament as a reference point, the Conservatives claim they have found £7,000m of spending cuts a year. Assuming all of this is in addition to the government’s deficit reduction plan, this would cut the projected deficit in 2013-14 from £97,000m to £90,000m. That represents a reduction in the projected deficit by 0.4 per cent of national income to a deficit of 5.1 per cent of GDP.
The important point is that on the most generous assumption possible to the Conservatives, the additional deficit reduction hardly matches Mr Osborne’s promise to “tackle [the budget deficit] decisively if we are to stop high interest rates and the unemployment they bring”. It is less than one year of average forecasting error in the public finances.
When you start playing with the numbers, more and more questions arise.
The difficulty in comparing the Tory plans to those of the government is that both are still unspecific. The government won’t tell us how they propose to cut departmental spending by 8.6 per cent in real terms over the three years from April 2011. So it is impossible to say whether Mr Osborne’s limited specifics represent budgetary consolidation in excess of government tightening, or merely describe some of the measures any government would have to do to achieve the published path of deficit reduction.
As far as I could see, Mr Osborne made 14 specific pledges in his speech. I’ve listed them below with the Conservative estimate of effect on the deficit at the end of the Parliament in blue and a comment in red.Cut the costs of Parliament: -£120m: reasonable estimate and new, but very small beerEnsure any public official paid more than the prime minister gets approval from the chancellor: no cost given: unknowable saving, but very smallPlace a cap on taxpayer support for new accrual to public pensions worth over £50,000 a year: no cost given: unknowable saving, small at first but could growCut cost of Whitehall by a third: -£3,000m: question is whether this is possible or different from the government’s plansPay freeze for all public sector pay in 2011 except for those earning less than £18,000: -£3,200m: these seem reasonable assumptions but not necessarily additional to wage restraint planned by the government Double the operational allowance for the armed forces: +£60m: not a big costSupport marriage in the tax system: no cost given: the Institute for Fiscal Studies suggests that the most restrictive version of transferable allowances costs £1,000m and bigger reforms in this direction cost much more Cut child trust funds to all but the poorest: -£300m: reasonable figure Cut tax credits to households with income above £50,000: -£400m: reasonable estimate, but the pain is felt for all families with income above £40,000 to ensure no one with income above £50,000 receives anythingRestore state pension link to earnings this Parliament: no cost given: government has only committed to restoring the link at the end of the Parliament, so this policy could entail an annual bill of up to £2,500m in perpetuityRaise inheritance tax threshold to £1,000,000: no cost given: the gross cost of this policy is now £1,200m, but the Conservatives say this is funded by additional tax on the non-domiciled. That revenue is far from certain Raise state pension age to 66 from 2016: no claim of savings: quite large savings of up to £10bn a year in phased in over many yearsReverse the effect of the abolition of the dividend tax credit for pension funds: no cost given: this could be expensive but it is only scheduled for implementation after 2014, so not relevant to these calculationsKeep 50 per cent tax rate while public sector pay is frozen: no cost given: if the higher rate of tax is abolished, the Treasury estimates this would cost £3,000m
As you can see, there are some quite big questions about the detail: that £7,000m saving could be swallowed up be being already included in the government’s planned savings and no allowance made for specific commitments. I am sure the ever-enterprising Labour party will use their own assumptions to show Mr Osborne is proposing billions of new commitments.
For now, the small point remains. Mr Osborne’s speech was not quite the honest message as billed. The big point is that the Conservatives do not yet have the guts to explain to the British public how they want to reduce the budget deficit more meaningfully than Labour. In turn, Labour cannot yet articulate how it plans to cut the deficit at all after 2011.
Related readingWestminster blog: The Osborne axe: full gory details