Manifesto analysis highlights economic trade-offs

Voters must decide how fast they want debt to fall and how deep cuts should be

Analysis from the IFS shows the pace of debt reduction under each political party
Analysis from the IFS shows the pace of debt reduction under each political party

Political parties were criticised this week for their vague fiscal plans in analysis conducted by the Institute for Fiscal Studies. The organisation analysed the election manifestos of the Conservatives, Labour, the Liberal Democrats and the Scottish National Party and concluded that there was a clear trade-off between reducing the national debt and higher spending cuts. “The electorate have a pretty definite choice between Labour and Conservative in terms of one looking for more austerity and spending cuts but getting to a reduced deficit and debt more quickly, and the other looking to do less dramatic more plausible, arguably, levels of spending cuts and tax increases but leaving us with a higher level of debt,” explained Paul Johnson, director at the IFS, in a briefing with media.

Under the Conservative plans the national debt is projected to fall from 80% of national income to 72% by the end of the next Parliament in 2018/2019. But this would mean continuing with spending cuts to Departments outside the NHS, education and aid of around 18% per annum adding up to £30bn over the next Parliament. Details of exactly what would be cut have not been given but unprotected areas include defence, transport, law and order and social care.

Under Labour plans the IFS said that the deficit would fall to 77% during the same period leaving national debt £90bn higher. The report criticised the party for being “vague” over how much they would want to borrow pledging to “get a surplus on the current budget” without specifying how.

More transparent, said the IFS were the Liberal Democrats who are aiming to reduce borrowing by 3.9% of national income over the term of the next government, which would be more than Labour but less than Conservative plans to reduce it by 5.2% eliminating the deficit by the end of the Parliament.

IFS deputy director and one of the authors of the report Carl Emmerson said that in terms of the national debt what really matters was debt as a share of GDP.”All of the parties plans imply it falling over the next parliament but the Conservatives will bring it down more quickly,” he said. “One advantage is that this means we will be spending less of our income on debt interest and we can therefore spend more of our national income on things we like having. Another potential advantage is that it might leave us better placed to deal with any adverse events in the future such as public finance cost of an ageing population or when the next recession comes along.”

He said this effectively meant a trade off between how quickly the UK wanted to see debt fall to pre-crisis levels. By projecting Conservative plans forward the national debt reaches 50% of GDP by 2030, which is still higher than the 40% considered to be the optimal debt/GDP ratio. “On one hand it is nice to get it down, on the other it is nice not to have to do tax rises and spending cuts,” said Emmerson

 Article written for Infrastructure Intelligence

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