The big split on deficit reduction is between Labour and Tories


There has been much ink spilled today on the apparent split between Alistair Darling and Ed Balls on the pace of deficit reduction. But the difference over whether to halve the deficit in four or more years is nothing compared to the gap between Darling and Osborne. The latter’s plans are almost twice as severe as Darling’s.

The Guardian’s Nick Watt blogs today about Alistair Darling’s conference speech and sets out:

“Darling launched a strong defence of his proposal to halve the deficit over four years. This would have led to £44bn in cuts in total managed expenditure in contrast to the £61bn planned by the coalition.”

The statistics came from Matt Hancock’s recent document ‘What would you cut, Mr Miliband?‘ but were first used in George Osborne’s Budget speech when he said:

“We have inherited from the previous Government spending plans to cut departmental budgets by £44 billion a year by 2014-15.

“Because the structural deficit is worse than we were told, my Budget today implies further reductions in departmental spending of £17 billion by 2014-15 [ie £61 billion in total – a rise of 39%].”

The truth is rather more stark because of the Government’s spending review which includes additional billions of cuts. Table 1.1 of the Budget sets out the respective “total consolidation plans” of Labour and Tories.

Labour’s policy of halving the deficit over four years implied spending cuts of £39 billion by 2013-14 but the Treasury calculated that this would rise to £52 billion by 2014-15 (ie the course of the Parliament). The Treasury also outline in the small print that the “estimated debt interest savings” due to the cuts would be £7bn in 2014-15. Due to a rounding error £52bn – £7bn = £44bn.

The difficulty for the Government – and one of the reasons why their cuts programme will be so much more painful than Labour’s no matter what they pretend – is that the comparator figure is not £61bn. The total cut to spending planned by Osborne, Hancock and co is £83bn or £76bn if you take out the debt interest savings. It may seem like a pedant’s point but it matters because the gap jumps from 39 per cent to 73 per cent. In other words, the Tory cuts will be almost twice as bad as Labour’s.

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  • http://www.idlepenpusher.blogspot.com idle pen pusher

    “The total cut to spending planned by Osborne, Hancock and co is £83bn or £76bn if you take out the debt interest savings.”

    Why do “cuts” of £83bn lead to £7bn saved interest payments when £44bn also lead to £7bn. Surely it’d be at least double that figure. Probably more due to lower rates required to attract investors with a more conservative debt strategy?

  • Paul Dean

    If you think 61 is “almost twice” 44, then we do indeed have a very serious problem.

  • John Green

    The real split on deficit reduction is between Labour and the IMF and almost every independent financial expert and forecaster, and think tank.

  • Ash

    I had the same query as ipp on debt interest payments – shouldn’t that £76bn figure be somewhat lower?

    Interesting to note that £7bn of the ‘spending cuts’ Labour signed up to are actually just debt interest savings (rather than cuts to spending on public services). The more I look at figures like this and think about options to do more on tax, the more I’m convinced Labour can set out a credible deficit reduction package that doesn’t involve cuts on anything like the scale the Tories are proposing.

    (For instance, in 2014-15 – going by these figures – they’d need to endorse ‘only’ £29.5bn of real spending cuts, with a further £7bn achieved through debt interest savings and £36.5bn from tax rises. Compare that £29.5bn with the Tories’ £76bn…)

  • Ash

    Going back to your ‘responsible deficit reduction plan’ then Will: of that £28.5bn of spending cuts, presumably only £24.5bn are actual cuts to spending on public services (since debt interest savings of £4bn are expected by 2013-14).

    Compare that to the Tories’ proposed £59bn (£63bn – £4bn debt interest savings) – exactly double. Now that’s a clear and striking difference Labour could be drawing attention to.

  • Mr. Sensible

    John, what the IMF and others, including the OBR have done is downgrade the growth prospects for the economy.

    If you have slower growth, you stand less chance of cutting the deficit.

  • John Green

    Mr. Sensible,

    The economy will grow at a slow rate for some considerable time as we recover from the legacy left by the New Labour coalition.

    As the IMF have stated, and what most other sensible people recognise, is that the Government is on track to abolish the deficit without the prospect of a “double-dip” recession.

    Darling’s plan, still shrouded in the utmost secrecy, is to increase the yearly interest payments on our sovereign debt from £44 billion to more than £70 billion. Some plan.

  • Anon E Mouse

    Mr.Sensible – The IMF has stated that it feels the position of the government is the correct one. You are on the wrong side of the curve (again).

    This debt is a result of the financial incompetence of the last government – why do Labour constantly bang on about the bankers when they forced Gordon Brown on the electorate?

    Gold sales, “End to boom and bust”, “Lead the G20 out of recession” etc.

    And when the chancellor Alistair Darling said Brown was wrong on the economy, which he clearly was, the “Forces of hell were unleashed” on him. By his own party. Charming.

    It appears that Ed Miliband will make these points in his speech this afternoon. I do hope that after that people will stop this deficit denial.

    The fact is you can wrap this lot up however you want but the government is correct to take a risk – that’s it’s right. Labour and all the doom merchants are wrong. There won’t be a “double dip” recession.

    Move on all.

  • Mr. Sensible

    Guys that clearly isn’t washing with the public.
    http://www.guardian.co.uk/politics/2010/sep/28/ed-miliband-poll-labour-conservatives

    And 2 nobel prise winning economists have said that this is the wrong approach.

    And the fact is that the government’s own Office for Budget Responsibility has predicted over half a million job losses and that’s just across the public sector.

    For all this to happen, the economy has to be growing in the first place. You might find the second comment in this article interesting:
    http://www.guardian.co.uk/business/2010/sep/27/george-osborne-imf-backs-cuts?CMP=EMCGT_280910&

  • John Green

    Mr Sensible,

    Of course there will be large numbers of jobs lost in the public sector. That is one of the main points of the exercise. These wealth-consuming jobs must be moved into wealth-creating jobs in the private sector. The challenge for the government does not stop with abolishing our mountain of debt. It must create a self-sustaining economy for the future; one not reliant on growing sovereign debt, the discredited approach of Blair, Brown et al.

  • Anon E Mouse

    Mr.Sensible – You must have seen Panorama this week. Three thousand public servants earn more than the Prime Minister. How can that be right?

    There was an interviewee from the BBC who earns more than the head of the Armed Forces. And she works for the BBC.

    The lunatics have taken over the asylum. When people like Peter Mandelson said he was happy for people to get “Stinking rich” under a Labour government even he surely can’t have meant via public services.

    As a socialist you should be horrified about that and should not be dismissing the IMF because their correct view doesn’t suit yours.

    As for your first link please tell me why popularity indicates the correctness of a position – it’s either right or wrong and opinion polls cannot change that.

    Your second link is someone’s personal opinion and it indicates it may be partially down to Alistair Darling – I agree. I have always said that he was right and that Gordon Brown was wrong – especially in the way his own party treated him.

    Just as you are wrong on this National Debt I’m afraid…

  • Mr. Sensible

    Guys, if we cut all these jobs we cut workers’ spending power.

    What’s more, these cuts won’t just effect services. As Ed Miliband said, look at the impact scrapping BSF is having on construction.

  • Anon E Mouse

    Mr.Sensible – But who will pay for the jobs?

    As the last (Labour) treasury minister said; “All the money has gone”.

    It’s over and deficit denial will soon be a thing of the past once Ed Miliband gets a grip of the Labour Party…