Leading think tanks go on the offensive – no party is spared

With polling day just four days away a refreshing sense of honesty, albeit of a brutal nature, was delivered this week by two leading economic think tanks.

With polling day just four days away and all parties holding back from laying their true fiscal deficit reduction cards on the table, a refreshing sense of honesty, albeit of a brutal nature, was delivered this week by two leading economic think tanks. Both categorically sought to deliver an honest and blunt assessment of Britain’s fiscal state, and the painful medicine the nation will sadly have to bear in the years ahead.

On Friday, the National Institute of Economic and Social Research (NIESR) released a report arguing that major tax rises will be necessary in order to curb the fiscal deficit and prepare for any future economic difficulties that would require fiscal action. There needs to be sufficient economic leverage in place for emergencies, hence their most controversial proposal is to increase the basic rate of income tax by 6 pence in the pound.

This they argue would help to reduce the deficit by an ‘additional’ 2%. Electorally, this would be impossible for any one single party to do, particularly after the stark message delivered by the Governor of the Bank of England on Thursday. Mervyn King was reported to have warned that the next government would have to make cuts of such severity they would be “out of power for a generation”.

NIESR’s analysis concludes that tax rises are not only necessary, but may even be economically desirable as their effect on job creation and GDP growth in the short term is almost 50% lower than a related reduction in public spending. This puts pressure on all the parties to announce bolder tax rises.

The institute also criticises the Conservative Party’s opposition to next year’s national insurance rise and plans to start cutting the deficit this year. They conclude that the £6bn necessary to stop most of the NI increase (funded by additional public spending cuts) will lead to job losses between 30,000 and 60,000 and stymie growth by 0.1 to 0.2%. Serious questions still remain around Conservative plans for the economy.

Earlier, the Institute for Fiscal Studies (IFS) kicked off the week by making clear that whoever wins the election will have to embark on the most dramatic public spending cuts in a generation. It highlighted the fact that all parties were committed to a minimum fiscal deficit reduction of £71bn in real terms, or 4.8% of fiscal output.

Labour is aiming for a 2:1 ratio (spending cuts: tax rises), Lib Dems 2.5:1, and the Conservatives 4:1. This is in comparison to the last major fiscal consolidation in Britain that took place in the early 1990s. The ratio during this squeeze was 1:1.

The IFS feels all parties are being overambitious in their plans to cut public spending, in particular the Conservatives who they say in order to achieve their target will have to embark on the sharpest spending cuts since the Second World War. A favorite trick of previous Tory governments was not to index link rises in personal allowances to inflation, thereby ‘dragging’ lower earners into higher rates of taxation.

Such political trickery cannot happen again. The British people are smart enough to be aware that severely constrained times lay ahead, perhaps for years to come. Without honesty, a severe public backlash may be in the offing.

The only question now is what verdict will the British public deliver on May 6th?

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16 Responses to “Leading think tanks go on the offensive – no party is spared”

  1. Kelley Temple

    RT @leftfootfwd: Leading think tanks go on the offensive – no party is spared: http://bit.ly/cOqOkV

  2. Democratic Society

    Leading think tanks go on the offensive – no party is spared: http://bit.ly/cOqOkV /via @leftfootfwd / #talkissues

  3. Nadia

    Interesting article on budget and tax rises to come: RT @leftfootfwd
    Think tanks on the offensive, no party spared: http://bit.ly/cOqOkV

  4. Ruth Kennedy

    RT @demsoc: the economy: Leading think tanks go on the offensive – no party is spared: http://bit.ly/cOqOkV

  5. Malcolm Evison

    Leading think tanks go on the offensive – no party is spared | Left Foot Forward http://bit.ly/cxy5lY

  6. Fat Bloke on Tour

    Be very wary of holier than thou economists trying to increase their public profile, the run-away deficit is the new establishment orthodoxy and shroud wavers are flocking to the issue to cut the scope and quality of state provided services.

    Be wary of the dog boilers, they are everrywhere, especially the BBC and the Tory Party. Orange book Liberals are another group who have had cravings for this kind of tax cutting policy in the past but they do seem to have learned the lesson.

    A dog boiler is an upper middle class figure of a right wing persuasion who if asked for an opinion would rather the poor and unemeployed boiled the family pet for sustenance than have the state offer a decent level of support.

    State Support / Service provision — What we have, we should hold!

    96 hours to save the recovery.

    Has anyone asked Dave the Rave if his figure of £6bill efficiency savings is net or gross?
    It needs to be asked and we need to be told.

  7. Rupert Read

    I think Fat Bloke is roughly right here. This is an orthodoxy badly needing challenging.
    Which is where excellent renegade voices, from Blacnhflower to the Green Party, come in. We in the Greens reject the siren call for savage cuts. See e.g. http://news.bbc.co.uk/1/hi/uk_politics/election_2010/8621640.stm

  8. Miles Weaver

    Leading think tanks go on the offensive – no party is spared: http://bit.ly/cOqOkV /via @leftfootfwd / #talkissues (via @demsoc)

  9. Robert

    Of course labour has already cut my disability benefits, and now they are saying they can save billions by cutting DLA from the over sixty fives the people least able to fight back, I cannot for the life of me get one MP or minister to tell me why, except my MP stated we must all tighten our belts, yes and she claimed £137,000 in expenses, so some have to do more then others it seems.

    Sod new Liebour

  10. Jenni Jackson

    RT @leftfootfwd: Leading think tanks go on the offensive – no party is spared: http://bit.ly/cOqOkV

  11. Mister Jabberwock

    You claim that cutting government spending by £6B will reduce growth by 0.1%-0.2% If it is as little as that then cutting it is a no-brainer, isn’t it; since £6B represents over 0.4% of GDP. So why would you borrow £2 to generate only 50p-£1 of value, knowing you have to pay back the £2 plus interest in the future. (Or more likely you will expect your children to pay it back for you). You see you don’t avoid the pain, you just defer it and make it worse. I know some will say it is a fragile recovery that has to be nurtured, but that is just putting a metaphor ahead of reason. If there is £6B to be spent better spend it on getting at least £6B of growth, not a measly £1.5B-£3B.

    I might well have missed something, so happy for someone to point out the flaw in the argument or facts.

  12. Helena Baptista

    RT @leftfootfwd: Leading think tanks go on the offensive – no party is spared: http://bit.ly/cOqOkV

  13. geekparent

    I refer you to BOM. It doesn’t take long to read the article.

    I never understand why the economy is said to be Gordon’s strongest hand. Goodness knows what he’s like at everything else.

  14. Lauren Ivory

    RT @demsoc: Leading think tanks go on the offensive – no party is spared: http://bit.ly/cOqOkV /via @leftfootfwd / #talkissues

  15. Politics Summary: Tuesday, May 4th | Left Foot Forward

    […] of the next parliament. Clegg cited last week’s IFS analysis – which Left Foot Forward examined on Sunday – that revealed the Conservative Party would “have to cut departmental […]

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