The unbearable lightness of deficit reduction

The parties' spending plans are becoming stranger and stranger.

The parties’ spending plans are becoming stranger and stranger

The shadow chancellor Ed Balls made his last party conference speech before the election today. He was remarkably consistent, the bulk of his speech repeating what he said last year: increasing the top rate of tax, a higher levy on bank balance sheets and houses worth more than £2m, confessing that spending cuts will continue.

In that vein, he added that ministers in a Labour government will take a 5 per cent pay cut and child benefit will not rise in line with inflation until 2017.

These two additions to the list of ‘difficult choices’ make almost no difference to public spending. Over the weekend, both the Institute of Fiscal Studies (IFS) and the Resolution Foundation estimated that around £37bn of further cuts, tax rises or borrowing are needed to balance the books. The new measures announced by Ed Balls wipe out something like 1 per cent from that total.

That said there were two further hints as to what else Labour might be willing to do.

The first came after Ed Balls repeated last year’s mention of a zero based spending review. Chris Leslie, shadow chief secretary, has been leading this process. One theme is expected to be the ‘de-cluttering’ of the public sector, which suggests that Labour might eradicate some public bodies.

No names were given today though Ed Balls mentioned ‘joint management’ of health and social care, suggesting perhaps job cuts in the NHS and local authority functions that provide separate management at the moment. And there was a similarly coded reference to police forces working together to make savings.

The trouble with these hints is that management overheads are pretty low in the UK healthcare system by international standards; and it’s not like police forces haven’t been forced to find efficiencies in working together already. Unless measures like these are repeated all the way across the public sector then this theme is likely to yield no more than another 1 per cent.

The second hint as to Labour’s approach to future spending choices was in a paragraph on early intervention. “We will look to prioritise early intervention now which can save billions of pounds in the future,” said Ed Balls. In fact that was the paragraph in full. No examples were given.

One area where early intervention is often touted as having the potential to save money is via high quality pre-school education. But speaking at an SMF panel on that topic today, Lucy Powell, the shadow education minister, recognised that raising quality is expensive.

She’s right. Naomi Eisenstadt, the civil servant who was responsible for setting up Sure Start under the Blair government, said on the same panel that it’s not just the issue of paying for a more qualified workforce, the integration of pre-school education with other services for families and children is vital to getting the later benefits and this is costly too.

It’s no accident that the doctrine of early intervention mentioned by Ed Balls today used to be called ‘invest to save’ by Gordon Brown. While the shadow chancellor suggested there was scope for savings, he didn’t identify the scope for investment.

Quite the opposite; he seemed to reduce the room he may have to produce such investment by saying that a Labour government will incur no new borrowing to pay for new spending.

So what we’re left with is almost no information about how Labour will reduce the deficit and yet a tightening of the fiscal rules they are adopting, potentially to rule out borrowing even for investment.

To be fair, the chancellor is begging the same question. For example, he has said that he will save a further £12bn from welfare if the Conservatives form the next government, as yet another aspiration without any policy for realising it.

The metaphysics, if you like, of the parties’ spending plans are becoming stranger and stranger: the increasing weight of the task of deficit reduction on the one hand; the increasing lightness of the measures announced for achieving it on the other.

Emran Mian is director of the Social Market Foundation

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