By Simon Basketter
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Recovery plan ties Labour to more cuts

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Issue 2372

The party conference season often means political themes come in waves. The political consensus previously foresaw a bleak election, dominated by the need for £40 billion of post-election cuts or tax rises to correct Britain’s deficit.

But the green shoots of recovery—as they must always be called—mean attention is moving elsewhere. The prospect of any sort of growth in the economy has made politicians of all stripes a little weak at the knees at the prospect of being able to promise things.

The economy remains very fragile. What growth there is comes mostly from driving up house prices through “help to buy” schemes. 

After the recession, economists and politicians are leaping, as is usually the case, for the economic equivalent of a sugar rush of a housing and consumer debt-fuelled boom.

Of course higher house prices don’t help those who are struggling to find a home. And if the banks raise interest rates then swathes of people won’t be able to pay their mortgages.

Global trends could easily wipe out the recent gains in Britain. And the fruits of any meagre growth we do see will be very narrowly concentrated. 

A recent study found that the wealth of the richest 7 percent of households rose by almost 30 percent in the first two years of the US recovery. But the rest of the population saw its wealth fall by 4 percent. 

Workers in Britain have seen their real wages fall in 38 of the 39 months since David Cameron became prime minister. 

But recovery, however weak, is causing a rethink among some politicians. The Lib Dems promised free school meals. Partially after having broken every other promise they ever made they needed some new ones. 

There is pressure on the government from its own backbenches to offer tax cuts on top of spending cuts.


Indeed chancellor George Osborne may offer a “route map” for tax cuts, which would only kick in after the deficit was eliminated. Route maps are what politicians offer when a promise is just a bit too firm a commitment.

The Tory plan is apparently to present a “Goldilocks recovery”—not too fast but not too slow. It is supposed to leave voters nervous of any change in government. 

So the Treasury announced last week, according to the Sunday Times, that “Labour plans have a £27 billion black hole”. As it happens Osborne’s black holes have been way, way bigger—well over £100 billion so far. 

Osborne’s published plans run to 2018 and he proposes a deficit—a black hole—of £43 billion. There is a lot less talk of deficit reduction but it hangs over the political class.

Labour is committed to deficit reduction. That is why the most significant thing Labour has said about its next government is that it will match Tory spending totals after the election.

The Tories’ spending plans in 2015 and 2016 will be Labour’s starting point. This presents a problem for Labour. The current spending plan means cuts. The spending limits are designed to put off a raft of cuts until after the election.

So as soon as a new Labour government took office it would have to either bring in brutal new cuts or significantly increase taxes. Even after 2016, the sums are based on another £25 billion of spending cuts or tax rises. 

Without tax income increasing or welfare and pension cuts,  the second and third years of the next government will see departmental spending cuts of almost 8 percent.

It amounts to a guarantee that austerity will be with us for at least another three years. And all this will be after five years of cuts to public services from the Tories. 

The promises to make some changes to the Tory attacks are to be welcomed. But it’s a long way from making the rich pay for the recovery—let alone a rejection of the priorities of their system or a redistribution of their wealth.

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