The Tories: A credible plan?

The Tories: A credible plan?

• The Conservatives have emphasised the importance of a “credible plan” to reduce the deficit, in order to reassure financial markets about the government’s ability and willingness to repay its debt.

“The overriding objective of fiscal policy must be to provide the credible deficit reduction plan that allows the Bank of England to keep mortgage rates as low as possible for as long as possible. That will do more to sustain a recovery than anything else. That credible plan must eliminate a large part of the structural deficit over the next Parliament, starting in the coming financial year.” George Osborne, The Times, 25 January 2010

• At that time, they suggested that they would spend up to £30 billion a year less than Labour in
2010/11.

“The government are basically saying they are not going to make any progress on this in 2010. Public spending actually under their plans going up by £30 billion starting April this year. Another £30 billion and we’re saying you should make some progress in cutting some of the department this year.” David Cameron, BBC Radio 5 live, 11 January 2010

“Total spending is planned to go up by £31 billion in nominal terms, or by more than two per cent in real terms. During a period when the Treasury expects the economy to be growing by at least two per cent, and with the largest budget deficit of any developed economy, I think that is simply not credible.” George Osborne, Speech at the LSE, 14 January 2010

“Last week, George Osborne went further by promising to start cutting as soon as he enters the Treasury. A £31 billion spending increase this year will be reversed, although he has not provided new detail on how he would do it” Ben Brogan, Daily Telegraph, 21 January 2010

• Then there followed a month or so where the Conservatives said that they are only committed to
around £1 billion of cuts in 2010/11. Since then, they have started saying this £1bn is merely
“some specific examples” – but by no means their full plan of cuts for 2010.

“So far we have set out two specific measures in 2010-11, it’s just over £1bn, £1.5bn, something like
that. We haven’t said there won’t be any other measures but we have always made it clear that the key thing is a start in 2010 and the key issue is sending a message to the markets that we are determined to do this.” Philip Hammond, Daily Politics, 01 February 2010

“We will take targeted steps to reduce some budgets in-year - and we have set out some specific examples - in order to build credibility and make a start on reducing the deficit.” George Osborne, Mais lecture, 24 February 2010

Ken Clarke:
By the time George has got his budget you’re three months into the financial year so that obviously what you can achieve in the first year is going to be more constrained but we’ll do as much as we can and George has given some examples of what he intends to do.

Andrew Neil:
But they’re de minimis aren’t they, they’re marginal?

Ken Clarke:
Well not that de minimis, no that’s a slight exaggeration. They are samples, they’re not the complete thing. Daily Politics, 4 March 2010

• Labour has pledged to more than halve the deficit in four years from 12.6 per cent of GDP today
to 5.5 per cent of GDP in 2013/14. And we have set out clear plans to reduce the majority of the structural deficit over the course of the next Parliament – falling from 9% of GDP this year to 3.1per cent in 2014/5.

• The Conservatives have pledged to go “further and faster” than Labour, but have not given a
detailed timetable and in particular, have not said by which point they would halve the deficit.

“Well, we think we need to go further and we need to go faster and actually it’s the faster point that I would put the most emphasis on.” David Cameron, Sunday Live, 13 December 2009

George Osborne:
Hold on. It beggars belief that you would elect a government in April or March or May this year and that they would then wait until April 2011 before taking action on this massive challenge that Britain has that threatens our credit rating, that is deterring international investment into our country. Of course we will make a start but we will do so in coordination with the Bank of England so that interest rates stay lower for longer and that is the greatest stimulating effect you can have in a recovery.

Andrew Marr:
But every conservative commentator pretty much, the Telegraph leader this week again saying, we need more specifics, you need to be clearer, you need to be absolutely tough and you need to be crystal clear and you are not being. Andrew Marr Show, 28 February 2010

• Recent reports suggest the Conservatives are reluctant to spell out detailed deficit reduction plans
for fear of scaring voters:

“The key question is, how distinctive dare we be about the economy? The private view is that the economy is in a terrible shape and we’re really going to have to cut deeply. But they think they can’t be that honest — that it would simply scare voters,” one senior Tory told The Times. The Times, 27 February 2010, http://www.timesonline.co.uk/tol/news/politics/article7043192.ece

• Hitting Labour’s deficit target one year earlier would require an additional £26 billion: the equivalent of VAT at 23 per cent or half the schools budget.

“We are very clear that halving the deficit over four years is in the right time frame. Halving it any fasterover three years, for example-would involve taking £26 billion out of public spending. That would mean, for  example, putting about 5p on VAT, or halving the education budget.” Liam Byrne, Chief Secretary to the Treasury, Hansard, 15 December 2009, column 789

• Despite their tough language on the deficit, the Tories have recently been making more
announcements that undermine the deficit reduction plan.

• They have announced that – rather than maximise the value of selling off the Government’s stakes in the banks – they will sell them below market value, with ‘special offers, discounted share sales and the like’. Selling below market price could reduce the value to the taxpayer of the sale, reducing the level by which debt could be reduced.

“We want a people’s bank bonus for the people’s money that was put into these organisations.” George Osborne, Sunday Times, 21 February 2010

“To get a large public offer off the ground like British Gas and British Telecom you want to make a special offer to all people. But there were back then, and there can be in the future, special ways of targeting particular groups of people. It fits in with an argument you have seen made within the Conservative family in the past few years about ‘recapitalising the poor’. We will look at special offers, discounted share sales and the like.” George Osborne, Sunday Times, 21 February 2010, http://www.timesonline.co.uk/tol/news/politics/article7034960.ece

“While the details of the Tory plan are still being drawn up, it is expected that people would be offered shares worth between a few hundred and a few thousand pounds at a discount on the market price. The shares would be offered through the ISA scheme, so any dividends and capital gains would be tax-free. Even cheaper deals would be offered to young people and families on low incomes. There could also be special discounts for parents saving for their children.” Sunday Times, 21 February 2010, http://www.timesonline.co.uk/tol/news/politics/article7034960.ece

• The Conservatives have also now put in writing that avoiding the planned rise in National
Insurance Contributions is “our first priority”.

“Labour are planning to raise employer and employee National Insurance by 1 per cent in 2011. Of all Labour’s tax increases our first priority will be to try and avoid this tax on jobs.” Conservative Party, “A New Economic Model: Eight Benchmarks for Britain”, 2 February 2010, p11, http://www.conservatives.com/News/News_stories/2010/02/~/media/Files/Downloadable%20Files/new-economic-model.ashx

• But the National Insurance rise will raise around £7 billion per year and the Conservatives have
not identified any savings that could allow them to avoid it, while still reducing the deficit.

• In the same policy document, the Conservatives also promised to “reverse the effects on pension
savers of the 1997 abolition of the dividend tax credit for pension funds”.

“Over the longer term, we will reverse the effects on pension savers of the 1997 abolition of the dividend tax credit for pension funds.” Conservative Party, “A New Economic Model: Eight Benchmarks for Britain”, 2 February 2010, p10, http://www.conservatives.com/News/News_stories/2010/02/~/media/Files/Downloadable%20Files/new-economic-model.ashx

• Martin Palmer, head of corporate pensions marketing at Friends Provident, responded saying this
“would cost the Treasury billions”.

Another, more surprising announcement from George Osborne was a pledge to “reverse the effects on pension savers of the 1997 abolition of the dividend tax credit.” … Martin Palmer, head of corporate pensions marketing at Friends Provident, says any move to help pension savers is positive, but says dividend tax credit is simply too expensive to restore. “Bringing back dividend tax credit would cost the Treasury billions, at a time when it needs to save money. It will not resonate with the public either, as many do not understand what effect it will have on their retirement savings,” he says. Palmer says measures to encourage employers to increase their pension contributions would be more easily understood by employees, and might also tackle problems of levelling down onceauto-enrolment begins. IFAonline, 19 February 2010, http://www.ifaonline.co.uk/ifaonline/news/1592767/osborne-urged-forge-links-finance-industry