FactCheck: a £6bn Tory black hole?
Updated on 06 November 2007
Gordon Brown thinks he's spotted a rather large gap in Tory maths. FactCheck reaches for the calculator.
The claim
"There is a £6bn black hole in the Conservatives' promises."
Gordon Brown, Prime Minister's Questions, 17 October 2007
The background
In the past month, the prime minister has made several references to the "£6bn black hole" in the Conservatives' spending plans.
This would, he has variously claimed in parliament, mean "deep cuts in the national health service" and "taking £6bn out of the public services" meaning "our schools, our teachers and our pupils will ... suffer".
This sudden attack on the Conservative's financial credibility came after the Tories unveiled a number of policy commitments aimed during that period of the election-that-never-was fever in late September and early October..
The promises made during the non-election phoney war included changes to inheritance tax, stamp duty and tax credits paid to couples.
The Tories detailed ways to pay for these, including getting tougher on wealthy foreign individuals and benefit claimants.
The Government rubbished the Conservatives' figures.
While the Tories say that their plans to tax non-doms - those living in the UK who can claim foreign status and avoid paying tax on their offshore income - would cover a big chunk of the cash giveaway, Labour insists it would still leave a £2.4bn budget hole.
Meanwhile the additional costs of creating a more equitable tax credit system would be covered by changes to the benefit system. So say the Tories. Implausible, says Labour.
So who's right? Has the great clunking calculator done his sums right?
The analysis
With the Tories yet to release an official budget or manifesto, it can be tricky to tally up exactly what's been promised, and what it would cost.
Labour's number crunchers reckon there's £5.4bn in unfunded tax commitments, and mention a few other smaller policies - all of which the Tories argue can be covered by existing budgets - to justify the rounding-up to a cool £6bn.
Let's focus on the £5.4bn, which is a "hole" of two parts. The biggest part is the Tories' plans to increase the tax credit for couples.
Let's focus on the £5.4bn, which is a "hole" of two parts. The biggest part is the Tories' plans to increase the tax credit for couples.
The party plans to get rid of the "couple penalty". In other words they will make the cash breaks given to single parents and couples more equal by paying out an extra £32 a-week to 1.8 million of the poorest families in the country.
This would cost £3bn, which the Tories reckon can found by getting 600,000 of the current five million claimants off benefit, and back into work.
Labour points out that it is already trying to reduce the number of people on benefit, and has been doing for some time.
For their part the Tories have sketched out the main components of their approach - the use of private and independent providers to get people into work and increasing the requirements on people receiving benefits, as well as citing benefit roll reduction successes in Australia and Wisconsin.
However, they have yet to lay down concrete specifics about how far they will go to bring in the extra cash. Already, this makes it hard to analyse.
However, the Tories defend this by saying they will put the tax credit plans into play only when the benefit reforms bring in the required cash. "As a result," the party told FactCheck, "this is not an unfunded spending commitment."
Technically they have a point - although whether a party should tantalise the electorate with things they haven't quite set down on the spending sheet is another matter.
The other main component of the "hole" is the Tories' plans to increase the inheritance tax threshold to £1m and get rid of stamp duty for first-time buyers.
Altogether, this was reckoned to cost £3.5bn, which the party plan to fund through a flat tax of £25,000 on non-domiciles.
FactCheck ran the rule over the measures when they were first announced last month.
Labour claimed that the Conservatives had grossly overestimated - to the tune of £3bn - the amount of cash the measure would bring in.
It was impossible to say who was right as there were so many unknowns involved - authoritative information on how many non-doms there are, and how they would behave if forced to pay tax, just doesn't exist.
Now, however, Labour claims there's the slightly lower figure of £2.4bn for the Tories to find, after it announced changes to inheritance tax last month. In the pre-budget report last month, the Chancellor announced new measures to tax non-doms £30,000 a year once they've lived in the country for more seven years.
The two non-dom policies can't be compared exactly as other changes were made in the PBR, but the Conservatives point out only around 20 per cent of non-doms are thought to have lived here for more than seven years.
They claim, however, that if their full reforms were put into place, they would net an additional £2.8bn.
And the problem is, at this point, there's just no way of knowing who's right.
"We're back in the same place we were a month ago, but with yet another unknown," says Stuart Adam, senior research economist at the independent Institute for Fiscal Studies.
"Not only does no one know how many non-doms there are, there's also no way of knowing how they - and those who have been here more than seven years - will behave under the new proposals."
Instead, he says, we have two parties drawing very different estimates from the data, and we probably won't see what actually happens until after the next election.
Still, if the Conservatives' thinking does turn out to be correct, and taxing non-doms is far more lucrative than the Government has planned, Labour would gain an early windfall - meaning that the Conservatives would still have to find the extra money to put in place their new measures from another source.
The verdict
The hole is more of a slippery ditch than a bank-breaking pit.
Half of it comes from changes to the tax credit system which isn't, technically, an unfunded spending commitment - largely because tax credits are not, technically, a spending commitment at all.
In this case it's more that the Conservatives are being slightly cheeky to the electorate by mentioning headline increases to tax credits - and then sneaking in, almost in the small print, that they won't actually be put into practice until the cash shows up.
And much of the rest of the "hole" comes from the muddy waters of increased non-dom taxation.
Although it seems unlikely that the Conservatives' measures would net so much more than the Government estimates, only time will tell whether Brown's jibe is justified.
Admittedly, on the scale of the national economy, £6bn is not in itself a huge amount of money and to say - as Brown has done - that the Conservatives would have to slash public services to pay for their plans is not - yet - something that necessarily stacks up.
FactCheck rating: 2.5
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