1 Sep 2010

Labour leadership: Walking with deficit deniers

The Chancellor recently derided the Labour leadership candidates as ‘deficit-deniers’, an opinion with which Tony Blair appears to concur. The final chapter of his new book does place him closer to the Coalition Treasury than the economic policies outlined to date by the candidates.

Ahead of our Labour leadership hustings on the economy, it’s worth looking at the Opposition numbers gap.

I’m trying to compare like-with-like, so think about deficit reduction over this parliament, ending in 2014/15, just before the planned next election.

Coalition plans £113bn of deficit reduction by the end of the parliament, just over 6 per cent of GDP. It is made up of £83bn of spending cuts and £30bn of tax rises. That is a split of 3:1, 74 per cent:26 per cent, spending cuts vs tax rises.

Alistair Darling’s pre-election Budget plans set a more reasonable benchmark for the Labour candidates. The IFS say that Mr Darling’s deficit reduction plan was smaller overall, worth £72bn by the end of the Parliament. If the 2:1 spending cuts to tax rises ratio (66 per cent: 34 per cent) targeted by Labour until 2013, continued another two years, then the package would be £51bn spending cuts and £21bn in tax rises.

One of the choices the Labour candidates could make is to change the balance of the deficit reduction programme, cutting spending by less, by taxing more. They could choose a 3:2 split 60 per cent:40 per cent, which would mean £8bn less spending cuts and £8bn more tax rises.

A 1:1 split, 50 per cent:50 per cent, which was precisely the split of the last major fiscal consolidation in the 1990s would mean £36bn of spending cuts, and £36bn of tax rises – £15bn more than Labour’s last published plans.

Of course, if the new Labour leader stuck to these plans, then that would mark a considerable shift from the current government’s plans. The only movement I can deduce on this is from Ed Balls, and he wants to make the case for a slower pace of deficit reduction, not a faster one, in which case both the tax rise and spending cut numbers would be smaller.

So far as I can discern, David Miliband has talked mainly about rebalancing the economy in favour of manufacturing, which appears to be almost everybody’s policy, including the Coalition’s. DM has suggested that the £2bn Bank Levy should be doubled.

Ed Miliband wants the 50p rate on those earning above £150,000 to be made permanent, also thinks the ‘timid’ bank levy should be higher.

Ed Balls opposes the Coalition’s VAT rise, and wants the 50p rate to kick in at £100,000. Mr Balls points out that the public finances have improved by about £12bn since the election, and advocates spending half of that on affordable homes.

Andy Burnham has floated the innovative but long standing notion of a Land Value Tax, and a Financial Trasactions Tax, aka the Robin Hood/ Tobin Tax. Diane Abbott has floated alternative spending cuts, for example, scrapping Trident.

Both Milibands have been a little more coy than Mr Balls and Mr Burnham on how they would fill the Labour numbers gap.

7 reader comments

  1. TGRWorzel says:

    Walking with Dinosaurs. Go on say it. None of the four leadership candidates inspire any great confidence in the future. They’re all relics from a byegone age, which was ended by a disaster – the deficit…!

  2. Andrew Dundas says:

    Because of the various stimuli put in place from November 2008, the current deficit is already falling swiftly. That’s because economic growth is recovering faster nor unemployment as high as they were widely forecast. Moreover, tax collections are above target.
    Interest rates on Bonds have fallen worldwide and for the UK in equal measure. Most countries’ deficits can be funded even more cheaply than was predicted.
    I strongly suspect that the coalition will neither need to cut nor tax to the extent they advertised in June. If they do fulfil those rash plans, then Britain’s econommic recovery will be stopped. The consequent bankruptcies, debts and unemployment will have been manufactured by the coalition.

  3. Charles Jurcich says:

    I have no particular party political stance, as in my mind they were all rubbish. I am quite impressed that Ed Balls has had the courage to suggest that cost cutting is the wrong priority and is leading in the economic debate. C4’s discussion with the contenders was very revealing, in that the other contenders are also starting to understand how the economy works – or at least they are rehearsing the right words perhaps.

    We should have never raised VAT this year, and the coallition’s plan to raise it again next year will probably be enough, on its own, to tip us back into recession, or at least increase unemployment substantially.

    1. Tom Wright says:

      Oh do come on Charles. Your previous posts are left wing, uniformly.

      What a pity the channel 4 site does not have registration so we could view each other’s comment history and link to it. The site would be immeasurably better.

      And in case I forget: bring back the thumbs.

  4. Jodie says:

    How can we know what the Labour contenders feel about things when the live ‘debate’ yesterday was so badly chaired, Jon, that everyone was talking at the same time and we could hear nothing. A great opportunity missed and the contenders must have been as sick as pigs that this so-called debate was merely a farce. Shame on you Jon, you could have had a properly organisaed discussion, giving the contenders a chance to set out their stalls – and why waste time on daft questions about ‘Who would you like to play you…’? So disappointing.

    1. Peter Stewert says:

      The discussion was somewhat chaotic, and candidates could have been less verbose, but I was ultimately impressed. What I took away from the interview (besides the expressed views) is that:
      a) the heat of the discussion helped reveal something of each candidates working personality (as opposed to the usual “first-date” filtering)
      b) you could see that thee were divisions, but also see that they could work together (something Brown and Blair should have been adult enough to achieve, but…)
      c) watching Jon allow the discussion to roll around and still end up moving everyone in to the next topic was cat-herding of the highest calibre

  5. Tom Wright says:

    The relentless march to the left for the Labour party has begun in earnest. They’ve all come out as Socialists. Next thing they will be singing the Internationale and referring to each other as ‘brother’ or ‘comrade’, and offering us a five year plan to kick start the manufacturing sector with massive state funding. We’ll be opening up the Lada factories again.

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