What will you cut next, Mr Osborne?

The Tories' plans mean that tax giveaways can only be funded by even deeper cuts somewhere else. Labour should take a different path.

George Osborne’s speech did little to answer the question that is at the heart of the Tories’ plans for the next election: what will be cut next? The conference has opened with news of mortgage guarantees, tax giveaways and the introduction of a new 'Help to Work' programme, but this week’s announcements will be dwarfed in scale by the spending plans the government has already published earlier in the year, which promise a further £24bn of cuts in 2016 and 2017.

The Fabian Society’s commission on future spending choices has examined the impact these plans might have. We found that if all the cuts were levied on day-to-day public service spending, department budgets would fall by 8 per cent over two years. In principle these cuts could be spread thinly between public services, but continued protection for the NHS and schools is more likely. If all the areas George Osborne protected in this summer’s spending round were safeguarded again, on average, other public services would see their budgets fall by a quarter. Coming after so many cuts during this parliament, areas like local government, the criminal justice system and further education would face collapse.

At last year’s Conservative conference, George Osborne set out his alternative: a further £10bn of social security cuts. So far, in the face of Lib Dem resistance, he’s found only one third of that total - by restricting increases to many benefits to 1 per cent a year. Presumably a Conservative manifesto will promise further restrictions to social security and our commission looked at where £10bn of benefit cuts might come from. The news is not good for politicians looking to win elections: we concluded that savings on this scale would only be possible by reducing pensioner entitlements or means-testing all the remaining universal entitlements for working-age households.

Attacking the popular parts of social security would be highly controversial of course, but it would only slightly ease the pressures on public services. Even after £10bn of new social security cuts, many departments could still face budget cuts of 15 per cent over the two years from April 2016. So when Conservative politicians offer more of anything over the next 18 months, voters should beware. On their current spending plans, a new promise can only mean even deeper cuts somewhere else.

There is an alternative, according to the Fabian commission. With the economy finally growing again, big post-election reductions to social security and public service spending are a choice, not a necessity. Whichever party is in power, there will need to be financial discipline and tough choices, but there is also more room for manoeuvre than George Osborne seems to think. This is because today’s unexpectedly strong economic growth will translate into higher than predicted tax revenues. The Conservatives are earmarking this money for pre-election tax cuts, but it can instead be used to stop cuts. There is also the option of raising taxes for high income groups who are set to be the first to feel the benefits of recovery. Together these two measures would more or less avoid the need for cuts after 2015.

This week the Conservatives are confirming they would prefer a different route. Devoting the 'proceeds of growth' to pre-election tax cuts may seem like good politics, but it will create avoidable devastation to public services and further reduce public spending in areas critical for future economic success.

So far Labour has been silent on its post-2015 spending choices; it was the missing link for the party’s conference relaunch. But in due course Labour must set out spending plans which are fiscally water-tight but also entail spending more than the Conservative’s plan for cuts.

This is the, so far unspoken, dividing-line which will come to shape the next election. Labour should start to shout about it, because Conservative tax cuts will come with huge costs.

George Osborne arrives to deliver his speech to the Conservative conference in Manchester. Photograph: Getty Images.

Andrew Harrop is general secretary of the Fabian Society.

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MPs Seema Malhotra and Stephen Kinnock lay out a 6-point plan for Brexit:

Time for Theresa May to lay out her priorities and explain exactly what “Brexit means Brexit” really means.

Angela Merkel has called on Theresa May to “take her time” and “take a moment to identify Britain’s interests” before invoking Article 50. We know that is code for the “clock is ticking” and also that we hardly have any idea what the Prime Minister means by “Brexit means Brexit.”

We have no time to lose to seek to safeguard what is best in from our membership of the European Union. We also need to face some uncomfortable truths.

Yes, as remain campaigners we were incredibly disappointed by the result. However we also recognise the need to move forward with the strongest possible team to negotiate the best deal for Britain and maintain positive relationships with our nearest neighbours and allies. 
 
The first step will be to define what is meant by 'the best possible deal'. This needs to be a settlement that balances the economic imperative of access to the single market and access to skills with the political imperative to respond to the level of public opinion to reduce immigration from the EU. A significant proportion of people who voted Leave on 23 June did so due to concerns about immigration. We must now acknowledge the need to review and reform. 

We know that the single market is founded upon the so-called "four freedoms", namely the free movement of goods, capital, services and people & labour. As things stand, membership of the single market is on an all-or-nothing basis. 

We believe a focus for negotiations should be reforms to how the how the single market works. This should address how the movement of people and labour across the EU can exist alongside options for greater controls on immigration for EU states. 

We believe that there is an appetite for such reforms amongst a number of EU governments, and that it is essential for keeping public confidence in how well the EU is working.

So what should Britain’s priorities be? There are six vital principles that the three Cabinet Brexit Ministers should support now:

1. The UK should remain in the single market, to the greatest possible extent.

This is essential for our future prosperity as a country. A large proportion of the £17 billion of foreign direct investment that comes into the UK every year is linked to our tariff-free access to a market of 500 million consumers. 

Rather than seeking to strike a "package deal" across all four freedoms, we should instead sequence our approach, starting with an EU-wide review of the freedom of movement of people and labour. This review should explore whether the current system provides the right balance between consistency and flexibility for member states. Indeed, for the UK this should also address the issue of better registration of EU nationals in line with other nations and enforcement of existing rules. 

If we can secure a new EU-wide system for the movement of people and labour, we should then seek to retain full access to the free movement of goods, capital and services. This is not just in our interests, but in the interests of the EU. For other nation states to play hardball with Britain after we have grappled first with the complexity of the immigration debate would be to ignore rather than act early to address an issue that could eventually lead to the end of the EU as we know it.

2. In order to retain access to the single market we believe that it will be necessary to make a contribution to the EU budget.

Norway, not an EU member but with a high degree of access to the single market, makes approximately the same per capita contribution to the EU budget as the UK currently does. We must be realistic in our approach to this issue, and we insist that those who campaigned for Leave must now level with the British people. They must accept that if the British government wishes to retain access to the single market then it must make a contribution to the EU budget.

3. The UK should establish an immigration policy which is seen as fair, demonstrates that we remain a country that is open for business, and at the same time preventing unscrupulous firms from undercutting British workers by importing cheap foreign labour.  

We also need urgent confirmation that EU nationals who were settled here before the referendum as a minimum are guaranteed the right to remain, and that the same reassurance is urgently sought for Britons living in mainland Europe. The status of foreign students from the EU at our universities must be also be clarified and a strong message sent that they are welcomed and valued. 

4. The UK should protect its financial services industry, including passporting rights, vital to our national prosperity, while ensuring that the high standards of transparency and accountability agreed at an EU level are adhered to, alongside tough new rules against tax evasion and avoidance. In addition, our relationship with the European Investment Bank should continue. Industry should have the confidence that it is business as usual.

5. The UK should continue to shadow the EU’s employment legislation. People were promised that workers’ rights would be protected in a post-Brexit Britain. We need to make sure that we do not have weaker employment legislation than the rest of Europe.

6. The UK should continue to shadow the EU’s environmental legislation.

As with workers’ rights, we were promised that this too would be protected post-Brexit.  We must make sure we do not have weaker legislation on protecting the environment and combatting climate change. We must not become the weak link in Europe.

Finally, it is vital that the voice of Parliament and is heard, loud and clear. In a letter to the Prime Minister we called for new joint structures – a Special Parliamentary Committee - involving both Houses to be set up by October alongside the establishment of the new Brexit unit. There must be a clear role for opposition parties. It will be equally important to ensure that both Remain and Leave voices are represented and with clearly agreed advisory and scrutiny roles for parliament. Representation should be in the public domain, as with Select Committees.

However, it is also clear there will be a need for confidentiality, particularly when sensitive negotiating positions are being examined by the committee. 

We call for the establishment of a special vehicle – a Conference or National Convention to facilitate broader engagement of Parliament with MEPs, business organisations, the TUC, universities, elected Mayors, local government and devolved administrations. 

The UK’s exit from the EU has dominated the political and economic landscape since 23 June, and it will continue to do so for many years to come. It is essential that we enter into these negotiations with a clear plan. There can be no cutting of corners, and no half-baked proposals masquerading as "good old British pragmatism". 

The stakes are far too high for that.