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Danny Alexander undermines Cable with coalition spending plans up to 2021

After Cable criticised "the pace and scale of cuts" set out by George Osborne after 2015, Alexander releases new figures extending the Chancellor's plan until 2020-21.

George Osborne and Danny Alexander before the Autumn Statement last year. Photograph: Getty Images.

Nearly a week after it was announced, Ed Balls's deficit plan is suddenly coming under attack. Yesterday it was the Times declaring that Labour plans to go on a £25bn "spending spree" (as I explained, there will be nothing resembling a "spree"), today it's Danny Alexander claiming that the opposition would borrow £166bn more than the coalition from 2015-16 to 2020-21. He says:

This Treasury analysis shows that Labour have learnt nothing from the past and can't be trusted by the British people on the economy.

Their new borrowing bombshell will pile another 166 Billion of extra borrowing onto the debt  mountain left by their catastrophic mismanagement  of the UK economy.

The Liberal Democrat plan to repair the economy is working with the right balance to get rid of the deficit, build a strong economy and deliver a fair society.

The difference in spending is based on Balls's decision to leave room to borrow to invest (in housing and other infrastructure projects) and to achieve a current budget surplus by the end of the next parliament, rather than to match George Osborne's pledge to achieve an absolute surplus. Here are the numbers released by Alexander (PSNB refers to Public Sector Net Borrowing and PSND to Public Sector Net Debt); the wonks among you can read the full Treasury analysis here

As you can see, Balls's decision not to seek to achieve a total surplus (which the coalition is forecast by the Treasury to achieve by 2019-20) means he is able to borrow significantly more than the coalition after 2015-16 and still meet his pledge to ensure the national debt is falling as a share of GDP by the end of the period (which simply requires the economy to grow faster than borrowing). 

But for several reasons, it's wise to treat these numbers with a large bucket of salt. For a start, Balls hasn't even decided whether Labour will borrow to invest and, if so, how great the difference with the coalition would be. As he told me in my recent interview with him, "In the speech I gave at Reuters in the summer, I said, and Ed and I both said, that’s a decision we should make much closer to the election when we’ve got more information about what the state of the economy is going to be. So we’ve been very clear, no more borrowing for day-to-day spending, but on the capital side that’s something that we’re going to continue to look at. I’m not going to rule it out, but I’m also not going to say now that it’s definitely the right thing to do."

In addition, as the last few years have demonstrated so well, economists struggle to predict what growth will be next year, let alone what it will be in six years' time. If the economy is motoring (and the forecasts conveniently omit the boost investment would give to growth), Labour could easily achieve a lower national debt share before 2020-21. If it's flatlining, it will struggle without making deeper spending cuts (and there will be cuts). We just don't know. As Chris Leslie, the shadow chief secretary to the Treasury, said: "These are made up numbers plucked out of the air by Danny Alexander."

But as Leslie went on to note, "[T]he most revealing thing in Danny Alexander’s press release is that he has announced, for the first time, coalition spending plans for 2019/20 and 2020/21. There are no spending plans or forecasts for those years in the Autumn Statement. Has Danny Alexander told his Lib Dem Cabinet colleagues that he has agreed another two years of spending plans with George Osborne?"

Alexander's decision to present a "coalition plan" right up until 2020-21 sets him at odds with Vince Cable, who noted in a lecture on Monday night: "There are different ways of finishing the job … not all require the pace and scale of cuts set out by the chancellor. And they could allow public spending to stabilise or grow in the next parliament, whilst still getting the debt burden down." 

Based on that, it seems that Cable would prefer to adopt the approach taken by Balls, leaving room to borrow to invest depending on the state of the economy, rather than Osborne's ideological fixation with a budget surplus. But with Alexander apparently happy to give the impression that the coalition is bound to Tory austerity into the next decade, one can only ask: what happened to the "differentiation strategy"?