George Osborne and Ed Balls attend the State Opening of Parliament in 2013. Photograph: Getty Images.
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Labour could end cuts next year and still meet deficit targets, says IFS

Ed Balls's less stringent plans mean a dramatic gap with the Tories.  

It's often written that Labour and the Tories are committed to near-identical levels of austerity after the election. The Greens, the SNP and Plaid Cymru all argue that Ed Miliband and Ed Balls have embraced the Osborneite consensus. Commentators question how a Labour-led government would survive while imposing further cuts. 

But, as I've noted before, these points belie the fiscal chasm between the two parties. Unlike the Tories, Labour is not committed to achieving an absolute budget surplus by the end of the next parliament (pledging only to balance the current account deficit), has left room to borrow to invest and would impose some tax rises to reduce borrowing (Osborne has pledged to use cuts alone). Even after the Chancellor scaled back austerity in yesterday's Budget, Balls would still have around £39bn more to play with than Osborne by 2019-20.

The true scale of the gap between Labour and the Tories has been further revealed by the IFS, whose director Paul Johnson said at today's post-Budget briefing: "Our latest estimates suggest that Labour would be able to meet its fiscal targets with no cuts at all after 2015-16". Balls has pledged to match the coalition's spending plans in that financial year (which starts next month) but will be free to determine his own path after that point. Among other things, he hopes to increase the growth potential of the economy through new supply-side measures and greater infrastructure investment. Today's IFS assessment suggests that could mean an earlier than expected end to the cuts. Should Labour be denied a majority at the election and find itself required to win over left-leaning backbenchers and, potentially, the SNP, that wriggle room could prove valuable indeed.

The political question is the extent to which Labour is prepared to highlight this flexibility before the election. Mindful of its profligate image, the party is wary of explicitly declaring that it would spend more than the Tories. But some on the Labour left would like nothing more than to be able to promise an end to the cuts in just one year's time. 

A spokesman for Balls told me: "We've been clear there will need to be sensible spending cuts and that we want to balance the books as soon as possible in the next parliament."

George Eaton is political editor of the New Statesman.

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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.