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19 March 2015

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.  

By George Eaton

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.”

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