So, we have heard from the Conservatives and Labour. This time, it’s the turn of the Liberal Democrats to set out their stall at their party conference – and to find something new to say, despite having their main tax policy hijacked by the Conservatives.
Over the weekend, we have seen a taste of the angle the Lib Dems are going after. It’s the next phase of the “differentiation strategy” – the effort to explain to voters how their vision for the UK differs from that of their coalition partners’.
Vince Cable says that the level of cuts planned by the Conservatives after 2015 is excessive, and far beyond what is necessary and needed to achieve the deficit target previously agreed at the start of the coalition. On that, Cable is entirely right. The coalition’s main fiscal target is to ensure that the structural deficit is on course to be eliminated within five years. The structural deficit is the underlying part of the deficit, adjusted to strip out the effects of temporary strength or weakness in the economy. The OBR’s latest forecast showed that this target is set to be overshot by a considerable amount. In fact, by 2018-19, the levels of cuts pencilled in is forecast to be enough to achieve a structural surplus of around £30 billion before taking into account investment spending.
Of course, there are some good reasons to plan to cut more to overshoot the target. One is to leave some margin for error. The poor performance of the economy over the past five years has meant that again and again, forecasts of the public finances have been over-optimistic. Another reason is that getting a nice healthy surplus on current spending allows more room for spending on investment whilst still aiming to reduce overall debt levels.
But it is still true that the Conservatives’ approach to getting the public finances into a healthy state isn’t the only option available. George Osborne has successfully woven a story that says that cutting spending is the main way to fix the economy and the deficit. But if it wasn’t already clear in 2010, it’s certainly clear now: the deficit will be fixed when the economy is fixed and when we get rising wages – not the other way round. We need wages to rise to get taxes flowing back into the Treasury. Trying to close the gap through spending cuts alone will be incredibly difficult, and it is unlikely that any Government will achieve it.
And it’s obvious that despite what they are saying, both the Conservatives and Labour aren’t actually that committed to cuts on this scale. Otherwise, the Conservatives would not have announced more tax giveaways that add another £7 billion of cuts to find, without explaining how it was going to be funded. Labour would have made a clear commitment to public spending rather than an infuriatingly vague statement about new borrowing and new manifesto commitments that may, or may not, give them substantially more room to borrow than the Conservatives.
So the Lib Dems are right to question whether the Conservatives’ public spending story is the right one, and whether the Conservatives are the only party that can be trusted with the public purse. The Lib Dems have started to explain what alternative choices they would make in the interests of creating a fairer society. In his speech Danny Alexander set out a “fiscal fairness” rule that would ensure that spending cuts do not fall disproportionately on the least well-off.
Outlining the different choices available is a good start. But now they need to focus on what would make a stronger economy. The extra funding they propose for the NHS is only a small part of the hole in the NHS’s finances. But getting the economy into much better shape would mean that larger increases in spending could be sustained. A credible plan for growth – for creating the stronger economy that the Lib Dems talk about – is what’s needed to create a compelling manifesto for the next election.
Nida Broughton is chief economist at the Social Market Foundation