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31 July 2014

The Tories are living in a fiscal fantasy land

The party cannot promise to eliminate the deficit, avoid further tax rises and cut taxes at the same time. 

By George Eaton

It is possible for the Tories to promise to eliminate the deficit by the end of the next parliament, or to avoid any further tax rises, or to cut taxes. What is not possible for them to do is to promise all three. But that is the fantasy land they now inhabit. After previously pledging to achieve a budget surplus by 2020 and to clear the reminder of the £106bn deficit through spending cuts alone, they are now dangling the prospect of tax cuts in front of voters. 

At an event yesterday, David Cameron declared that he would “love” to reduce the 40p tax threshold, having earlier pledged to cut inheritance tax and to continue reducing taxes on low earners. He did at least promise to “look very carefully at the books”. Once he has done, he should think again. 

The IFS has long warned that the next government will need to raise taxes or cut welfare by around £12bn merely to keep departmental spending cuts at their current level. It is just about plausible that the Tories could eradicate the deficit without any new tax rises if they cut social security to the bone (with baleful consequences for the poor), but it is inconceivable that they could also cut taxes. This is not least because, as the IFS has also noted, the government has announced £7bn of giveaways from 2015-16 onwards, including free school meals for five to seven year olds, the social care cap, childcare tax breaks and the married couple’s tax allowance, that will have to be met from shrinking departmental budgets. 

Before the 2010 general election, the Tories similarly refused to face fiscal reality. The weekend before the election, Cameron declared that any future cabinet minister who proposed “front-line reductions” in services would be “sent straight back to their department to go away and think again”. During the campaign, he said that his party had “absolutely no plans” to raise VAT, that he “wouldn’t means-test” child benefit, that Sure Start centres would not be closed and that the Education Maintenance Allowance would remain in place. Each one of these promises was broken before the year was out.

After this it was said that “never again” would the parties be able to go into an election without spelling out the full consequences of austerity to voters. But as the Tories’ recent statements show, we are further than ever from having the “honest debate” that Cameron and Osborne claim to offer. 

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