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Government legislates for £30bn of cuts or tax rises | Government legislates for £30bn of cuts or tax rises |
(35 minutes later) | |
In announcing new targets for reducing the deficit and debt as a share of national income in the next Parliament, have the Tories and Liberal Democrats put Labour on the spot or done the main opposition party a favour? | In announcing new targets for reducing the deficit and debt as a share of national income in the next Parliament, have the Tories and Liberal Democrats put Labour on the spot or done the main opposition party a favour? |
What they are proposing - and Parliament will vote on next year - is that the cyclically adjusted current budget should be in balance by 2017/18 and debt as share of GDP should be falling by 2016/17. | What they are proposing - and Parliament will vote on next year - is that the cyclically adjusted current budget should be in balance by 2017/18 and debt as share of GDP should be falling by 2016/17. |
Just to remind you in case you have forgotten (surely not) the cyclically adjusted current budget is all spending on day-to-day items - such as civil servant salaries and welfare - adjusted to exclude payments that rise and fall with the economic cycle and also excluding investment (in roads, hospital buildings, and so on). | Just to remind you in case you have forgotten (surely not) the cyclically adjusted current budget is all spending on day-to-day items - such as civil servant salaries and welfare - adjusted to exclude payments that rise and fall with the economic cycle and also excluding investment (in roads, hospital buildings, and so on). |
Now, as it happens, this law enshrines what the Office for Budget Responsibility, the government's forecasting arm, expects. | Now, as it happens, this law enshrines what the Office for Budget Responsibility, the government's forecasting arm, expects. |
The OBR forecast ten days ago that debt as a percentage of GDP would peak in 2015/16 at 81.1%, and that the cyclically adjusted current budget would be in surplus to the tune of 0.7% of GDP in 2017/18. | The OBR forecast ten days ago that debt as a percentage of GDP would peak in 2015/16 at 81.1%, and that the cyclically adjusted current budget would be in surplus to the tune of 0.7% of GDP in 2017/18. |
Will Labour sign up? | Will Labour sign up? |
But that doesn't mean these targets are undemanding. | But that doesn't mean these targets are undemanding. |
The Treasury says that to meet these targets a new government would have to make additional tax rises or spending cuts of around £30bn - equivalent to 30% or so of the budget of NHS England. | The Treasury says that to meet these targets a new government would have to make additional tax rises or spending cuts of around £30bn - equivalent to 30% or so of the budget of NHS England. |
Now this target is more demanding than Labour's current plan - that is, to see debt falling as a share of GDP and a balanced unadjusted current budget by 2019/20 at the latest. | Now this target is more demanding than Labour's current plan - that is, to see debt falling as a share of GDP and a balanced unadjusted current budget by 2019/20 at the latest. |
Would it therefore be difficult for Labour to sign up for these new legislated targets, the new fiscal targets? Will Labour vote for the new targets? | Would it therefore be difficult for Labour to sign up for these new legislated targets, the new fiscal targets? Will Labour vote for the new targets? |
Risk | Risk |
I expect Labour probably will vote with the Tories and LibDems. Why? | I expect Labour probably will vote with the Tories and LibDems. Why? |
Because it would shoot the Tories' and LibDems' main pre-election fox, namely that Labour won't be tough enough on mending the public finances. | Because it would shoot the Tories' and LibDems' main pre-election fox, namely that Labour won't be tough enough on mending the public finances. |
Note that even if Labour does sign up to balance the cyclically adjusted current budget in three years and reduce debt as a share of national income in two years, it will still have £50bn more to spend than the Tories by £2019/20 - because the Tories want a big surplus on the overall budget, including investment spending by then (see The £50bn gap between Tories and Labour). | Note that even if Labour does sign up to balance the cyclically adjusted current budget in three years and reduce debt as a share of national income in two years, it will still have £50bn more to spend than the Tories by £2019/20 - because the Tories want a big surplus on the overall budget, including investment spending by then (see The £50bn gap between Tories and Labour). |
So the risk for the Tories and LibDems is that their new Charter for Budget Responsibility would make a Labour government more credible as a prudent steward of the public finances, while still giving Labour plenty of scope to cut less than the Tories. | So the risk for the Tories and LibDems is that their new Charter for Budget Responsibility would make a Labour government more credible as a prudent steward of the public finances, while still giving Labour plenty of scope to cut less than the Tories. |
Update: 16.18 GMT | |
So, I have had it confirmed that Labour will vote for the updated Charter for Budget Responsibility. | |
An excited senior member of the party said to me: "It's even worse for them than we thought. They have downgraded the goals from a target to an aim. And it's a rolling three-year target. Good grief." | |
Or to put it another way, Labour is delighted to vote for a law that might make voters more confident the party is to be trusted as steward of the public finances, but doesn't appear to bind its hand in a severe way. | |
Further update: 16.36 GMT | |
The Tory Treasury makes the perfectly reasonable point that Labour deciding to vote for the updated Charter for Budget Responsibility does modify its fiscal position. | |
"They have changed the core of their economic policy in the space of a few days," said a senior Tory official - adding that surely this would impair its credibility. | |
Except that voters may care more that Labour is limiting its scope to tax and spend by backing the new debt and deficit objectives. |
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