PracticeConsultingDo the politicians’ sums add up?

Do the politicians' sums add up?

In his role as head of economics at City accountants Chantrey Vellacott DFK, Maurice Fitzpatrick speaks regularly to all of the main three political parties

Labour’s public spending plans are ambitious. Public spending is set to rise from #368bn in the financial year just ended (2000/01) to #442bn in 2003/04 (41% of GDP), an average annual real increase of 3.8% as compared to the average annual real increase in public spending during Labour’s first term of 1.4%.

But how can these increases be afforded, since the economy is forecast to grow by only 2.25% per annum? The answer is that Labour’s plans represent the ‘cashing in’ of the huge budget cash surplus of #16bn in 2000/01; this will have turned into a deficit of #10bn by 2003/04.

Labour’s plans up to 2003/04 are achievable without unreasonable public borrowing and without the necessity to increase taxes – as long, of course, as the economy performs as forecast. If, however, the economy only grew by (say) 1.25% on average over the next three years the government would need to borrow an irresponsible #30bn in 2003/04.

The Conservatives’ plans are remarkably similar to Labour’s. The only difference being the Tory aim to spend #434bn in 2003/04 rather than #442bn, saving #8bn per annum for tax cuts.

The Tory proposed spending ‘cuts’, as compared to Labour’s plans, lack credibility. Social Security would lose #2.5bn representing around #150 per annum on average from each of the 18m households receiving help. The Conservatives have not explained which of those would be affected, nor by how much. Around #1.8bn would come from reducing the size of government, which has also not been satisfactorily explained.

It probably is possible to cut #8bn without affecting the ‘favoured’ areas of Health and Education but the Conservatives have yet to credibly explain how.

The Liberal Democrats propose higher taxes and spending than Labour.

They would raise the basic rate of income tax by 1p, yielding #3.2bn, impose an income tax rate of 50% on the income band of over #100,000, yielding #4bn, and would make certain changes to Capital Gains Tax to bring in around #1.6bn.

This would give around #9bn per annum extra spending power by 2003/4.

For pensions this would provide #5 per week for each single pensioner, #10 for the over 75s and #15 for the over 80s. On health it would provide (inter alia) free personal care for the elderly; whilst on education it would provide for the abolition of higher education fees and a reduction in class sizes. The Liberal Democrat figures appear realistic.

Contrary to popular belief, the tax and public spending figures put forward by the three main political parties (at least out to 2003/04) are as true and fair as one might expect in the murky world of politics.

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