Duncan’s Economic Blog

4 Year Plans – the Numbers

Posted in Uncategorized by duncanseconomicblog on September 6, 2010

I’ve been rather busy for the past couple of weeks and so blogging has been very light. Hopefully I’ll be able to post more in the coming weeks than I have in the past.

The table below, which I’ve been playing around with, might be helpful to people when thinking about deficit reduction. It summarises the tax rises and spending cuts planned by Osborne, planned by Darling and what would happen if Labour adopted a 50/50 tax and spending programme, but stuck to a 4 year timetable.

We can see that under the “Darling Plan”, Labour would be able to oppose £9bn of spending cuts in 2011/12, rising to £31bn by the end of the Parliament. In other words, sticking to the 4 year plan doesn’t mean accepting all the cuts.

Going for a 50/50 split would mean being able to oppose £10.5bn next year, rising to £46.5bn by 2014/15 – although Labour would have to spell out £7.5bn of tax rises in 2014/15 (or £20bn, if they planned to reverse the VAT hike too).

One interesting thing that leaps out is how Osborne is rasing more in taxes in every year than Darling planned (he raises less as a proportion of his tightening, but total tightening is much larger).

And whilst we are on four year plans, it’s worth noting what Liam Bryne had to say recently:

Labour had a much more flexible approach; we legislated to halve the deficit over 4 years, but it was possible to bring in orders for a change if the economy started heading south. George Osborne’s fiscal mandate appears to have no such escape hatch.

Labour didn’t talk much about the “escape hatch” during the general election campaign, but if Ed Balls is right on the coming economic hurricane , and I think he might be (so does Martin Wolf),  then this might becme crucial.

We can stick to the four year timetable and have a crediable plan to halve the deficit, one that still allows us to oppose a cumulative £86.2bn of spending cuts whilst emphasing that we are flexible and realistic.  The pace of tightening will be dictated by the pace of recovery.