Peter Mandelson says politicians need to be more ‘honest’
Peter Mandelson said on the Andrew Marr Show on BBC1 last Sunday that Labour politicians should be more “honest” with the public about how they would cut spending if they form the government after the election next May. He should in fact have addressed his comments to all the major parties, as none of them is being honest with the public about what they would do in the next Parliament.
The need to close the UK’s structural deficit of £25 to £50 billion
It seems to be generally agreed that the UK has a structural deficit of between £25 billion and £50 billion per year which will have to be closed during the next Parliament. In the past we might have been able to rely on extra economic growth to close at least part of the gap, but six years after the start of the ‘Great Recession’, that has yet to materialise. I suspect that there will be some extra growth over the next few years that will reduce the amount that needs to be saved, but it will still be necessary for our next government to find £20 billion or so of savings per year. That is before funding any additional spending that might be needed by the NHS.
What are our leaders proposing to do about it?
David Cameron and George Osborne say the Tories would make up the entire gap through efficiencies and spending reductions on welfare and other government services. Not only that, they say their cuts will be sufficient to fund tax reductions of around £7 billion per year. They have failed however to specify the cuts they will make, leaving this until after the election (if they form the next government).
Labour have said they will remove the winter fuel allowance from pensioners who pay tax at the 40% rate, which will save around £100 million, i.e., half of one per cent of the savings that will be needed. They will also bring in a ‘mansion tax’ that will raise £1.7 billion a year, to be used as additional funding for the NHS. They have also committed to raise the top rate of tax on taxable income over £150,000 from 45% to 50%.
The LibDems have signed on to the Tory estimate of what needs to be saved, but they too have failed to outline how exactly they would make the savings, apart from implementing a ‘mansion tax’ and a mix of spending cuts and tax increases.
A menu of spending reductions and tax cuts
The present stance of our leaders really amounts to “hoping that something will turn up”. Their current detailed proposals, such as they are, are completely inadequate to the task. Spending reductions of the amount that they admit are necessary will have to involve at least some of the following:
- an increase in VAT (an extra 2% on VAT would raise around £11.5 billion a year)
- a ‘mansion tax’ or additional council tax bands on properties worth than £1 million
- the removal of pensioners’ benefits (the winter fuel allowance, the bus pass and free TV licenses for the over 75s) from all pensioners except those who qualify for pension credit, i.e, pensioners whose income is less than £148 a week (for a single person) or £226 (for a couple), not just from those who pay tax at 40%
- an increase in the top rate of tax of the type proposed by Labour – this would raise anything between nil and £3 billion depending on which expert you ask
- the removal of the ‘triple lock’, which increases the state pension each year by the greater of inflation, the average increase in earnings or 2.5%
- a reduction in the maximum amount that can be paid tax free into pension plans from the current £40,000 per year
- limiting tax relief on pension contributions to the basic rate of 20% or a figure slightly above that
- the extension of NICs to pension payments
- freezes or 1% limits on benefit payments and civil service salaries
The most lucrative of the above proposals would be the VAT increase, the increase in the top rate of tax, the removal of the ‘triple lock’ on the state pension, reductions in tax relief for pension contributions and the freezes on benefit payments and civil services salaries.
It is certain that the party (or parties) which form the next government will implement a combination of some or all of the above tax increases and spending reductions. But it appears that no party is prepared to tell voters before the election exactly what they would do, as Peter Mandelson has recommended.
Politicians were as much lacking in honesty before the 2010 election as they are now. At least this time around no party has (yet) promised not to cut pensioners’ benefits, as the Tories did in 2010 – this has been a huge albatross around their neck during the current Parliament. It is understandable why no leading politician is prepared to say in detail what he or she would do, as any proposed cut or tax increase is certain to trigger outrage from affected voters – just think of the response to the ‘mansion tax’ idea from the ‘poor’ who live in £2 million plus homes. It would be different if all the party leaders were prepared to reveal their detailed spending and tax plans in a coordinated fashion before the election, but this seems most unlikely to happen.
Politicians’ failure to level with the public will further reduce voters’ respect for them
One thing is certain, however. The party leaders’ failure to level with the public about the likely scale of spending cuts and/or tax increases that will be needed after the next election will further erode voters’ respect for them. We have seen this respect plummet over the course of the current Parliament , giving oxygen to UKIP. It will only get worse if voters are hit with swingeing cuts or tax increases next May or June that they did not anticipate.