The picture has got a lot clearer. Following Ed Balls weekend announcement, all the main parties will go into the next election promising a budget surplus by the end of the next parliament. The Conservatives are pledging to do so by 2018-19, though on George Osborne’s past record this will probably be pushed back a few years, with another ‘rolling target’. Labour has said it will reach a budget surplus on current spending (excluding investment) by 2020. The Liberal Democrats plans, as usual, are in line with Osborne’s, but will be, in some unspecified way, ‘more fair’.
All parties hope that economic recovery will do most of the work for them. The more people in employment the greater the tax receipts and the lower the benefits bill. A bit more inflation wouldn’t hurt either, decreasing the real cost of the national debt. Despite all this, there will probably need to be further savings/tax rises – and there will be increasing pressure on all the parties as we move towards May 2015 to spell out how they plan to do this. George Osborne has suggested he will balance the books purely by cutting spending. This is implausible – social security has already been cut savagely, leading to increased poverty and homelessness. Spending in non ring-fenced government departments has also been cut to the bone – it’s hard to see how areas like local authority spending, justice and higher education can suffer further deep cuts without suffering disastrous consequences. Labour has put forward a few revenue-raising ideas, the most recent being a 50% tax rate for earnings in excess of £150,000 per year. Despite the howls from the super-rich and their defenders in the press this is perfectly sensible (and could even kick in at £100,000). Remember that the top rate was 60% for the first 9 years of Margaret Thatcher’s premiership. The 50% tax is likely to raise considerably more than the Conservatives are suggesting – tax receipts from the previous 50% rate were distorted by the short time it was in place, as high earners organised their affairs to take bonuses and earnings in the years before and after it kicked in. But even if the rate raises the £10bn Ed Balls has suggested, this won’t be enough to plug the fiscal hole.
So we need to look at other options. The most promising area is the assortment of tax exemptions that cost the government large amounts of money and mostly subsidise the wealthiest. Continue reading