The economic dividing lines between the parties

If there was one number that loomed over the election campaign, it is £167bn – the record deficit racked up in 2009/10. It will take many years to turn that to surplus and start paying down a national debt that has surged above Gordon Brown’s ‘prudent’ limit of 40 per cent.

This is the quite recent result of the financial crisis doing the sort of damage to Britain’s public finances only previously wrought by a world war. So the public finances are the frame for Britain’s vote.

But there is another vital economic number that will emerge just days before the election, on 23 April – the Q1 GDP number. This will, in essence, be one way to assess whether the government’s efforts at reflating and refloating the UK economy following the credit calamity, are working.

Gordon Brown will be looking to extract some electoral capital out of those numbers to reaffirm his message that “the medicine is working, but it’s still needed”.

Up until last week’s Channel 4’s Chancellors Debate, it appeared that the main dividing line between Labour and Conservative was the speed and timing of cuts to public spending.

The Conservatives were warning that huge deficits would, if unchecked, lead to “Greek-style” interest rates so the deficit had to be reined in over the parliament.

Labour felt that maintaining growth in public spending in the coming year and eliminating the deficit over seven years would help to “secure the recovery”.

That dividing line has been somewhat blurred by the Conservative plan to lower the tax burden by £25.3bn (Treasury costing, £20bn, say the Conservatives) by avoiding current plans to raise national insurance contributions for employers and employees. In broad terms seven in 10 Britons, those earning below £44,000, would be saved £3 per week in extra contributions from next April.

So now there is a traditional Conservative/Labour dividing line about higher and lower tax, rather than borrowing.

The Conservatives are playing down their previous deficit hawkery and also talking about “securing the recovery”. Labour and the Liberal Democrats are crying foul over the fact that this tax move is being funded by £12bn of so-called “efficiency savings”, cuts that can be found with no impact upon public service.

Existing government plans already imply £11bn of such efficiencies from 2011. Labour suggests that the Conservatives will be obliged to raise VAT to 20 per cent post-election, a move Labour rejected in favour of raising NI. The Conservatives say they have no such plans.

Timing remains a difference. The Conservatives will remove £6bn from public spending in the current financial year, an average of 2.8 per cent cut in areas such as education, transport and housing. The Conservatives say this will be excised from waste in IT and property rather than affecting “frontline services” such as schools.

Labour and the Lib Dems believe that cutting now, before recovery is secured, could see unemployment rise and risk a relapse into recession. The Conservatives say that if waste exists, it makes sense to cut it sooner rather than later.

All parties face rising debt interest payments and benefits for either joblessness or tax credits that rise when wages are cut.

Labour has eschewed a “spending review” that would have outlined precisely where real cuts to government departments would occur. Instead it has vowed to protect for two years most of the hospitals, schools, and policing budgets.

The IFS has calculated that the implied cuts to non-protected areas would be over 15 per cent – or even 25 per cent if “protection” from cuts is extended to the rest of the parliament.

The Conservatives have ring-fenced the health, aid and defence budgets. Efficiency savings in those areas will be kept by the departments.

The Liberal Democrats make a virtue of ring-fencing no departments from potential cuts, even health.

Towering over all of these changes, say Conservative and Lib Dem, is the fact that Labour governed while one of the world’s biggest ever credit bubbles emerged in Britain.

Gordon Brown was the chancellor who routinely lauded “light and limited touch” regulation to the City. His Treasury also ran deficits during times of high growth. Assuming published opposition plans, the deficit under the Conservatives would still have been a peacetime record, but £10-£20bn less.

Labour argues that the Conservatives over the past two years got key crisis judgements wrong on printing money, bank policy, and fiscal stimulus.