Labour leadership: Walking with deficit deniers

The Chancellor recently derided the Labour leadership candidates as ‘deficit-deniers’, an opinion with which Tony Blair appears to concur. The final chapter of his new book does place him closer to the Coalition Treasury than the economic policies outlined to date by the candidates.

Ahead of our Labour leadership hustings on the economy, it’s worth looking at the Opposition numbers gap.

I’m trying to compare like-with-like, so think about deficit reduction over this parliament, ending in 2014/15, just before the planned next election.

Coalition plans £113bn of deficit reduction by the end of the parliament, just over 6 per cent of GDP. It is made up of £83bn of spending cuts and £30bn of tax rises. That is a split of 3:1, 74 per cent:26 per cent, spending cuts vs tax rises.

Alistair Darling’s pre-election Budget plans set a more reasonable benchmark for the Labour candidates. The IFS say that Mr Darling’s deficit reduction plan was smaller overall, worth £72bn by the end of the Parliament. If the 2:1 spending cuts to tax rises ratio (66 per cent: 34 per cent) targeted by Labour until 2013, continued another two years, then the package would be £51bn spending cuts and £21bn in tax rises.

One of the choices the Labour candidates could make is to change the balance of the deficit reduction programme, cutting spending by less, by taxing more. They could choose a 3:2 split 60 per cent:40 per cent, which would mean £8bn less spending cuts and £8bn more tax rises.

A 1:1 split, 50 per cent:50 per cent, which was precisely the split of the last major fiscal consolidation in the 1990s would mean £36bn of spending cuts, and £36bn of tax rises – £15bn more than Labour’s last published plans.

Of course, if the new Labour leader stuck to these plans, then that would mark a considerable shift from the current government’s plans. The only movement I can deduce on this is from Ed Balls, and he wants to make the case for a slower pace of deficit reduction, not a faster one, in which case both the tax rise and spending cut numbers would be smaller.

So far as I can discern, David Miliband has talked mainly about rebalancing the economy in favour of manufacturing, which appears to be almost everybody’s policy, including the Coalition’s. DM has suggested that the £2bn Bank Levy should be doubled.

Ed Miliband wants the 50p rate on those earning above £150,000 to be made permanent, also thinks the ‘timid’ bank levy should be higher.

Ed Balls opposes the Coalition’s VAT rise, and wants the 50p rate to kick in at £100,000. Mr Balls points out that the public finances have improved by about £12bn since the election, and advocates spending half of that on affordable homes.

Andy Burnham has floated the innovative but long standing notion of a Land Value Tax, and a Financial Trasactions Tax, aka the Robin Hood/ Tobin Tax. Diane Abbott has floated alternative spending cuts, for example, scrapping Trident.

Both Milibands have been a little more coy than Mr Balls and Mr Burnham on how they would fill the Labour numbers gap.