The Claim
“At the Conservative party conference last October George Osborne said we would make a start in cutting public spending in 2010… That remains our position. We actually set out some specific cuts – some of which would bite in 2010: the Child Trust Funds and the Child Tax Credits… (The scale of the cuts come to) just over a billion pounds or a billion and a half pounds. Something like that.”
Philip Hammond MP, Shadow Chief Secretary to the Treasury, on BBC The Daily Politics programme
Cathy Newman checks it out
How to tackle the eye-watering £178bn deficit? As the election approaches that’s the question continually asked and, as frequently, sidestepped by both main parties.
Both Labour and the Conservatives have been pretty coy about where to wield the axe in order to restore the nation’s finances to health. So when either party does show a bit of leg on spending cuts, it pays to sit up and take notice.
Philip Hammond, Shadow Chief Secretary of the Treasury, says the Tories have identified £1.5 billion worth of cuts. It’s pretty puny when set against the record deficit – but it’s a good start.
Or is it? They claim the savings will come from trimming Child Trust Funds and Child Tax Credits. But would that save the full £1.5 billion or something even more puny?
Over to the team for some number-crunching
To fact check Philip Hammond’s statement we have to look at Child Trust Funds and Child Tax Credits individually. First, turning to Tax Credits.
Child Tax Credits
George Osborne announced at the 2009 Conservative Party Conference that he would stop paying tax credits to households with incomes over £50,000. The Tories said that this would save £400m per year.
Labour dispute the claim. They say cuts to Child Tax Funds would only save £45m.
The different figures arise because the two parties are using different sources. The Tories are citing the Institute for Fiscal Studies (IFS). Labour use costings produced by the Treasury.
So who is right?
The Institute for Fiscal Studies (IFS) says: “It is likely that the estimate from the government is more accurate because the IFS estimate assumed full take-up of the child tax credit.
“Without access to HMRC data, it is not possible for us to say precisely how much money would be raised by the Conservative Party’s proposal having allowed for incomplete take-up, but it can be stated confidently that it would be less than £400m”.
However, according to Mike Brewer, an economist at the IFS, Labour’s saving of £45m is definitely an “underestimate” because “the Conservatives’ proposal would also save money from families with incomes between £40,000 and £50,000, which was not allowed for in the estimated saving of £45m a year”.
Child Trust Funds
Now let’s look at Child Trust Funds. The Conservatives say scrapping payments for better-off children will save £300m. Labour disagrees. They say the saving would be £225m only.
Both parties cite the IFS as supporting their figures. So which on is correct?
“The IFS initially said that the Conservatives’ policy would save half the total cost of Child Trust Funds, i.e. £250m,” says Mr Brewer, therefore the IFS was on their side.
But this week the IFS this week slightly reduced their estimate of the savings. From £250m to £225m.
“It seems the Conservatives may have rounded the initial IFS costing, giving the figure of £300m” says Mr Brewer.
Furthermore, Labour says it would be impossible to make any savings in 2010 because primary legislation would be needed, and that could not be passed in time.
A Treasury spokesman agreed that any significant change to the Child Trust Fund would possibly need primary legislation.
The Conservatives insist changes to Child Trust Funds can be achieved with regulation.
Cathy Newman’s verdict
The Tories would be lucky to save £625million (£400m absolute tops from Child Tax Credits and £225m for Child Trust Funds) – less than half of the predicted £1.5 billion pounds. But that’s giving them the benefit of the doubt. Once all our expert’s caveats are factored in, savings of just half a billion pounds are more realistic. The Conservatives still have some way to go to convince the electorate they can make debt that £178bn debt mountain.
Update: We put our findings to the Philip Hammond MP – see why he stands by his claim here.
