Think Tank Accuses Labour and Tories of Dodging Sharp Spending Cuts Post General Election
Labour and the Conservatives are shying away from the harsh truth that their economic strategies will inevitably lead to substantial spending cuts after the general election, cautioned a prominent economic think tank.
In a report released on Tuesday, The Institute for Fiscal Studies (IFS) highlighted that neither of the main parties seemed “committed to the fundamental goal of reducing debt.” Both parties aim to adhere to the fiscal rule of decreasing debt between 2028/29 and 2029/30, but the IFS forecasts indicate that achieving this target would be challenging for the future chancellor.
The think tank criticized the current fiscal rules as “arbitrary and manipulable,” noting that they provided an inadequate measure of the public finances’ health. While Labour supports the overall debt rule, it proposes to modify the “supplementary” fiscal target in the future to prioritize the current balance of borrowing and spending over overall borrowing.
According to the IFS, this approach would ensure that revenues cover day-to-day spending while allowing borrowing for investments. However, the existing debt rule does not differentiate between investment and day-to-day spending, making it difficult for Labour to adhere to its plan to borrow £23.7 billion for increased investment in the transition to net zero.
IFS analysis suggests that Labour could implement the additional borrowing without breaching the debt target based on March Budget forecasts. However, the think tank cautioned that this may not be feasible at the time of a post-election autumn fiscal event, given the uncertainties and external economic factors.
Isabel Stockton, senior research economist at IFS, criticized the fiscal rule for being “easily manipulated” and “the loosest debt rule we have had in the past 30 years.” She emphasized that neither party seemed committed to the core principle of reducing debt, leading them to evade the reality of impending spending cuts.
Regarding forecasts indicating that Labour’s net-zero investment plan could narrowly comply with the fiscal rule, Ms. Stockton warned against relying on luck and urged for more prudent fiscal management regardless of the party in power.
