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Friday, April 22, 2005

Looking for black holes

In political terms a black hole is a constituency where a party has very few members, little, if any activity and even less chance of winning. For the Institute of Fiscal Studies black holes are what they find in the cost of delivering the various manifestos.

Today's Guardian cites the latest IFS report in which they find an £11 billion tax black hole in Labour's plans. 'A new Labour government would need to raise taxes or cut spending by £11bn in the next parliament to restore the public finances to a healthy state,' they say. The Tories are delighted but they do not fare any better:

After two weeks of campaigning in which Mr Brown has attacked the Conservatives for their claim to be able to raise spending on health and education, cut taxes by £4bn and cut borrowing by £8bn, the IFS said Mr Letwin's sums did add up - but only if he could find the £35bn of savings proposed by the review conducted by the businessman David James.

But the IFS was not convinced that Mr Letwin would be able to deliver the promised spending cuts. The Tory plans, it said, assumed that they would be "able to cut spending as quickly and painlessly as they claim. Past experience suggests caution".

If the Conservatives were unable to find their projected savings, they would face the choice of "spending and borrowing more than they intend or making other, potentially more painful, spending cuts to fill the gap".

The Institute also question the Liberal Democrats' costings of their manifesto suggesting that we might struggle to raise £4.8bn a year from their proposed 49p top rate of tax on those earning more than £100,000 a year, because the better-off would find ways of paying less tax. Our Treasury spokesperson, Vince Cable, refutes this claim of course. He states that the Liberal Democrats' manifesto is fully costed, using Treasury figures where they are available. I have seen the costings and there is a substantial reserve built into them to cater for any decline in tax revenues. Still the IFS conclusion that whoever takes office after the election, the tax burden is likely to be higher at the end of the next parliament than it is at the end of this one, is worth pondering on.
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