Vince slams Osborne’s “schoolboy economics” (and the IFS aren’t keen on the Tories’ tax plans either)

It’s only a few hours since shadow chancellor George Osborne launched the Tories’ plans to cut Labour’s proposed increases in employers’ National Insurance, and already you can start to hear the sound of it unravelling.

First up, Vince Cable, the Lib Dems’ shadow chancellor:

This is school boy economics. When you have a £70bn permanent hole in the Government’s finances you simply can’t propose cutting tax revenue unless you spell out exactly how you are going to pay for it. The Tories say they are going to pay for a cut in National Insurance through ‘efficiency savings’, but haven’t a first clue about how these savings are going to be realised.

“Unless they can say how they will realise these savings, the Tory proposals aren’t worth the paper that they are written on. George Osborne has taken the Government’s highly dubious efficiency plans and made them even less credible. Today’s announcement is all about low politics not sound economics.

“If George Osborne seriously wants to be Chancellor it is time he put away childish things and produced a credible plan of how he would restore the health of the nation’s finances.”

Efficiency savings are the easiest thing in the world to announce; they’re usually quite hard to achieve in reality. Simply saying it doesn’t make it so.

This is all the more true in the Tories’ case, as their own document admits that the savings they want to make for 2010-11 through outsourcing back office functions won’t actually come through fully until January 2012. In other words, for all the talk of cutting the deficit, the Tories’ reversal of Labour’s NI tax rises will actually increase the deficit.

And it’s not just Vince Cable whose whelm is under-ed by the Tory annuncement. The Institute for Fiscal Studies makes it plain that Mr Osborne’s scheme will result in either deeper cuts to public services, or in increased taxes elsewhere. Jim Pickard at the FT’s blog has highlighted the key paragraph from the IFS report:

The Conservatives claim that the spending cuts can, in effect, be rendered painless by efficiency savings that they say their advisers have identified. Whether or not that is true, using the bulk of these spending cuts to finance the NI cut means that they are not available to contribute to the task of reducing government borrowing that the Conservatives have set such store by. Reducing the deficit more quickly than the Government plans to will therefore require even greater cuts to public services spending, or to greater reliance on welfare cuts or tax increases that might be as economically costly as the NI increases they are seeking to mitigate.

I think it’s become clear why the Tories have preferred not to announce their policies until now.

PS: Don’t forget, at 8pm tonight, Channel 4 will be screening the live Ask the Chancellors Debate between Vince Cable, Alistair Darling and George Osborne. LDV co-editor Mark Pack will be live-blogging it.

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8 Comments

  • Jessica Ashman 29th Mar '10 - 2:35pm

    Exactly what we have come to expect from Vince Cable. Petty party political attacks & smoke and mirrors to deflect attention away from the fact that the lib dems want to ring fence government waste and inefficiencies for this financial year.

  • A good idea, cutting waste and inefficiency – I wonder why no one has thought of that before?

    Osborne will “slash staff sickness” – all gain no pain. How does he think of these great ideas?

    I think it must be because focus groups are showing the Lib Dem £700 tax cut for most people is popular, thus the Tories need a tax cut of their own.

    If only we could persuade Mr Osborne that tax breaks for the very richest aren’t very efficient. Or that giving rich people 40% tax relief on their pensions isn’t an efficient way of getting decent pensions for all. Or that doling out billions in Housing Benefit that goes straight to buy-to-let landlords isn’t very efficient. Or that selling of army accommodation and renting it back isn’t very efficient, or having mass unemployment for the best part of 20 years under Thatcher and Major wasn’t very efficient. or that voting for a war in Iraq wasn’t really cost effective, or that the war on drugs isn’t very efficient, or that overcrowded prisons, aren’t very efficient, or that PFI contracts aren’t very efficient, or that arming Afghans in the 1980’s is costing us live now.

  • Anthony Aloysius St 29th Mar '10 - 3:10pm

    Interesting to see the Tories over on Mike Smithson’s site hailing this as a knockout blow on Osborne’s part. But to my mind it looks like a rather desperate tactical manoeuvre that could very easily blow up in his face.

    The whole Tory strategy up till now has been to portray the government as dangerously irresponsible in allowing the deficit to grow so large, and to make its reduction their first priority. With this announcement, that all goes straight out of the window. As the IFS says, even if the additional cost can be met by efficiency savings (and of course the government is promising efficiency savings too) that is all money that could have been used to reduce the deficit, but won’t be under the Tories. And the fact that Labour _would_ still use money from efficiency savings to reduce the deficit underlines the narrative that they are the responsible, trustworthy party who have made the right decisions to get us through the recession.

    Conversely, I’ve always thought that Labour’s main strategy during the campaign would be to scare people with talk about Tory spending cuts – cuts to the NHS, cuts in education. If the Tories carry on claiming they can reduce the deficit faster than Labour, and on top of that claim that taxes will be lower, that argument becomes unanswerable. Unless, of course, the Tories are planning a huge increase in indirect taxation. At any rate, something will have to give, and I don’t think that will need to be pointed out too many times before people get the message.

  • Foregone Conclusion 29th Mar '10 - 3:15pm

    “Exactly what we have come to expect from Vince Cable. Petty party political attacks & smoke and mirrors to deflect attention away from the fact that the lib dems want to ring fence government waste and inefficiencies for this financial year.”

    He has been very clear in almost every interview I’ve heard from him that he thinks that in the short term the current level of government spending should be kept up, with a sharp reduction in public expenditure in the medium term. Hardly ‘smoke and mirrors.’

  • That would be the Vince cable who just had to apologise to the Treasury? Why do I not see this reported on LibDemVoice? LabourList and ConHome aren’t afraid to highlight stories that harm their own side.

  • Andrew Suffield 30th Mar '10 - 7:41am

    That would be the Vince cable who just had to apologise to the Treasury? Why do I not see this reported on LibDemVoice?

    Perhaps you should ask: why do you not see this reported anywhere except in a single paragraph from the Telegraph and a lot of frankly quite nutty blogs?

    What possible reason could there be for all the major news outlets ignoring this? Do you think it could have something to do with it still being an unconfirmed rumour?

4 Trackbacks

  • By Tories – all over the place on the economy on Mon 29th March 2010 at 2:54 pm.

    […] LibDemVoice reports on Saint Vincent’s response to Osbourne’s “schoolboy economics” plus the IFS view: The Conservatives claim that the spending cuts can, in effect, be rendered painless by efficiency savings that they say their advisers have identified. Whether or not that is true, using the bulk of these spending cuts to finance the NI cut means that they are not available to contribute to the task of reducing government borrowing that the Conservatives have set such store by. Reducing the deficit more quickly than the Government plans to will therefore require even greater cuts to public services spending, or to greater reliance on welfare cuts or tax increases that might be as economically costly as the NI increases they are seeking to mitigate. Posted in Uncategorized […]

  • By Osborne's £3bn tax rise black hole | Left Foot Forward on Mon 29th March 2010 at 3:12 pm.

    […] Next Left, Labour List, and Liberal Democrat Voice reckon that Osborne’s announcement is a strategic error by the Tory shadow chancellor while […]

  • […] Tories’ pledged this week to reverse Labour’s National Insurance tax rises by increasing the UK deficit. Today […]

  • By Nick Clegg reveals Tories’ £13bn VAT bombshell on Thu 8th April 2010 at 10:32 am.

    […] all Lib Dem spin? Well, let’s remind ourselves of what the Institute for Fiscal Studies said just last week: The Conservatives claim that the spending cuts can, in effect, be rendered painless by efficiency […]

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