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Last Updated: Wednesday, 6 April, 2005, 15:18 GMT 16:18 UK
Analysis: The 35bn cuts claim
By Steve Schifferes
BBC News economics reporter

Labour and the Conservatives have clashed on public spending plans

Labour claims that the Tories will cut 35bn from public spending are again at the centre of the election debate.

Labour election campaign chiefs have been keen to say this is the equivalent of having to "sack every doctor, nurse and teacher in the country".

Tony Blair and Gordon Brown, in their first joint press conference, renewed their attack on Conservative spending plans, and said their figures did not add up.

Shadow Chancellor Oliver Letwin immediately asked which taxes Labour would have to increase to pay for its higher spending plans.


The Conservatives have denied they are planning cuts, calling them "at best a misrepresentation, at worst a downright lie"

The row was given a new dimension when Conservative MP Howard Flight was forced to resign as deputy party chairman and was sacked as a Tory candidate after he told a private meeting of Tory activists more cuts were in the pipeline but the party "had to win an election first".

Labour said this proved the Tories were planning "devastating" cuts.

But the shadow home secretary, David Davis, said Michael Howard had "no secret agenda" to introduce extra spending cuts.

So who is right?

In their published plans, the Conservatives have promised to increase public spending by 2% a year in real terms until 2011.

On current performance, public spending would increase by 3% a year in real terms under Labour - which would lead to a 35bn difference by 2011.

So the Conservatives plan to slow, but not reverse, the long-term growth of public spending.

The Tories plan to keep to Labour's spending plans on health and education in the short term.

Shadow Chancellor Oliver Letwin told the BBC News website that while the Conservatives did plan to spend 34.5bn less than Labour by 2011/12, they would be sticking to Labour's plans for increased spending on health and education over the next two years by saving an extra 13bn in other areas.

Labour, however, says there is no way the Tories could spend 35bn less than they plan to do without real cuts in front-line services.

Will taxes rise?

Meanwhile, the Conservatives have claimed that if Labour is re-elected, taxes will have to rise to meet a "black hole" in the public finances.

Changes in tax take
Labour: +25bn
Lib Dem: +29bn
Conservative: +13bn
Source: IFS.
In fact, all three parties are hoping that the total amount of taxes collected over the next two years will go up in order to get the budget back in balance.

Labour are hoping that the share of taxes as a proportion of the economy will rise automatically with economic growth.

According to the independent Institute for Fiscal Studies, Labour expects to get 25bn more in tax revenue through automatic increases in corporation and income tax in the next fiscal year.

The Liberal Democrats, who plan a 50% tax band on people earning 100,000 a year, will get an additional 4bn in taxes, thus raising 29bn more in taxes in the same period.

The Conservatives plan a modest 4bn tax cut.

They say they agree with independent experts who question whether Labour will actually get as much tax revenue as the government is hoping for.

And they say that while Labour would have to raise taxes to cover the shortfall, they would fund it through 8bn in extra savings from cutting waste.

However, they are still counting on at least 13bn in automatic tax increases themselves - and if the budget shortfall is closer to 12bn rather than 8bn as many experts predict, they would have to find further savings or abandon some of their planned tax cuts.

Eliminating waste

All three parties are hoping to avoid painful choices on taxing and spending by reducing waste.

Labour proposed 22bn worth of savings in its Gershon review of public procurement, while the Tories say that their David James review has generated an additional 13bn worth of savings.

The Conservative plans include abolishing the New Deal, which aims to help young people into work, and Job Centres, cutbacks to regional development agencies and small business advisory services, as well as eliminating or outsourcing 235,000 civil service jobs and shutting down hundreds of quangos.

Are the Tories planning cuts to front-line services like police?

The Liberal Democrats accept about 5bn of these cuts as sensible, but reject the complete abolition of the New Deal, proposing instead the ending of the euro fighter project and the closure of the DTI to produce additional savings.

Labour says that all the Conservative savings are bogus, or would increase spending in the long term, as unemployment would rise without the New Deal.

But the Conservatives say they are making tough cuts in non-essential spending precisely to ensure that spending on health and education over the next two years is maintained at the same level as Labour plans, while creating room for 4bn worth of tax cuts.

They also say they will increase spending on the police, pensions, and the armed forces over the next two years.

Long-term spending plans

Unlike Labour, the Conservatives have published a broad outline of their spending plans to 2011/12.

That document, Better Public Services, Better Value, shows that over the whole period the Conservatives plan that public spending will grow by 2% in real terms in each year from 520.5bn this year to 663.5bn in 2011/12.

This compares with Labour's current plans for a 3% growth in public services, which if projected over the same period, would lead to public spending of 698bn - a difference of 34.5bn.

Shadow Chancellor Oliver Letwin told the BBC News website there would have to be real decreases in some areas of spending in the first two years of a Tory government.

But he maintained that after that, spending in non-essential areas would rise in line with inflation, while there would be real increases in overall spending - but at a lower rate.

The UK economy is believed to grow at a long-term average of about 2.5%.

This means under Labour plans the public sector would expand modestly as a proportion of the total economy, while under Conservative plans the proportion would be slightly lower - although still higher than when Labour came to power.

By 2011, overall public spending as a proportion of the economy would be 40% of GDP under the Tories, rather than 42% of GDP under Labour plans - if they continue to spend at the present level.


But Labour has not set its spending plans beyond 2007/8, and it is already planning on slowing the rate of growth of public spending in the last year of its current plans - precisely because of concerns about the size of public sector borrowing.

And projecting what public spending might be as a percentage of national income in seven years' time is extremely uncertain, with a margin of error certainly higher than the 1% difference between Labour and Tory spending plans.

For example, if the economy did not grow as fast as hoped, public spending might end up as a higher proportion of a smaller cake.

Vincent Cable, the Liberal Democrat Treasury spokesman, told the BBC news website it was "not sensible" to have this argument because economic developments could change the figures completely.

He argues that public spending cannot keep rising faster than the overall growth rate of the economy into the indefinite future - but that could be a long way off.

If there is one thing which is certain, it is that predicting the economic future is uncertain.

No one can say for sure that there will be either tax rises or spending cuts in the future, whatever the intentions of the parties.

But as the political season intensifies, there is little doubt that the number of claims and counterclaims by the political parties will intensify.



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