I have not watched the chancellors’ debate on Channel 4, however, reading newpaper reports, it seems that there was agreement on a number of issues. The emphasis has shifted from the investment-versus-cuts contrast between Labour and the Conservatives prevalent a few months back to nuanced differences on the timing and the scale of deficit and debt reduction. Broadly speaking, there is now an agreement that cuts will have to be made, and that will involve a combination of tax increases and spending cuts. Spending cuts are to be achieved by the means of efficiency and reducing waste.
The Tories may be playing the low tax card by announcing their plan to reverse Labour’s policy of increasing NI contributions. This looks like a risky strategy, since it binds the Tories – if they were to form the next government – by reducing the room for manoeuvre, and it sends out a confused message to the electorate and the markets. With the election so close, the Conservatives will not be able to ‘flip-flop’ that much on an important policy such as this, and they won’t be able to back out. The electorate has been expecting some savage cuts and tax increases post election, whoever forms the next government, so it sends out a mixed message. Markets may not be entirely happy with announcements like these, since they may suggest that the Tories won’t have the guts to do whatever is necessary to restore the health of public finances. The wisdom of committing a party to close a way to raise revenue seems questionable.
No one likes tax rises, and efficiency gains sound great, but it is notoriously difficult to cut spending. For example, government contracts may not be so easy to get out of. Addtionally, there is an argument that reducing public spending now will jeopardize economic recovery.
Policies will become clearer over the next few weeks. It will be interesting to see if coherent and concrete sets of ideas will emerge, and which ones will be credible to the British electorate.