Both Tories and Labour 'avoiding reality’ over Britain's economic risks

Both parties are effectively signed up to the same fiscal rules, which leave them no room to manoeuvre unless they raise taxes or find other savings, according to a top think tank

Both parties are effectively signed up to the same fiscal rules, which leave them no room to manoeuvre unless they raise taxes or find other savings. 

Both major British political parties are refusing to address chronic problems in public services and looming economic risks as the election descends into big rows over small pledges, two of the country’s top think tanks warned.

In comments made shortly before the first televised leaders’ debate of the campaign, the Institute for Fiscal Studies accused the ruling Conservatives and Labour opposition of “avoiding reality”.

The Resolution Foundation said politicians “should have a plan that is credible given the far tougher fiscal climate they may well encounter in the next parliament, and the difficult choices it would bring”. 

Both parties are effectively signed up to the same fiscal rules, which leave them no room to manoeuvre unless they raise taxes or find other savings. 

Resolution warned that the next government will inherit a £12bn (€14bn) hole in the public finances, should even small economic risks crystallise. If deep cuts to public services planned for 2025 onwards are scrapped, £33bn of savings would be needed.

Real per-person, day-to-day public service spending is 6% below 2009-10 levels and struggling smaller departments like transport are facing 19% cuts in a fresh round of austerity.

The Conservatives’ fiscal rule is to have debt falling as a share of national income in the fifth year of the forecast and keep annual borrowing below 3% of GDP. Labour has the same debt rule and would pay for all day-to-day spending out of revenues, only borrowing to invest.

In March, Tory chancellor Jeremy Hunt was judged by the Office for Budget Responsibility to be meeting his rule with £8.9bn to spare.

Labour plans to invest £23.7bn over five years in green industries and will raise around £5bn annually by taxing private school fees and private equity. 

The International Financial Services said the opposition party would meet its debt target — “just.”

Both parties hope growth and interest rate cuts will come to the rescue but the senior research economist at the International Financial Services, Isabel Stockton, said: “Anyone serious about government should not rely on getting lucky.”

•  Bloomberg