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

by Stephen Tall on March 29, 2010

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.