Giles Wilkes was, until recently, special advisor to Lib Dem business secretary Vince Cable. He was the SpAd who famously slapped down News International’s advances when they were looking to lobby in favour of their proposed takeover of BSkyB. Before that, he was the chief economist at liberal think-tank CenteForum, where he was author of the award-winning pamphlet, ‘A balancing act: fair solutions to a modern debt crisis’, about which he wrote on LDV.
His Free-thinking Economist blog is a must-read, especially today as Giles covers the economics of Nick Clegg’s Bloomburg speech. I was perhaps overly dismissive of this in what I wrote on Monday:
In terms of policies, there wasn’t much that was new. Nick reaffirmed the to get the current structural deficit in balance by 2017/18 through a mix of tax rises and spending cuts: whoever’s in power after 2015 will have to do that, even the Tories, whether they advertise it up-front or prefer to renege after the election. … Nick also re-invented the promise of Gordon Brown’s Golden Rule: that government “will be able to borrow in order to fix our creaking national infrastructure”, something the Coalition chose not to do when interest rates were at their lowest.
Bill Le Breton challenged me in the comments, as he felt Nick’s comments signalled a more fundamental change. Which is fair enough: what Nick has set out is indeed significantly different to the Coalition mood music and to the stated aims of George Osborne to run an absolute surplus.
Here’s Giles Wilkes’ take in his post, ‘Future fiscal plans – what the LibDems seem to have said‘:
A simple question is whether the Parties’ implicit spending plans are credible. By credible, I mean whether they imply sums of money that are believable, given the needs and pressures that ordinary governments will face, and the political constraints they will be under. This is a different definition of “credibility” from the one implicit in certain speeches, where “credible” is somehow equated with “borrowing less than the other lot”.
My bottom line: I think Clegg’s plans suggest that the sums provided might be enough under LibDem plans. By implication they would also be enough under looser Labour plans. I don’t think that the sums would be enough under Tory plans. The political question is whether anyone notices or cares enough. Sooner or later they will; the bills come due. But whether in time for the next election is another matter.
These are the key bits from Clegg’s speech:
“we need to finish the job we’ve started. In Coalition we have set out a plan to get the current structural deficit in balance by 2017/18?.
The current Current Structural Surplus predicted for 17/18 is £9.6bn (Table D7, Budget).
“we will abide by a new debt rule in which we will significantly reduce national debt as a percentage of GDP, year on year, when growth is positive, so that it reaches sustainable levels around the middle of the next decade.”
When growth is 0.01%, inflation 2% and debt/GDP 80%, you can run a deficit of 1.6% of GDP and still have deb/GDP falling. This means at the end of next parliament borrowing some £30bn a year, which will be about the same as net investment. So they will be borrowing but only to invest: as the Guardian observes, this is fairly close to the Brown golden rule.
George Osborne, on the other hand, is aiming for an absolute surplus. This is £30bn tighter.
Ed Balls is aiming to balance the current account by 2020 – effectively hitting the same 2020 point as the LibDems, but on a different path. …
For now, it looks like Nick Clegg’s plans are at least far more credible than the Conservatives; they look like they have a decent chance of adding up and still being able to provide decent public services. You may sneer and ask whether it is relevant, but the LiBDems are setting out plans as if they may have to deliver them. Credit to them for doing so.
It’s well worth reading Giles’ post in full. (Here’s the link again.)
Nick Clegg’s speech sets out what, to me, seems almost inevitable: that whoever wins the next election is almost certainly going to have to raise taxes in order to avoid politically impossible cuts to spending. However, he is at least fronting up to this the right side of the election, ensuring voters are informed of what will happen.
The Tories, too, will almost certainly end up in this position, but are clearly hoping they can defer the day until after May 2015. The question is: will the media – and indeed the voters – let them get away with it?
* Stephen Tall is Co-Editor of Liberal Democrat Voice, and editor of the 2013 publication, The Coalition and Beyond: Liberal Reforms for the Decade Ahead. He is also a Research Associate for the liberal think-tank CentreForum and writes at his own site, The Collected Stephen Tall.