There is a risk that the general election campaign will turn into a battle focused almost exclusively on how to spend the extra money forecast to be available in the budgetary arithmetic each year. This topic is important, of course, and it is valid for parties to say whether they would favour spending increases or tax reductions. However the problem is that this argument can turn into a narrow row over the small print of tax plans and lack any wider context.
The context is important. The economy is expanding strongly and further growth is forecast in the years ahead. If this happens, there should indeed be some room to adjust taxes and spending. The EU Commission’s expected agreement to tweak our long-term financial targets will widen room for manoeuvre a little more.
For the moment, despite the international fears that are upsetting stock markets, predictions of further growth are a reasonable basis for election sums. But the parties also need to tell us, clearly, what they would do if growth slows and the sums get tighter. A sensible strategy would be to commit to meeting certain targets for the public finances and then outline where additional resources, if available, would be directed. The point is to underline that eliminating borrowing for day to day spending and getting our debt ratio down to safer levels will be the priority.
Parties should also take a wider view of tax and spending possibilities. What about the prospect of reforming tax and spending structures by doing things differently? The political problem is that reform means there are winners as well as lowers. And general election campaigns are all about making as many voters as possible feel like potential “ winners”.
There is more to be argued over than the traditional election “ goodies” of lower taxes and higher transfers. What about the need to boost investment? Or safeguards in case of another slowdown? What about the pressures of an ageing population? Let’s not end up with a debate about who will cut USC the most or who will give most via increased pension and child benefit payments.