Analysis: The £35bn cuts claim
Labour claims that the Tories will cut £35bn from public spending are now at the centre of the pre-election debate. Labour election campaign chiefs have been keen to say that is the equivalent of having to "sack every doctor, nurse and teacher in the country". The Conservatives have reacted angrily to the claims, calling them "at best a misrepresentation, at worst a downright lie".
So who is right?
Well, the Conservatives have promised to increase public spending by 2% a year in real terms until 2011. On current performance, public spending would increase by 3% a year in real terms under Labour - which would lead to a £35bn difference by 2011. So the Conservatives plan to slow, but not reverse, the long-term growth of public spending. The Tories plan to keep to Labour's spending plans on health and education in the short-term.
Shadow Chancellor Oliver Letwin told the BBC News website that while the Conservatives did plan to spend £34.5bn less than Labour by 2011/12, they would be sticking to Labour's plans for increased spending on health and education over the next two years by saving an extra £13bn in other areas. Labour, however, says that there is no way the Tories could spend £35bn less than they plan without real cuts in front-line services.
Will taxes rise?
Meanwhile, the Conservatives have claimed that if Labour is re-elected, taxes will have to rise to meet a "black hole" in the public finances.
TAX PLANS COMPARED
changes in tax take
Labour: +£25bn
Lib Dem: +£29bn
Conservative: +£21bn
source: IFS
In fact, all three parties are hoping for an increase in the total amount of taxes collected over the next two years to get the budget back in balance. According to the independent Institute for Fiscal Studies, Labour expects to get £25bn more in tax revenue through automatic increases in corporation and income tax. The Liberal Democrats, who plan a 50% tax band on people earning £100,000 a year, will get an additional £4bn in taxes, thus raising £29bn more in taxes in the same period. While the Conservatives plan a modest £4bn tax cut, under their plans the overall tax burden will still rise by £21bn.
The real issue is whether the government's assumption that its tax revenue will rise automatically with economic growth is correct, or whether explicit changes in taxes will be needed to meet its own fiscal targets. Many experts believe that Labour is being too optimistic, and argue that perhaps £8bn to £11bn of assumed tax revenues will not materialise without a change in policy. The Tories agree with this view; that is why they are allocating £8bn to making up this gap, as well as planning tax cuts. However, they say they can fund this by eliminating waste, without hurting front-line services or reducing spending on health and education.
Eliminating waste
All three parties are hoping to avoid painful choices on taxing and spending by reducing waste. Labour proposed £22bn worth of savings in its Gershon review of public procurement, while the Tories say that their David James Review has generated an additional £13bn worth of savings. The Conservative plans include abolishing the New Deal, which aims to help young people into work, and Job Centres, cutbacks to regional development agencies and small business advisory services, as well as eliminating or outsourcing 235,000 civil service jobs and shutting down hundreds of quangos.
The Liberal Democrats accept about £5bn of these cuts as sensible, but reject the complete abolition of the New Deal, proposing instead the ending of the euro fighter project and the closure of the DTI to produce additional savings. Labour says that all the Conservative savings are bogus, or would increase spending in long-term, as unemployment would rise without the New Deal. But the Conservatives say that they are making tough cuts in non-essential spending precisely to ensure that spending on health and education over the next two years is maintained at the same level as Labour plans, while creating room for £4bn worth of tax cuts. They also say they will increase spending on the police, pensions, and the armed forces over the next two years.
Long-term spending plans
Unlike Labour, the Conservatives have published a broad outline of their spending plans to 2011/12. That document, "Better Public Services, Better Value," shows that over the whole period the Conservatives plan that public spending will grow by 2% in real terms in each from £520.5bn this year to £663.5bn in 2011/12. This compares to Labour's current plans for a 3% growth in public services, which if projected over the same period, would lead to public spending of £698bn - a difference of £34.5bn. Shadow Chancellor Oliver Letwin told the BBC News website that there would have to be real decreases in some areas of spending in the first two years of a Tory government, but maintained that after that spending in non-essential areas would rise in line with inflation, while there would be real increases in overall spending - but at a lower rate. The UK economy is believed to grow at a long-term average of around 2.5%. Thus, under Labour plans the public sector would expand modestly as a proportion of the total economy, while under Conservative plans the proportion would be slightly lower - although still higher than when Labour came to power.
By 2011, overall public spending as a proportion of the economy would be 40% of GDP under the Tories, rather than 42% of GDP under Labour plans - if they continue to spend at the present level. But that is a pretty big "if". Labour has not set its spending plans beyond 2007/8, and it is already planning on slowing the rate of growth of public spending in the last year of its current plans - precisely because of concerns about the size of public sector borrowing.
Uncertainties
And seven days, let alone seven years, is as long a time in economics as it is in politics. Projecting what public spending might be in this period is extremely uncertain, with a margin of error certainly higher than the 1% difference between Labour and Tory spending plans. As Vincent Cable, the Liberal Democrat Treasury spokesman, told the BBC website, it is "not sensible" to have this argument because economic developments - for example, a recession sometime during this period - could change the figures completely. And he argues that public spending cannot keep rising faster than the overall growth rate of the economy into the indefinite future. If there is one thing which is certain, it is that predicting the economic future is uncertain.
No-one can say for sure that there will be either tax rises or spending cuts in the future. But as the political season intensifies, there is little doubt that the number of claims and counterclaims by the political parties will intensify.