Political parties are right now working up their plans for the public finances over the next five years. But much of what was promised before the 2015 election has not been delivered.
Ahead of the June election, we are calling on all parties to be upfront and realistic about their manifestos. Elections are an important juncture at which future governments should gain a mandate for their plans – including on the tough choices.
The backdrop to the last election was a forecast for the public finances in the March 2015 Budget – the last of the Coalition Government. This was based on a planning assumption for spending supplied by the Chancellor showing sharp cuts in public spending (though the Chancellor did not provide any detail about what would be cut).
This planning assumption miraculously allowed the Office for Budget Responsibility (OBR) to forecast a surplus, and provided a base for the Conservative Party’s 2015 manifesto pledge to “control spending, eliminate the deficit and start to run a surplus”. Their (surprise) outright majority meant this became their mandate.
Fast forward two years to now and the Conservative Government’s financial outlook looks very different. Far from being eliminated, the OBR shows the budget deficit continuing until at least 2022. The Government has no plans to deliver a surplus within the next five years, despite originally planning to achieve one in the next financial year.
Why has government failed to deliver on the promises it set out in 2015? And what do all parties need to do to make sure their promises are more credible this time around?
Official forecasts can provide cover for misleading intentions
In March 2015, the Chancellor’s planning assumption for spending showed day-to-day spending by government departments (using the OBR’s current expenditure in RDEL figures) would fall by almost 10% by 2018-19, before beginning to rise again in 2019-20.
However, the promises made before the election were very quickly abandoned after it. Just two months after polling day, George Osborne heavily revised his own spending plans, no longer cutting spending up to 2019-20 and seeing it rise sharply in 2020-21. There was no attempt to implement the supposedly planned cuts – and the rapid U-turn suggests there may never have been an intention to try (in contrast to promises to cut taxes, which were quickly implemented).
Manifesto promises are not enough to deliver tough choices
There was another more specific pledge in the 2015 manifesto: to find £12 billion from (unspecified) welfare savings. The Government also failed to deliver this – although it did try initially. The July 2015 Budget introduced a five-year cap on overall welfare spending (excluding big pensioner benefits like the state pension). This cap was supposed to prevent any policy decisions from raising welfare spending (although a 2% margin for forecasting errors was permitted).
However, the tough choices required to deliver on this promise proved to be unpalatable. The cap involved politically controversial cuts, including to working tax credits. After considerable backlash, this policy was reversed. By the Autumn Statement, just four months after the cap was set, government spending on welfare was set to exceed not only the cap but also the 2% margin of error.
Alongside these political constraints, savings for reforming benefits failed to materialise as the changes proved more difficult to implement than expected. By this year’s Budget, any pretence of government being constrained by the original welfare cap had been abandoned, with spending set to far exceed even the 2% margin.
“Good news” promises trump “bad news” ones
Economic forecasts have worsened since the EU referendum, which will hit government finances. The revisions mean that by 2020-21, the Government will borrow an additional £18.3 billion. But these forecast changes are accompanied by new “good news” promises which will add almost half as much again – another £9.1 billion – to net borrowing by 2020-21. This includes additional spending on infrastructure announced in the 2016 Autumn Statement and extra money for adult social care announced in the 2017 March Budget.
The planned but subsequently abandoned increase in national insurance contributions by the self-employed would have mitigated, albeit marginally, the effect of some of the additional spending and tax cuts. Ironically however, a manifesto promise not to raise certain taxes (another “good news” promise) prevented the Government from pursuing a policy which would have contributed towards another pledge to keep public finances under control (a “bad news” promise).
Future promises – building credibility
So how can things be different this time around? Two commitments in all manifestos would help.
It may be difficult to stop politicians from making unrealistic promises, but their unjustified assumptions should not guide official forecasts, as happened in 2015. A commitment to establishing an “OBR for public spending”, would help address this by independently assessing the validity of spending assumptions. This would also stimulate a more honest discussion between politicians and the public about the compromises involved in maintaining services while tackling the deficit.
Developing an appreciation of the real choices facing government is a crucial first step, but implementing tough choices can still be very challenging. As the last two years have shown, a manifesto promise is not enough. As we, the Institute for Fiscal Studies and the Chartered Institute of Taxation recommend in our Better Budgets report, the parties should commit to conducting more thorough consultation and prepare the ground better ahead of reform.
These two commitments will help parties be realistic about what can be achieved, and how comfortable (or uncomfortable) it will be. If they are serious about what they are promising the public, then they will be thankful for it later.