No political party is acknowledging the UK’s fiscal reality

At the 2024 general election, the IfG was one of several commentators criticising parties for policy platforms that ignored impending fiscal pressures. Parties proposed either vague spending cuts or only limited tax rises, while committing not to raise the main rates of income tax, national insurance and VAT. As the Labour government has found, these plans did not survive contact with reality: the UK’s public finances are not on a sustainable footing and political promises on public spending are inconsistent with the size of the tax take. Manifesto commitments have acted as a major constraint on sound fiscal policy and good government. 

At the party conferences this Autumn, a variety of policies and approaches to tax and spend were aired. Yet none grappled with the real trade-offs underlying these choices, nor the big fiscal pressures on the horizon. A narrow focus on whether parties’ proposals add up is not sufficient when the underlying fiscal position is so challenging.

Opposition parties have different platforms but all have fiscal blind spots 

All opposition parties used their conferences to unveil major fiscal policies that could well form the basis of their next manifesto. Reform and the Liberal Democrats both talked about big income tax cuts through raising the personal allowance. The Conservatives promised radical (and distorting) reductions in Inheritance Tax for families. The Conservatives and Reform both pledged big public spending cuts, including on welfare. And the Greens continue to plan a big increase in the size of the state largely funded by taxing the richest.  

These are genuinely different visions for the size and role of the state, at least in theory, but all come with potential pitfalls.  

First, it is much easier to commit to spending cuts in the abstract than it is to deliver them in practice – and promises that tax cuts will follow vague spending cuts, as made by both the Conservatives and Reform, should be treated with scepticism. 

Pledging to reduce the civil service headcount is a popular move, but Whitehall accounts for a very small share of total government spending. And while ‘efficiency savings’ sound like a no brainer, delivering cuts often means government not doing things, or doing things worse.  Welfare changes also poll well in general, but specific measures – where particular groups lose out – is a far harder sell, and no opposition party backed Andy Burnham’s modest proposals to manage the state pension bill by adjusting the triple lock.  

On the left of politics, the Green party proposed tax increases but assumed ‘the rich’ alone can fund a much larger state and taxes on ‘normal people’ will not need to increase. While there is some scope for increases in taxes on the wealthy, unless they are well-designed they may raise much less than intended. And the UK stands out internationally for how low-taxed its regular earners are, rather than our treatment of those at the top. A permanently bigger state will need to mean everyone paying at least a bit more. 

No party has a plan to tackle future fiscal pressures 

As the party of government, Burnham’s speech was different. He specifically promised honesty about the difficult decisions ahead. And announced one such change through his welcome reforms of the triple lock. But even that proposal was tied to a big commitment on social care, and he and John Healey were silent on tax ahead of the budget. 

The case of the triple lock is instructive. Burnham argued that savings from the triple lock would fund social care. But the triple lock was already an unfunded future cost. The other parties were comfortable committing to maintain the policy in its current form. This shows a broader problem: no party is grappling with the fiscal costs coming further in the future. An ageing population means the default, without deliberate action, will be higher spending and higher taxes. Parties that want to buck that trend need to be much more specific about what state provision they want to scale back. Parties that want to maintain the provision need to explain which taxes will go up. Our public services Performance Tracker shows most services are already under strain.

A better debate is needed to improve fiscal policy

It is welcome that parties feel the need to explain how tax cuts or spending increases will be afforded in future. But our political debate often focuses narrowly on whether specific proposals cost what parties claim. We should not, however, miss the forest for the trees.   

The focus on promised adjustments to the status quo misses a key point: the status quo is not a realistic starting point. The 2024 Labour manifesto is a good example. It proposed some specific tax rises to “pay for” new commitments. But said nothing about the big tax increases needed to put public service spending on a sustainable path. All the parties are complicit: it is mutually convenient for them all to ignore these pressures – pressures that governments of any party will face and should address – so they can focus on their retail manifesto offers. 

Without a change in policy debate and media scrutiny, this party conference season suggests that the  next election campaign could be a repeat of the last, with all parties committed to a fiscal fiction that has been so damaging to good government in this parliament.