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UK austerity debate: Labour and Tories square off over planned cuts

As Britain’s two biggest parties seek to trim deficit, political fight is over raising taxes or slashing spending

Last week, the Nobel prize-winning economist Paul Krugman launched a stinging attack on Britain's two main political parties ahead of the United Kingdom’s general election on May 7.

“[Conservative leader David] Cameron is campaigning largely on a spurious claim to have ‘rescued’ the British economy and promising, if he stays in power, to continue making substantial cuts in the years ahead,” Krugman wrote in a widely-shared article for The Guardian newspaper.

“Labour, sad to say, are echoing that position. So both major parties are in effect promising a new round of austerity that might well hold back a recovery that has, so far, come nowhere near to making up the ground lost during the recession.”

Krugman's view that Labour and the Conservatives plan equally savage cuts to UK public expenditures over the next parliament, which will run from 2015 to 2020, is widespread in British politics. In Scotland, where Labour is on the brink of losing a majority of its 41 Westminster seats to the insurgent Scottish National Party (SNP), voters routinely cite the perceived similarities between Labour and the Tories on budget issues as a reason for supporting the left-leaning SNP.

But in one key area of economic policy, Labour and the Conservatives have actually diverged in recent years, as the debate over austerity and its effects on the British economy has intensified. The point of disagreement is Britain's 90 billion pounds ($130 billion) budget deficit and how to reduce it. The Conservatives see a further round of spending cuts as the answer, while Labour are more focused on tax rises on the wealthy.

“David Cameron aims to achieve a budget surplus by 2018/19 through 10 billion pounds ($15 billion) of cuts to the welfare bill and 30 billion pounds ($45 billion) of cuts to other departmental budgets,” Scott Lavery, an economist at the Sheffield Political Economy Research Institute, explained. “This means that the benefits system - already under huge pressure from five years of Tory austerity — would continue to be squeezed, while the cash-starved public sector would also come under additional pressure.

“By contrast, Labour plans a slower pace of deficit reduction, with greater emphasis on tax rises as opposed to spending cuts. [Labour leader] Ed Miliband wants to impose a higher rate of income tax on the rich, tax properties worth more than 2 million pounds ($3 million) and create a levy on bankers' bonuses.” 

The full scale of the Conservatives' cuts agenda was revealed in December, when Tory finance minister George Osborne published his annual spending review.

According to the Institute for Fiscal Studies (IFS), an independent budget analysis body, the review mapped out an additional 55 billion pounds ($84 billion) worth of cuts on top of the 35 billion pounds ($54 billion) implemented between 2010, when the Tories assumed power alongside the Liberal Democrats, dislodging the incumbent Labour government, and 2014.

“One thing is for sure,” IFS director Paul Johnson said in response to Osborne's review. “If we move in anything like this direction, whilst continuing to protect health and pensions, the role and shape of the state will have changed beyond recognition.”

The radicalism of the Tories' spending proposals stands in stark contrast to the relative modesty of Labour's fiscal program. Some experts believe Ed Miliband's repeated statements about the “necessity” of further spending cuts owe more to rhetoric than to substance. Since becoming Labour leader in 2010, Miliband has worked hard to counter Conservative accusations of fiscal incompetence that have dogged his party since the 2008 financial crisis, when Miliband himself was a Labour cabinet minister. As the IFS explained on 23 April, Miliband's plan to achieve a reduction in borrowing of 3.6 percent of national income by the end of the next parliament “would require little in the way of spending cuts and tax rises after this year.”

The gulf between Labour and Tory economic strategies could widen further after the election as a new political balance emerges at Westminster.

This election — one of the most closely fought in living memory — signals the collapse of the UK's traditional two-party system. The growing power of smaller parties, from the SNP, the Greens and Welsh nationalists Plaid Cymru on the left to the UK Independence Party (UKIP) and Northern Ireland's Democratic Unionists (DUP) on the right, has all but killed off any hopes Miliband and Cameron had of winning an outright majority in the House of Commons. After May 7, the leader capable of cobbling together 326 supporting votes at Westminster (out of a total of 650 MPs) from an array of disparate forces will get to form the next government. 

Labour plans a slower pace of deficit reduction, with greater emphasis on tax rises as opposed to spending cuts. Ed Miliband wants to impose a higher rate of income tax on the rich, tax properties worth more than 2 million pounds ($3 million) and create a levy on bankers' bonuses.

Scott Lavery

Sheffield Political Economy Research Institute

Parliament is thus likely to cluster into two opposing blocs. The SNP, the Greens and Plaid Cymru have ruled out working with the Conservatives while UKIP, which opposes Britain's membership in the European Union and wants to limit immigration, refuses to work with Labour. Somewhere in between these poles sit the centrist Liberal Democrats, who will probably back their coalition allies the Tories, and the DUP, whose conservative stance on certain social issues — the party is trying to impose a "conscience clause" in Northern Ireland similar to that recently passed in Indiana — will make an agreement with Labour very difficult.

Much hinges on how the two main parties handle post-election negotiations with their prospective partners. If the parliamentary arithmetic tilts to the right and the Conservatives pull together a majority with UKIP, the Liberal Democrats and the DUP, austerity will continue — and perhaps even deepen — as Cameron embarks on another five years of spending cuts. But if the math favors the left and Labour forms a government with SNP, Green and Plaid Cymru support, Cameron's project of “fiscal consolidation” could be abruptly reversed.

“The biggest challenge for Ed Miliband will be passing a budget,” says Adam Ramsay, editor of the Oxford-based website Open Democracy. “The SNP, Plaid Cymru and the Greens have all said that ending Britain's austerity experiment will be their top demand. How Miliband navigates that [demand] could well define the next government.”

The SNP has been particularly vocal in its opposition to austerity. SNP leader Nicola Sturgeon is willing to prop-up an Ed Miliband government but only in exchange for an annual increase public expenditure of 0.5 per cent of GDP and the cancellation of Britain's Trident nuclear submarine fleet, which she says will cost 100 billion pounds ($153 billion) to renew and maintain over the next three decades. Under pressure from Britain's right-wing press, Miliband has already rejected these terms, but most commentators expect some sort of loose alliance between Labour and the SNP to take shape in the event of a hung parliament.

After years of convergence and triangulation, British politics is now polarizing again. On one side, a broad coalition led by the Conservatives aims to shrink the size of the state and strip back key features of the UK welfare system. On the other, an equally diffuse collection of parties is eager to boost spending levels and protect the surviving institutions of British social democracy.

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