The Lib Dems can’t have it both ways

The Liberal Democrats claim they have been honest by setting out net savings of £10.7 billion a year by the end of the Parliament to help close the deficit.

But in fact there is an £11.6 billion black hole in Vince Cable’s numbers, so their plans would actually increase borrowing by £900 million, not reduce it.

Vince Cable has also performed a breathtaking U-turn on Labour’s jobs tax, saying he would reverse it after all.

The Liberal Democrats can’t have it both ways.

The £11.6 billion black hole

Black hole over anti-avoidance measures

· What they claim. Liberal Democrats say they will save £4.65 billion through ‘anti-avoidance measures’ on income tax, National Insurance Contributions (NIC), Corporation Tax and Stamp Duty. This would help fund their policy of raising the threshold of income tax.

· Having it both ways. However, they have not provided any further details in their manifesto or other policy documents. For example, HMRC estimates ‘tax avoidance’ in income tax, National Insurance and Capital Gains Tax is only between £0.8 and £1.6 billion (http://www.hmrc.gov.uk/stats/measuring-tax-gaps.pdf) yet the Lib Dems claim they would find £2.4 billion from these areas alone. The Treasury has been trying for decades to crack down on tax avoidance, so the Lib Dems cannot credibly claim any savings from these measures.

Black hole figure: £4.65 billion a year.  

Black hole over public sector pay caps

· What they claim. The Liberal Democrats claim their cap of £400 on pay increases for public sector workers would save £3.4 billion a year by 2012-13 and £3.6 billion a year by the end of the Parliament. But this would actually save nothing at all relative to the Government’s existing plans for a 1 per cent cap and a freeze for higher paid workers – in fact it could even cost money. The Lib Dems would need to freeze all public sector pay for two years to have any chance of saving this kind of money over and above the Government’s plans.

· Having it both ways. The Lib Dems admit in footnote 5 on page 103 of their manifesto that their pay proposal ‘is an alternative to the Government’s proposal to cap public sector pay at 1%’. So it is not additional to the Government’s plans. The Government’s figures show that their existing proposals to cap pay rises at 1 per cent would save £3.4 billion by 2012-13 (Budget 2010, HM Treasury, p85) on top of savings from a pay freeze for senior groups. Therefore the Lib Dem proposals would not save anything at all relative to the Government’s plans.

· Plans could cost taxpayers more. In fact the Lib Dem proposals might actually cost money. Based on the latest ONS data (Labour Market Statistics, March 2010), average pay in the public sector was £461 a week in January, equivalent to £23,972 a year. Labour’s plans of a 1 per cent cap would effectively cap average pay rises at a maximum of £240. Far from saving money, the Lib Dems’ proposed cap of a £400 increase per employee could therefore cost up to £1 billion more than the Government’s plans (based on 6.1 million public sector employees).

Black hole figure: £3.6 billion (maybe more) a year.

Black hole on tuition fees abolition pledge

· What they claim. The Lib Dem manifesto promises to: ‘Scrap unfair university tuition fees for all students taking their first Degree’ over six years (p.39).

· Having it both ways. But the manifesto contains details of how they will fund their policy for only five years. Last month, their universities spokesman, Stephen Williams, estimated that the sixth year cost ‘is on current figures £2.7 billion’ (Hansard, 16 March 2010, c812). The fifth year cost set out in the manifesto is only £1.765 billion (p.101).

Black hole: £1 billion in 2015-16.

Black hole on prisons and community sentencing

· What they claim. The Lib Dem manifesto promises to: ‘Introduce a presumption against short-term sentences of less than six months – replaced by rigorously enforced community sentences which evidence shows are better at cutting reoffending; as a consequence of these changes, [we will] be able to cancel the Government’s billion-pound prison building programme’ (p. 75).

· Having it both ways. It is difficult to establish the basis of the Lib Dems’ purported savings as they do not disaggregate savings from scrapping prison building, savings from scrapping short sentences and the cost of more community sentences. However, they estimate savings from prison reform at between £675 million and £845 million per year – a total of £3 billion over four years. The cost of the 5 x 1,500 place prisons is £2.87 billion (Ministry of Justice, New Prisons Consultation Response, April 2009, p. 28), meaning that they have assumed that virtually all of the supposed savings come from cancelling the new prisons. However, the new prisons are to be built using PFI, with the costs spread over 35 years (ibid.). This means that the annual saving from cancelling the prisons falls from £718 million per annum to £82 million per annum.

58,000 offenders were sentenced to short prison sentences in 2008 (Ministry of Justice, Criminal Statistics 2008, Table S5.8), but at any one time only around 5,115 are in prison (Ministry of Justice, Population in Custody, June 2009). Scrapping all sentences of less than six months would save £205 million per year in resource costs (5,115 prison places at £40,000 per place). However, it would require 58,000 additional community sentences at a cost of £6-9,000 each – costing between £348 million and £522 million each year. These do not appear to have been fully incorporated, if at all, into Lib Dem costings.

This means that instead of saving £845 million in 2014, the package of policies would cost at least an additional £61 million.

Black hole: £906 million per year.

Black hole on mental health savings

· What they claim. The Lib Dem manifesto promises to: ‘Cut the economic costs of mental health problems through better treatment’ (p.102).

· Having it both ways. However, there are no details of how these savings will be made and they also have not considered the additional costs of providing more mental health treatment.

Black hole: £605 million a year in 2014-15. 

Black hole on respite care

· What they claim. The Lib Dem manifesto promises to: ‘Use the money for Labour’s flawed Personal Care At Home Bill to provide guaranteed respite care for the one million carers who work the longest hours’ (p.41).

· Having it both ways. Yet there is no detail in the Lib Dems’ spending table, and they have previously stated that this will cost £460 million (BBC News Online, 22 February 2010). The source of the so-called savings – Labour’s Personal Care at Home Bill – is itself unfunded. In the 2009 Queen’s speech, Gordon Brown promised to give 280,000 people free personal home care, which he claimed would cost £670 million per year. The Government has provided no detail on where this money would come from, only saying that £250 million of this will have to be found by local authorities and the rest will come from the Department of Health budget (The Financial Times, 18 November 2009). 

Black hole: £460 million per year.  

Black hole on smaller classes promise

· What they claim. The Lib Dem manifesto promises to: ‘increase the funding of the most disadvantaged pupils, around one million children. We will invest £2.5 billion in this ‘Pupil Premium’ to boost education opportunities for every child’ (p. 34). The manifesto also says the Lib Dems will ‘invest extra money into the school system to allow schools to cut class sizes’ (p.34). The ‘spending proposals’ table gives the total cost of the pupil premium and cutting class sizes as £2.64 billion in 2014-15 (p.101), which allows £140 million to be spent on cutting class sizes.   

· Having it both ways. But the Lib Dems have previously said that cutting class sizes according to their plans would cost £500 million on top of the Pupil Premium: ‘we estimate the revenue cost would be some £500 million per annum, over and above the Pupil Premium costs’ (Liberal Democrats, Equity and Excellence, March 2009).

Black hole: £360 million per year in 2014-15.

Total black hole: £11.6 billion.

Claimed total net reduction in annual borrowing: £10.7 billion

Actual net increase in annual borrowing: £900 million

Other bogus savings

In addition to the black hole identified above, there are countless other examples of savings that just don’t add up, including:

· Having it both ways on commercialising UKTI. Lib Dems say they are committed to commercialising UK Trade and Investment, saving £140 million a year by 2014-15 (p. 103). But without any details of what it means to ‘commercialise’ UKTI, it is impossible to know what cost savings might be made.

· Having it both ways on cutting fuel duty in rural areas. Lib Dems say they will cut fuel duty in rural areas (p.80), without any kind of costs or explanation as to how they would pay for it.

· Having it both ways on cutting education quangos. The Lib Dems pledge to save £430 million a year by 2014-15 by cutting education quangos and administration, with no detail of how they would deliver this. Even if the Lib Dems abolished the entire administration budget of every single DCSF quango, they would still only save £300 million (DCSF, Annual Report, 2009). In fact, the Lib Dems are promising to create a new quango: the ‘Educational Standards Authority.’

Breathtaking U-turn on Labour’s job tax

For weeks, Vince Cable and Nick Clegg have come out in support of Labour’s anti-business jobs tax and attacked businesses supporting Conservative opposition to the jobs tax:

· Business community is ‘nauseating’. ‘I just find it utterly nauseating all these chairmen and chief executives of FTSE companies being paid 100 times the pay of their average employees lecturing us on how we should run the country. I find it barefaced cheek.’ (Vince Cable in The Guardian, 10 April 2010)

· Opposing jobs tax is ‘school boy economics’. ‘This is school boy economics. When you have a £70 billion permanent hole in the Government’s finances you simply can’t propose cutting tax revenue unless you spell out exactly how you are going to pay for it.’ (Vince Cable, http://www.vincentcable.com/news/001679/tory_policy_on_nics_is_school_boy_economics.html)

· Opposing jobs tax is ‘voodoo economics’ and a ‘con’. ‘Now they [Conservatives] say they’re going to stop the increase in national insurance which of course everyone would like to do but they won’t tell you how they’re going to pay for it. This is voodoo economics it’s just funny money it’s trying to con people into thinking you can have something for nothing. It’s not serious, it won’t work… (Nick Clegg, ITN News on YouTube, 1 April 2010; https://www.youtube.com/watch?v=mSAWusvVf3M)

· Now, the Lib Dems say they would reverse Labour’s jobs tax. They say: ‘…the increase in National Insurance Contributions is a damaging tax on jobs and an unfair tax on employees, so when resources allow we would seek to reverse it.’ (Liberal Democrat Manifesto 2010, April 2010, pg. 97)