Economic experts questioned the Conservative Party's proposal to cut £6bn from public spending later this year to allow David Cameron to halt Labour's planned rise in national insurance contributions (NICs) in a year's time.
The Tories announced yesterday that they would find £12bn through government efficiency savings in the 2010-11 financial year if they win the general election. Measures would include freezing major new information technology contracts and not filling vacancies among backroom staff.
The plan to rely on greater efficiency is a significant U-turn by Mr Cameron and the shadow Chancellor George Osborne. They believe the Tories lacked credibility at the 2005 election when they relied on billions of pounds of such savings to fund proposed tax cuts. Mr Cameron said in 2008: "The government 'efficiency drive' is one of the oldest tricks in the book. The trouble is, it's nearly always just that – a trick."
The Institute for Fiscal Studies (IFS) warned that the proposed £6bn cuts might be just as "economically costly" as the planned NICs rise. "Using these spending cuts to finance the NICs cut means they are not available to contribute to the task of reducing government borrowing that the Conservatives have set such store by," said the IFS. "By cutting spending next year [2010-11] and delivering the tax cuts a year later, the Conservative proposal would take additional spending power out of the economy at a time at which the recovery is likely to be at its most fragile."
John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development, said: "It is squeezing the economy at a time when it is relatively weak, and taking some of the pressure off after the general election and beyond." He said that neither party offered a particularly credible package.
The Tories said their £5.6bn "tax cut" would mean everyone earning between £7,100 and £45,400 would be up to £150 a year better off. NICs paid by employers would be reduced by up to £150 for every worker with a salary of more than £5,700.
Their proposed £12bn of savings had been validated by two experts who until recently advised the Government on waste: Sir Peter Gershon, who carried out a major efficiency review for Gordon Brown when he was Chancellor, and Dr Martin Read, who reviewed back-office functions.
Although the Tories could not provide details of specific savings, they promised to freeze major new IT spending; reduce the £200bn-a-year spend on private sector suppliers by negotiating reductions from suppliers; get a tighter control of public sector recruitment; reduce discretionary spending such as expenses claims; and cut public sector property costs.
Savings in the health, defence and overseas aid budgets will not be earmarked for filling the gap created by scrapping the NICs rise.Reuse content