Can we rely on politicians when they can't even explain their tax and spending plans?

The increase in public spending planned this year, £35bn, is the same as the GDP of Romania
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The Independent Online

If you are confused about the public spending debate that has dominated the election airspace, join the club. I did my best yesterday to follow the Today programme interviews, try and figure out whether the Tory plans were viable, and, hardest of all, to try and understand whether they were different in substance from the Labour and Lib Dem ones. But I think I have failed.

If you are confused about the public spending debate that has dominated the election airspace, join the club. I did my best yesterday to follow the Today programme interviews, try and figure out whether the Tory plans were viable, and, hardest of all, to try and understand whether they were different in substance from the Labour and Lib Dem ones. But I think I have failed.

What the Tories seem to be saying is that they can crank out sufficient increases in public sector productivity to allow spending to go on growing but also cut taxes by £4bn. What Labour seems to be saying is that the Tories won't be able to get those efficiency savings.

Gordon Brown's own spending plans, confirmed in the recent Budget, do assume considerable improvements in efficiency, but they also assume a big increase in the tax burden, from 37.5 per cent of GDP in 2003/4 to 40.4 per cent by 2007/8. As for the Lib Dems, it seems they think they can get efficiencies on the Labour scale, not the Tory one, but they plan to spend the money rather differently.

But all this seems to be about two quite small disagreements. One is the speed at which productivity in the public sector can be improved; the other is about small differences in the rate of growth of public spending.

When puzzled, the best thing I usually find is to have a look at some actual figures. Last Thursday, the Treasury published a booklet called Public Expenditure Statistical Analyses 2005, 170 pages of light reading about public spending. It is on the Treasury website and is a thorough and helpful piece of work for anyone trying to get to grips with the numbers involved.

The overall numbers are huge but some of the sub-categories are surprisingly small. For example, total spending (defined as "managed expenditure") in the financial year that has just finished is reckoned to be just over £484bn. Plans for the current year are just under £519bn. These are enormous numbers: the increase in public spending planned this year, £35bn, is about the same size as the GDP of Bangladesh or Romania.

On the other hand, some spending that people worry about is, in this context, really quite small. For example, the Foreign Office, with all its embassies around the world, only costs £1.75bn. Culture, Media and Sport is only £1.6bn. The NHS, on the other hand, is huge, costing in all some £70bn.

The other thing that struck me was the uncertainties, particularly on the revenue side. In the past year, it looks as though tax and other government revenues are going to come in £5bn below the amount estimated in April 2004 - that was a little-noticed bit of information in the Budget last month. For several years, revenues have been coming in below estimate. That is why the Chancellor has had to borrow much more than he expected to maintain spending.

To say that is not particularly to get at Gordon Brown or the Treasury. It is merely to point out that the uncertainties when you are dealing with numbers of this scale mean that £5bn less of revenue is the sort of thing that is bound to happen from time to time. The worrying thing is that revenues are consistently falling short and I don't think anyone fully understands why.

So against this background of huge numbers and huge uncertainties, how should we voters regard the politicians' claims and counter-claims? I suggest three main thoughts.

The first is that efficiency does matter and it is reasonable for voters to try and make some sort of judgement as to which party is more likely to spend money wisely.

The second is that whoever forms the next government, there is likely to be a squeeze on the growth of public spending, at least in the sense that it will rise more slowly in the future than it has in the past four or five years.

The third is that we may be moving into a global environment where there will be greater external controls on the amount that governments, not just here in the UK but everywhere, will be permitted to spend.

The first two will shape the debate in the next parliament in the UK. I expect the fate of the next government will be determined by voters' judgements on whether it can deliver greater efficiency and how people react to slower rises in spending. But on a longer term perspective, the third is the most important.

There are already several controls on how much governments can spend, though not at the moment very effective ones. For example, there are the self-imposed "golden rules" of Gordon Brown, designed to put UK fiscal policy into a formal framework, and which he has more or less lived within.

There are the Maastricht rules on deficits under the Stability and Growth Pact. True, those rules have been broken by France and Germany, and just a month ago the pact was very much weakened. But it won't go away.

Something is going to happen in the US, where the fiscal deficit has become catastrophic - all the experience of American politics is that eventually Congress will pull back high-spending administrations, though arguably far too late.

Then there are going to be greater market disciplines. The bond rating agencies are starting to question whether governments, particularly continental ones, are going to be able to honour their debts, given the adverse demography many face. More immediately, some important governments, such as Germany, face stagnant revenues.

Like many of us, governments have become used to a world of inflation, where incomes go on rising, at least in money terms, year by year. But as inflation comes down, so too does growth in revenue. If economic growth slows as well, as it has in Germany, then governments are in deep trouble.

So what will happen? I don't think governments will give up their fiscal authority, as they have their monetary authority - there won't be an independent Department of the Treasury on the lines of the independent Bank of England. But the more voters hear the sort of scrambled debate going on this week about public spending, the more I think they are going to want some greater measure of independence in how it is determined.

Politicians are not stupid. They recognise this. That is why Gordon Brown framed his golden rules and his reliance on the Audit Commission to examine Treasury numbers. It is why the Tories sought the endorsement of the independent Institute for Fiscal Studies for their spending plans. The aim will be to inject a greater element of independence into the setting of fiscal policy, while still retaining ultimate control. Not easy - but if this is what we voters want, sooner or later we will get it.

If politicians cannot give clarity - and public finances are by their very nature bound to be confusing - then they have to offer other ways of assuring the electorate. And some kind of independent audit seems the best way to go.

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