Labour manifesto allows room for extra spending

Despite opening his election manifesto with a sweeping commitment to a "budget responsibility lock", economists said Ed Miliband has given Labour flexibility to run a far looser fiscal policy than the Conservatives.

The language sounds tough: no unfunded spending pledges, cutting Britain's deficit every year, a surplus on the current budget, national debt falling. But depending how the pledges are interpreted, this could encompass anything from no more cuts to a significant further squeeze, economists say.

George Buckley, chief UK economist at Deutsche Bank, stressed that "saying the deficit is going to fall tells us very little. One can be fiscally prudent, or imprudent and cut the deficit. It depends how much you cut the deficit and this we don't know."

In January, Labour voted in favour of the so-called fiscal charter, which stipulated that the government should balance day-to-day spending within three years (then 2017-2019) and ensure that debt is falling as a percentage of gross domestic product by 2016-2017.

As of April, the three-year window shifts forward a year giving the government an extra year to eliminate the current deficit. But Monday's manifesto was careful not to commit Labour to a date, simply stating that "we will get national debt falling and a surplus on the current budget as soon as possible in the next parliament".

Matthew Whittaker, chief economist at the Resolution Foundation, said it was clear Labour have "left themselves a bit of room" adding that which year they choose "makes quite a difference in terms of how much consolidation you need to get back to balance".

But Mr Whittaker stressed that even if the party targeted the end of the next parliament (2020-2021), that did not mean cuts were off the table. "As soon as you take into account the fact you will protecting the NHS, that starts to imply cuts to other departments".

Jonathan Portes, director of the National Institute of Economic and Social Research, said that depending on how Labour's pledges were interpreted, they would be far less fiscally stringent than the Conservatives, but "a little bit less austere than the Lib Dems and a little bit more austere than the SNP".

"It implies a further squeeze but not as bad as the squeeze in this parliament."

Labour is prepared to borrow to invest, but has not said how much, and Carl Emmerson, deputy director of the Institute for Fiscal Studies, said this left big questions about the roughly £30bn that is currently spent on investment. If Labour intended to borrow all of that, "as long as they don't want to do big tax cuts or welfare increases thereafter, they don't need anything in the way of cuts."

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At the moment, Mr Emmerson added, "I can't really tell you whether we are talking about meaningless cuts to public sector services, as Labour doesn't really need to make them, or whether they would be meaningful ones because Labour is trying to get the deficit down more than their target implies."

While the party appears to deliver on its pledge that there will be no unfunded spending promises, that is partly because there is little detail of any new spending. For example on science funding - an area of spending backed by most businesses - the manifesto says that there will be a new "long-term funding policy framework"; what this would cost, and whether this would mean more money - or less - for science than on current budgets is never specified.

Another component of Labour's pledge of fiscal credibility is an expanded role for the Office for Budgetary Responsibility to audit all major parties' manifesto commitments. This was enthusiastically welcomed by some economists, with Mr Portes saying it would "dramatically improve" the quality of the debate.

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