We need spending cuts – not political gimmicks

Pledges by the main political parties to control prices and spur the housing market may be popular, says Matthew Lynn - but they won't help the economy.

Free school meals. Price controls on energy companies. More money thrown at the housing market. Freezes on fuel duty. So far, the party conference season has been three energetic weeks of political gimmicks.

So many pledges have been unveiled that it would be hard for even the most dedicated political wonk to keep track of them all and to work out what they might cost.

The trouble is, none of them will help the economy, and many will do it harm. There are still 20 months to go before the general election in May 2015. With the economy still weak by historical standards, it is hard to know if the fragile recovery in business confidence can survive this blizzard of gimmicks.

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When the coalition came to power three years ago, it committed itself to sober, restrained government, to the task of tackling public finances and bringing the deficit down. The opposition Labour Party, even while calling for a Plan B' with less austerity, was wary of promising to spend more.

But now, like a dieter who decides their waistline is getting back in shape, and starts stocking up on cakes to celebrate, the restrictions have been lifted. Politicans are promising to spend money like it is 2005 all over again.

First, the Liberal Democrats came up with a plan for free school meals at a cost of a mere £600m. Never mind that low-income families already get their children's meals for nothing, the Lib Dems think we should postpone cutting the deficit, and shelve tax cuts, so that parents who can afford to pay for their children's meals anyway get them for nothing as well.

And they threw in a tax on plastic bags at the till because, hey, those small high-street retailers have life too easy right now.

Ed Miliband's big idea was to impose price controls on energy companies. Resurrecting an idea from the 1970s that didn't work then, he decided the best way to win votes is to promise cheaper electricity.

If that means widespread energy shortages in a few years time, after the companies decide it isn't worth investing in a market where they aren't allowed to make a profit, then that is a problem for another day.

The Tories, the party that is meant to be responsible on the economy, were little better. Their big idea was to bring forward the Help to Buy scheme, injecting yet more government-subsidised money into a housing market that already looks overheated while conveniently forgetting that state-guaranteed mortgages helped create the US credit crunch.

Then they threw in a fuel duty freeze to counter Labour's pledge. As if that was not enough, the party discussed a plan to bring tax breaks for married couples a sound idea, but not one that will bring down the deficit.

Unfortunately, we can expect more of this next year. The Liberal Democrats will probably be advocating free gym passes and fruit shots (sugar free, of course) for every child. Miliband, having discovered how popular price controls on electricity are, will no doubt be promising to control the prices of gas, petrol, and food.

Heck, why not limit the price of a Sky TV subscription that one would win a few votes in the party's heartlands. George Osborne will no doubt get the Bank of England to underwrite cheap loans for new kitchens and loft extensions to help all those people who have bought new houses but can't afford to give them a makeover, while David Cameron will be promising tax rebates for every couple who agree to go to counselling.

The think-tank wonks will be celebrating there is a hardly a crackpot idea bunged into a pamphlet on a slow afternoon that hasn't been picked up by one of the major parties. But none of these pledges will do anything other than damage the economy.

Eventually the markets will worry that Britain isn't serious about controlling its deficit, and confidence will be undermined as businesses start to worry about the tax rises to pay for these pledges.

Threats to control prices will slow down a rate of investment that is already pitifully weak. More housing-market stimulus will just create more state-supported debt and, outside of estate agencies, very little real growth.

The economy can hardly withstand that. There are signs of recovery, but the economy remains weak. Output has hardly advanced on five years ago, and while people are spending again, productivity has not increased, so it is hard to know where the extra demand is coming from and it could collapse again.

The real culprit here is fixed-terms parliaments. Under the old system, David Cameron would be getting ready for a snap general election next May after four years in power. George Osborne would have readied some handy tax cuts for March to pep up the campaign. The electioneering season, with its expensive handouts, would be mercifully short.

Instead, the gimmicks will keep coming for the best part of two years. Surely it would be better if the coalition conveniently collapsed' next spring and the election came, so that the new government could get on with making the tough public-spending decisions that are needed.

Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.