In 2010 Labour and the Conservatives were offering austerity. In 2015 the offer of another serious dose of public spending cuts won the day. By 2017 while the Conservatives offered yet more austerity in a quest to reach budget surplus, Labour were offering very big increases in taxes, spending and borrowing.
Come 2019 and things have moved on. You’d struggle to reconcile the actions of the Conservative Party that is now in government with the one that put its 2017 manifesto before the people. Any idea of budget surplus has been well and truly ditched.
This autumn’s spending announcements imply day-to-day spending on public services reaching levels closer to those promised by Labour in 2017 than those promised by Theresa May. That is to be financed by more borrowing, not more tax.
Labour will outbid their rivals on spending, and probably claim to raise more tax too. They will probably come back with promises of free higher education, childcare, social care, and prescriptions for all, and much more besides, alongside a huge increase in spending on infrastructure.
With interest rates seemingly stuck at historically low levels, borrowing is cheap. Maybe this is a time to prioritise spending in general, and investment spending in particular, over deficit reduction. That’s certainly the new fashion. And it’s not daft. But the free lunch that we will no doubt be promised is not there.
If you are going to borrow a lot more for investment then you need to make sure that it is good investment: well planned and well delivered so that it generates real returns. While interest rates look as if they will stay low, we cannot be sure that they will. Even if you fund spending from higher borrowing, it still has real up-front costs. The resources — the people and machines — that are building some publicly funded piece of infrastructure won’t be doing something else.
Don’t forget also that we will need a lot more public spending 10 and 20 years from now to cover the health, pensions and social care costs of an older population. Racking up more debt now might not be the best way to prepare for that future. We might well be able to borrow more for now but there is no magic here.
Costs, priorities, risks, returns, and value for money all matter. We need to be as clear about the risks and constraints as we are about the lovely goodies we are being offered. Don’t forget that as the promises rain down on us over the next few weeks.
Paul Johnson is director of the Institute for Fiscal Studies. Follow him on @PJTheEconomist
This article was first published in The Times and is reproduced here with permission.