Conservative and Labour will have to break their own freshly-minted spending rules in order to honour all their election pledges, the Resolution Foundation has warned.
In an analysis of the spending plans of the two parties, set against fiscal rules they both adopted earlier this month, the think tank said that the Conservatives and Labour risk damaging Britain’s “economic credibility.”
The main parties announced new fiscal rules earlier this month, in which they both committed to balancing the budget and limiting the costs of debt.
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“Conservatives, and particularly Labour, already look highly likely to be on course to break their new rules before the ink is even dry on them,” the analysis said.
It estimated that Conservatives have left themselves “the thinnest of margins” in which to balance the books, with a £5bn headroom in 2023.
This “has an 86% chance of being wiped out, given the pattern of historic errors in forecasting the current balance three years ahead.”
Labour has failed to account for £10bn in interest and depreciation costs that would result from its spending plans, as well as the extra £12bn annual cost to compensate women affected by the increase in the State Pension age.
The party is therefore “already on course to break its goal of a current budget balance in five years’ time.”
A future Conservative or Labour government will have to choose between raising taxes, returning to austerity, reneging on manifesto commitments, or abandoning their own fiscal rules, the analysis claimed.
It concluded: “That whoever forms the government after 12 December may face such choices is a very real prospect given the plans they have set out and given recent deteriorations in the global economic and UK fiscal outlooks.”
James Smith, research director at the Resolution Foundation, said: “The parties seem all too willing to bend or even break their own fiscal rules before they’ve even got started. Both parties have failed to account for the wider costs of their very significant investment programmes.”
He added: “Taking huge risks with the brand new fiscal rules that are supposed to bind the next government for its whole time in office risks seriously undermining the UK’s economic credibility, at a time when it is already under strain.”
This comes amid warnings by the Institute for Fiscal Studies today that the spending plans of the two parties are not credible. They are not offering a “properly credible prospectus" in their General Election manifesto spending plans, it said.
It is "highly likely" that a Conservative government would end up spending more than the party's manifesto implied, which means increased taxes or borrowing.
Meanwhile Labour would not be able to increase public sector investment by £55bn a year as planned because the government does not have the capacity to "ramp up" that much that quickly, according to the think tank.
Paul Johnson, IFS director, said: “A change in the scale and the scope of the state that they propose would require more broad-based tax increases at some point."