Labour vs the Conservatives: Spending cuts - the truth

As Gordon Brown and David Cameron argue over spending plans, Jane Merrick and Brian Brady examine the fine print and deliver their verdicts

Gordon Brown and David Cameron traded blows for a third week running on who is telling the truth over public spending. The Prime Minister claims the Tory leader is planning deep cuts, while Mr Cameron says Mr Brown is in denial about the state of the economy. Both parties still have to put manifestos to the electorate, but how are they going to pay for it all? And where will the cuts have to fall?

SPENDING

Mr Brown said in the Commons last month that total public spending will rise from £621bn this year to £672bn next, rising to £758bn in 2014. But Mr Cameron said once inflation is taken into account, spending will be cut in real terms by 0.3 per cent from 2011 onwards.

The Tories claim that Labour's own Budget suggests 7 per cent cuts across all departments, equal to £26bn, once rising debt interest and benefit spending are taken into account. If health were protected from cuts, all other departments would see their spending cut by 10 per cent over three years. If education is also protected, this would leave other departments facing 13.5 per cent cuts. Labour has responded by saying the Tories plan savage cuts to frontline services including childcare centres and schools. The Tories will establish an Office for Budget Responsibility and give extra powers to the Bank of England, while Labour plans to strengthen the Financial Services Authority.

Verdict The Institute for Fiscal Studies has confirmed Tory interpretations of the scale of the cuts ahead. Critics say this exposes Conservative understanding of the cuts that will b necessary. Mr Brown last week admitted that there would be cuts in certain areas, and that future spending increases depended on growth. In truth, both Labour and the Tories will have no choice but to make significant cuts across the board.

TAX

The Conservatives plan to increase the inheritance tax threshold to £1m, at an estimated cost of £1.3bn. They also plan to scrap stamp duty for first-time buyers on homes up to £250,000 at a cost of £400m, and introduce a £25,000 levy on "non-doms" which would raise £2.8bn.

There will be tax breaks for married couples, paid by increased green taxes. The Tories will also scrap tax on savings for basic rate taxpayers and increase the personal allowance for over-65s.

Labour has already announced a new 50 per cent top rate of tax for £150,000 earners from next April. The Tories say they cannot promise to reverse this because tax rises will be "difficult to avoid". It emerged yesterday that Labour also plans a hike in national insurance to pay for long-term care.

Verdict There is a question mark over how much the non-dom levy would raise. Meanwhile, Tory plans to reduce taxes would cost £4.1bn, which they plan to recoup with £5bn worth of spending cuts. The green taxes remain uncosted. Both parties are increasingly realistic about tax rises ahead, even on top of spending cuts.

HEALTH

Labour plans to pay for cancer sufferers to be treated by private specialists if they cannot see a specialist within two weeks as part of new "entitlements" for patients. The target for seeing a specialist within 18 weeks of GP referral will be a statutory "entitlement", as will free health MOTs for over-40s.

The Conservatives are committed to real-terms growth in the NHS budget. They want to establish an independent board to end political "interference" in the NHS, scrap Whitehall targets and stop the closure of A&E wards and maternity units, while GP surgeries would have control over opening hours. NHS foundation hospitals will be able to borrow from the private sector, secured against buildings and land. Labour says the Tories are making "limitless spending commitments" on health with no idea how to fund them.

Verdict Steve Bundred of the Audit Commission said last week that health and education should no longer be sacred, and both parties will be forced to take the controversial decision to make cuts to parts of the NHS budget if they are to deliver all of these policies. The Labour pledge on cancer treatment will benefit a relatively small number. The Tory plan for foundation hospitals to mortgage assets could add to public-sector borrowing.

EDUCATION

Labour plans to increase investment in schools, but also hopes to locate £650m of efficiency savings as the budget tightens.

Last week's education White Paper included plans to license teachers every four years, a recruitment drive for 100,000 personal tutors for children falling behind, £1,000 fines for parents of unruly children and report cards for schools, with truancy rates, discipline records and results.

There will be a "September guarantee" for a place at school, and college or training for every 16-year-old and over. Both parties plan to increase university tuition fees.

The Conservatives want to introduce Swedish-style reforms to allow parents and charities to open schools with state cash, funded by savings of £4.5bn over nine years from the £55bn budget for Building Schools for the Future. They also plan for money to follow disadvantaged pupils through the system, and to reform teacher training by requiring PGCE trainees to have a 2:2 degree or higher.

The children's database Contactpoint would be scrapped.

The Tories initially said they would match education spending to the Government's plans, but last week George Osborne refused to guarantee that schools and Labour's Sure Start programme would be protected.

Verdict Labour claims the Tories are planning "deep, wide and immediate cuts" to schools and Sure Start – but this could be a shift in funding from Building Schools for the Future to their Swedish model of schooling.

HOME OFFICE

Labour announced last week that compulsory ID cards would be scrapped, that police will hold monthly meetings to tell residents how they are tackling crime, and targets will be scrapped for police forces. Labour will tighten immigration rules but award points for community work. The Conservatives had long planned to scrap ID cards. They favour an annual immigration limit and new jails with 5,000 new places, funded by the sale of old prison buildings.

Verdict The Tories say their prison plan would be fully funded. But there are doubts that scrapping ID cards will raise £5bn – one of the largest cash windfalls that the Tories have earmarked for other areas.

BUSINESS

Labour has already produced an Enterprise Finance Guarantee scheme, designed to make it easier for small businesses to access finance through banks, as well as the car scrappage scheme, while the marginal VAT decrease will continue until at least December. The Tories have pledged a National Loan Guarantee Scheme for businesses to underwrite lending and stimulate credit flow, a six-month VAT holiday for small businesses and tax cuts for employers that take on the unemployed by giving a £2,500 national insurance holiday for each worker.

Verdict Uncertain economic circumstances leave doubts over whether both parties are getting to grips with the large-scale problems that face business and industry in the UK.

DEFENCE

Trident has emerged as an obvious candidate for Labour cuts in the present circumstances, but downgrading the nuclear deterrent before an election is politically unpalatable. More likely is an attempt to shave the £76bn bill through amendments to the number and design of submarines, reducing the £4bn-plus aircraft carriers programme and freezing the order for 88 Eurofighters. The Tories have committed themselves to Trident, and have assured the defence community that they would improve equipment and maintain the size of the forces.

Verdict Defence is unlikely to escape huge Whitehall cuts, but no leader will be brave enough to include reductions in their manifesto. A review of Trident and the shape of the forces will have to wait until after the election.

INTERNATIONAL DEVELOPMENT

Both parties have pledged to maintain spending on international development – and Mr Brown will increase aid spending on agriculture and food security to £1.1bn over the next three years. Labour is on track to meet the UN target of spending 0.7 per cent of gross national income on overseas aid by 2013 and has pledged to meet the Millennium Development Goals. The Tories are also committed to the UN aid target, with a greater focus on transparency of spending and a particular focus on tackling malaria.

Verdict An easy win for party leaders, offering the chance to look virtuous for little outlay. Goals such as the UN aid target are already built into the budget, so a department with a relatively small outlay is unlikely to lose funding under either party in the near future.

WELFARE

Labour plans: £1bn for 150,000 jobs for the under-25s – but people in this age group who are out of work for a year and refuse a job offer, training or work experience will have their benefits stopped. Private companies will be used to get people into work.

Conservative plans: they back the involvement of private firms in getting people off benefits and into work. The savings would fund the £3bn cost of increasing the working tax credit for couples. Public sector pension commitments will be reviewed.

Verdict The massive welfare budget of £165bn needs trimming. Plans to pay private companies to get the unemployed back to work are slow-going in the recession because those firms are cutting back their workforces.

TRANSPORT

Labour plans for a high-speed rail link from Heathrow to the north of England are in the long grass and will be expensive. Future transport budgets have already been hit to pay for last year's fiscal stimulus, including the bringing forward of road-building programmes. Last week's renationalisation of the East Coast mainline will cut into revenue.

The Conservatives plan to scrap the Government's third runway for Heathrow , whatever the contract commitments, which could be risky. They also plan a high-speed rail line between the north and Heathrow, costing nearly £16bn. They say this will be paid for after 2015.

Verdict The transport budget is likely to suffer significantly in the next five years.