I have been asked by a couple of people what I think of Nick Clegg’s recent Bloomberg speech covering fiscal policy.

This is a big topic, so consider this a holding reply. Over the last few years the entire fiscal debate has veered all over the place, in particular about whether it damaged growth and how much (whether more or less than the OBR thinks it damages growth). There have been those on the Right somehow denying that there has been any austerity, and those on the Left somehow acting as if the idea of eventually bringing your budget into some sort of balance is a wicked contrived plot. Yes, why on earth should a government inheriting a £159bn deficit be thinking at all about public spending restraint? Must be a conspiracy)

All of the high theory can be dismissed for now, to consider simply whether the sums of money available for public services will be enough for those public services. A question of accounting as much as economics. The levels of public spending forecast in the recent OBR figures are now looking like hitting seventy year lows, going back to Attlee, despite decades of cost disease, demographic pressures, increased expectations of decent healthcare, etc*. This makes the question “Is this really enough” the overriding one.

A simple question is whether the Parties’ implicit spending plans are credible. By credible, I mean whether they imply sums of money that are believable, given the needs and pressures that ordinary governments will face, and the political constraints they will be under. This is a different definition of “credibility” from the one implicit in certain speeches, where “credible” is somehow equated with “borrowing less than the other lot”.

My bottom line: I think Clegg’s plans suggest that the sums provided might be enough under LibDem plans. By implication they would also be enough under looser Labour plans. I don’t think that the sums would be enough under Tory plans. The political question is whether anyone notices or cares enough. Sooner or later they will; the bills come due. But whether in time for the next election is another matter.

These are the key bits from Clegg’s speech:

“we need to finish the job we’ve started. In Coalition we have set out a plan to get the current structural deficit in balance by 2017/18”.

The current Current Structural Surplus predicted for 17/18 is £9.6bn (Table D7, Budget).

“we will abide by a new debt rule in which we will significantly reduce national debt as a percentage of GDP, year on year, when growth is positive, so that it reaches sustainable levels around the middle of the next decade.”

When growth is 0.01%, inflation 2% and debt/GDP 80%, you can run a deficit of 1.6% of GDP and still have deb/GDP falling. This means at the end of next parliament borrowing some £30bn a year, which will be about the same as net investment. So they will be borrowing but only to invest: as the Guardian observes, this is fairly close to the Brown golden rule.

George Osborne, on the other hand, is aiming for an absolute surplus. This is £30bn tighter.

Ed Balls is aiming to balance the current account by 2020 – effectively hitting the same 2020 point as the LibDems, but on a different path.

If for now you assume each party has the same tax receipts (a big assumption), and the same investment and benefits/AME policies, you get this sort of result (italics are an extrapolation):

Blue, orange and red plans are each consistent with debt falling as a % of GDP, of the current deficit (excluding net capital investment) being eliminated by 2020.

There are all sorts of assumptions in these scenarios that will have to be unpacked and played with over the next few weeks. In this case I assume the LibDems stick to the letter of “finish the job” and hit the current structural surplus with a couple of billion to spare in 17/18, rather than £10bn to spare as the latest OBR figures have it. I assume that all of the “swing” hits the Resource Departmental Spending (RDEL) figures -the resource spending on the NHS, Education, local government, defence etc that typically takes the hit. I have assumed the Conservatives are aiming to hit that surplus the year before the end of parliament- because that seems to be what current OBR plans entail. I have no idea if that is what they really mean, but it seems reasonable. They are all my assumptions, no one else’s

My test of credibility, for now, is very crude. Pick an RDEL figure for 2018/19. Ask yourself whether it will be enough. (Incidentally, you will note that under the Coalition, RDEL has been steady in cash terms at around £315bn. As the NHS and others have received cash increases, and inflation has done its job, this has meant continuous real cuts to the unprotected departments. I will post the figures some other time).

Under current/Conservative OBR plans there will be £24bn less to spend on resources than in 2015/16. Conservatives claim they will raise £12bn from benefits, but haven’t said how, and are also brewing up all sorts of tax promises, so that seems a reasonable starting point.

Now consider some non-negotiables. In 2015/16, the NHS and Education add up to £163bn. MoD and devolved regions add up to £73bn. If you assume that sheer demography and politics determine that the former two needs flat real settlements, that £163bn turns into £175bn or so for 2018/19. I think politics determines that the latter category requires flat cash ie. cannot provide cash cuts. So there are an extra £12bn of pressure from these areas.

So this leaves £36bn to find in terms of cash cuts, for all the other items of spending that add up to a mere £76bn in 2015/16. Let’s just spell that out again. The Home Office, Justice, Local Communities, BIS, Defra, DECC – core government departments, which received about £100bn in cash terms in 2010/11, are already forecast to receive just £76bn in 2015/16 – and these fiscal plans imply that they will be forced to have just £40bn in 2018/19. That is really not credible! The idea that they can take even 10% real cuts in those next three years is highly fanciful. The idea that it is remotely desirable is somewhat bizarre, or in any sense “good for the economy/our long term Plan”. All of this is before you consider some of the less visible pressures reported by the IFS, such as the resource cost of the unlimited student places).

No doubt this debate will continue to be evaded over the next few months. Some will claim tax rises; others will claim unspecified or unrealistic benefits cuts. Others will hope not to have to spell things out, and others will claim magic further efficiency savings. For now, it looks like Nick Clegg’s plans are at least far more credible than the Conservatives; they look like they have a decent chance of adding up and still being able to provide decent public services. You may sneer and ask whether it is relevant, but the LiBDems are setting out plans as if they may have to deliver them. Credit to them for doing so.

(or that 2015/16 totals are already creating fights like this one)

*And demobilisation on the other side, I concede