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ALEX BRUMMER: Too little about unleashing the white heat of technology and innovation has been heard

Published: 18:56 EST, 21 April 2015 | Updated: 18:56 EST, 21 April 2015

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In the heat of the election campaign, as spending and tax cut promises roll off the tongue, it is only too easy to forget the budgetary background.

In the immediate aftermath of the International Monetary Fund’s praise for the progress made by the Coalition in fixing Britain’s fiscal policy comes a dose of reality from Eurostat, the EU statistics agency.

Britain may be the fastest growing economy in the eurozone, and a job-creation machine, but the deficit and debt numbers make for sombre reading. At a time when several Northern European countries including Germany, Denmark and Latvia are actually running budget surpluses, the UK’s budget deficit stands at 5.7 per cent of total output.

Spendthrift election ideas: Osborne has chosen what seems like the painless step of reducing the 'lifetime allowances' for pensions

That is higher than some of the Club Med countries including Portugal and Greece and way above France, with its lumbering public sector, where the deficit to GDP stands at 4 per cent.

On the debt front, the accumulated borrowing down the ages, the UK at 89.4 per cent of debt to the size of the national economy in 2014 is a little more favourably placed. It is closer to Germany at 74.7 per cent, and better than France. Suffice to say that Greece, Italy and Ireland remain basket cases.

The point is that whichever government takes power after May 7 will have to confront the past as well as election promises.

Listening to some of the so-called ‘progressive parties’ one might have thought it was impossible to deliver more cuts without enormous austerity.

But there are ways of going forward. One idea being looked at by the Treasury before the election was a freeze on benefits that could produce substantial deficit savings.

If delivered, tough new tax avoidance laws, something which both parties agree on, could also provide £5billion or so of extra income. Labour’s non-dom proposal is clearly attractive from a political viewpoint, painting the Tories as the party of privilege, but the yield in terms of income is unknowable.

What we do know is that non-doms pay £6.1billion of UK income tax and driving that offshore (whatever the anomalies of non-dom status) may not be the brightest policy.

How then are the parties to pay for their spendthrift election ideas?

Both George Osborne, in his most recent budget, and Labour, have spotted one fatted cow. Osborne has chosen what seems like the painless step of reducing the ‘lifetime allowances’ for pensions, first from £1.5million and then down to £1.25million and £1million, even though this is low enough to affect middle-income savers.

Balls, like his former boss Gordon Brown, clearly thinks that the £30billion of tax reliefs provided for pensions are over-generous to the well-off. He has earmarked at least £2billion, from the highest rate taxpayers, for the NHS. Pensions tax relief is starting to look like a piggy-bank that will be raided over and over again.

An unintended consequence of such an act would be less pensions savings, therefore less money for investment in the future of Britain and a burden on the public purse for future generations of pensioners.

Indeed, the moral case for not abandoning the pledge by the Conservatives to bring the budget into surplus by the end of the next Parliament is that governments have a solemn responsibility not to rob future generations.

Financing the deficit has been a doddle for the Tories because quantitative easing has soaked up almost a quarter of issued UK bonds and the lower path of the deficit has offered investors the right trend.

That commitment weakens considerably under Labour’s plans, which only vow to control current spending leaving the public sector the opportunity to engage in budgetary switching between current and capital spending and to allow the fiscal deficit to get out of control.

By far the best way for the Conservatives to underpin their budget surplus strategy, without jettisoning spending promises, is to resolve Britain’s productivity problem and unleash faster growth and bigger tax receipts.

That means making it as attractive for business to invest in capital as labour through more generous tax incentives to entrepreneurship such as the Enterprise Investment Scheme, expanding the reach and resources of the Business Bank, using the government guarantee to finance long-term investment in infrastructure projects and making the Northern powerhouse a priority.

Too little about unleashing the white heat of technology and innovation has been heard.

Animal spirits

Amid the plethora of initial public offerings last year Pets at Home, floated in March 2014, was one of the dogs.

Shares, initially sold at 240p a piece, immediately fell below the offer price and only bounced back in February 2015. Progress was partly held up because private equity sellers KKR loaded the enterprise up with debt that has since been refinanced at a lower cost.

Enthusiasm for its ‘groom’ operation, which offers pampering for your pet and a VIP club for loyal customers, looks to be paying off.

Woof, woof.