Are Labour's popular and ambitious plans affordable?

So in the coverage of Labour's leaked manifesto last week, it was slightly odd that so little attention was given to its plans to improve "early years" childcare - which are ambitious and expensive.

There would be a significant increase in parents' entitlements to free and subsidised childcare so that "everyone has access to affordable childcare no matter what their working pattern".

And there would be a gradual switch from paying subsidies to parents to a new system in which the government money would go instead directly to crèches, nurseries and child-minding services.

Also Labour wants childcare to become a graduate profession with higher wages.

These are pledges that will almost certainly be very popular. They are also pretty pricey!

According to rough estimates by the Institute for Fiscal Studies, the incremental cost of this improvement in childcare would by £5bn.

And there is revealed the biggest uncertainty - some would say flaw - in Labour's manifesto.

Jeremy Corbyn's Labour has called for a renationalisation of Britain's railways after repeat private fare increases. Credit: PA

So much of what it is offering - nationalisation of rail and water, lots more money for schools, a bit more for the NHS (rather less than headline figures imply), maintenance of the pensions triple lock, end of the public sector pay cap, a softening of cuts of benefit payments to disabled people - is what voters say they want.

But when a party offers quite so much increased public sector intervention - when it proposes an increase in the the role of the state that would reverse the scaling back we've seen since Thatcher - two questions are raised.

  • Can it be done competently?

  • Is it affordable?

My own back-of-envelope calculations suggest current spending rising by at least £50bn a year and capital spending (investment) by around £35bn per annum (including the nationalisations).

Labour's proposed new fiscal rules would imply that all the current spending would have to come from higher taxes, with the rest financed by borrowing.

Labour has pledged to fund the public projects with a higher tax on corporations. Credit: PA

Is it plausible that all can come from the rich and companies - the corporation tax rate going back up to 27%, a 45% income tax rate on those earning £80,000, a 50% rate for those on perhaps £130,000, an "excessive pay levy" on the likes of Arsenal and Goldman Sachs that pay eye-wateringly high wages, a Robin Hood tax on City deals - which is what Labour says it wants?

Remember that big companies and the rich are most adept at avoiding tax - and in a worst case can simply move abroad to escape them. So even if the tax rises were to raise £50bn, say, initially, that could fall over time.

And would it be healthy for the UK for the tax burden on companies and the wealthy to increase by that amount? Don't forget that Labour's proposed increase in the National Living Wage to £10 for everyone, including young people, would also represent a significant addition to the costs of doing business here.

Labour's manifesto is shaped upon shadow chancellor John McDonnell and Jeremy Corbyn's left-wing ambitions. Credit: PA

The point is that when corporates and the rich flee abroad to escape higher taxes and other costs, they take not only their contribution to the Exchequer but also the jobs they create.

Or to put it another way, the great debate about Labour's manifesto won't be about whether it is principled, ambitious, left-wing and a break with the great political consensus of the past 30 years that it is only possible to win elections from the centre ground of politics.

The manifesto is all those things.

The controversy will be whether Labour's programme would in practice harm the private sector, which ultimately pays for our public services - and lead to a significant increase in the indebtedness of a relatively highly indebted state, well beyond what Labour forecasts, believes and hopes.