Labour: A manifesto of hope or a flight of fancy?
Video report by ITV News Business and Economics Editor Joel Hills
Politicians live in fear of the Institute for Fiscal Studies.
Labour’s last manifesto, in 2017, barely survived first contact with the IFS’s economists who pointed to basic accounting errors and overly-optimistic assumptions.
Labour's latest offering, “a manifesto of hope”, needed to pass a key credibility test.
The scale of spending Labour proposes is colossal, even by the standards of 2017.
Hundreds of billions of pounds of extra public investment, paid for by borrowing. Enormous day to day spending increases paid for by tax rises of a similar magnitude.
Labour has clearly made an effort to present robust numbers and explain the thinking that lies behind them but the IFS still highlights credibility problems.
Labour is promising a spending boom that will benefit the many and is financed by the few. By the end of the next parliament a Labour government plans to raise an extra £83 billion from companies and those earning over £80,000 a year.
Labour suggests that 95% of the UK population will be insulated for any of the tax increases. The IFS thinks otherwise.
”That is simply not credible,” the head of the IFS, Paul Johnson.
“You can't raise that kind of money in our tax system without affecting other individuals.
"Obviously corporate tax affects individuals anyway, someone has to pay that tax, but if you are looking at transforming society, which Labour Party is absolutely upfront about doing, then you need to pay for it and it can’t be someone else who pays for it, we collectively need to pay for it.”
The companies Labour plans to tax more heavily will have to get the money from somewhere. It’s likely to come from higher prices, lower profits (and therefore dividends) or lower wages. These changes will affect more than the top 5%.
More than 5 million people in the UK own a second home. Increasing Capital Gains Tax and Labour’s tax on second homes will be more widely felt than the party suggests.
Then there’s the danger Labour won’t raise the sums it is hoping for. £9 billion a year is supposed to be coming from a Financial Transaction Tax on foreign exchange transactions, interest rate derivatives and commodities trades. It might. Or this is activity which could move abroad.
The IFS describes the £5 billion Labour hopes to raise from its income tax changes as “highly uncertain”.
The Resolution Foundation calculates that under a Labour government spending as a share of national income will rise to 45.1% - the highest level in fifty years.
The UK “state” is currently among the smallest of the advanced economies. Under Labour it grew to a mid-table, European size. Comparable with Germany, not far off Norway, Sweden and Denmark.
These are successful economies, they aren't failing. The difference is they raise their taxes from a far broader tax base that Labour is attempting.
Labour’s manifesto is notable for some other omissions. The party still refuses to say what it will pay to take Royal Mail, the water companies and the railway franchises back into public ownership.
Labour won’t pay market rate, what sort of a discount will it impose? How much will it have to borrow on top of what is already planned?
Labour also makes a surprising commitment to holding the state pension age at 66. It’s currently 65 and is due to rise to 69 over the next thirty years. What’s the cost of this pledge? Labour won’t say. Happily, the IFS will. £24 billion a year by the 2050s. Does that sound like a sustainable, affordable promise?