Labour's pledge not to raise working people's taxes 'not credible', IFS says

Scathing criticism of the main party's manifestos came from the Institute for Fiscal Studies today as ITV News Business and Economics Editor Joel Hills explains

In the hurly-burly of an election campaign, the Institute for Fiscal Studies (IFS) is your friend.

Where there is heat, their team of independent economic researchers offers light.

The IFS has read through the manifestos and decided - depressingly - that all of them should carry a health warning of sorts.

The parties with the most radical agendas attract the sharpest criticism.

Reform UK and the Greens propose change which the IFS says is “wholly unattainable,” so much so that they “[help] poison the entire political debate”.

Reform’s claim they could eliminate NHS waiting lists at a cost of £17 billion a year is “demonstrably wrong” and the £90 billion of promised tax cuts have echoes of Liz Truss in the sense there is “no detail on how they would be paid for”.

As for the Greens, the plan for a carbon tax-raising £90 billion a year would reduce emissions but would also cause inflation and be “economically disruptive”.

And the IFS calculates that “most” of any money raised would need to be spent protecting households from the policy’s impact, particularly “those on lower incomes”.

The manifesto pledges made by the main parties are more modest but, in the IFS’s view, also suffer plausibility problems.

The IFS says the Tories would find cutting £12 billion from welfare spending “seriously tough.”

And Labour’s promise not to increase taxes on “working people” is one they would struggle to keep.

“I don’t think it’s credible to say you will not have any tax increases that affect any working people,” says Paul Johnson, Director of the IFS.

If Labour wins the election, the IFS calculates spending on investment and unprotected public services would likely be cut by around £22 billion a year by the end of the next parliament.

If the Tories win, the cuts would be £36 billion, in part because of the commitment to raise defence spending.

These are the funding black holes both parties still refuse to engage with.

Both Labour and the Tories appear to be banking on the economy suddenly booming.

The government’s forecaster, the OBR, thinks the economy will grow by 1.8% a year in the next parliament - that forecast is considered modest.

The IFS says, that if the next government is lucky and growth comes in 0.5% a year higher - those spending cuts would disappear.

But if growth comes in 0.5% lower than the OBR forecast - and the Bank of England thinks it will - then the scale of the cuts increases by another £30 billion a year.

“Hoping for the best is not a strategy,” says Mr Johnson. “The key question to ask of those seeking our votes on July 4th is how would they respond to such bad economic news.”

The IFS says the next government faces a “trilemma”: raise taxes by more than set out in the manifesto, cut spending or borrow more and we can only guess at what the parties would do.

Labour and the Tories have already ruled out increases to the three big taxes - income tax, national insurance and VAT - which together raise just over 60% of revenues.

In theory, there’s room to raise tax elsewhere but the IFS says it’s “hard to get anything substantial” by hiking Inheritance Tax or Capital Gains.

As for spending cuts - where?

As the IFS points out, unprotected government departments - which fund job centres, courts, and prisons and provide subsidies for bus and train services - have already seen their budgets slashed in real terms in the last 14 years.

The services they provide are under strain.

As for borrowing, the UK’s stock of national debt has risen to the highest level in almost 70 years. And interest payments doubled in the last parliament. The government now spends around £100 billion a year just servicing debt.

Low growth and high debt interest payments are a serious problem and will leave the next government boxed in.

Labour’s manifesto is a series of policies aimed at raising growth which the IFS judges to be sensible, although it warns they will take time to have an impact and planning reform will be “technically difficult and politically painful”.

Both parties are telling you lots about what they won’t do if they form the next government and not enough about what they will do - particularly if the economic growth they are betting on doesn’t materialise.

The IFS says the Labour and the Tory manifestos “duck” and “hide” from the tough choices that lie ahead.

And that on July 4 we will be “voting in a knowledge vacuum.”

We may not find out what’s in Labour’s Ming vase until after the election. When we do, the risk is people will feel that have got something they didn’t vote for.

Have you heard our new podcast Talking Politics? Every day in the run-up to the election Tom, Robert and Anushka dig into the biggest issues dominating the political agenda…