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General Election 2019: IFS manifesto analysis

28th November 2019

The institute For Fiscal Studies is an independent body.

Opening remarks by IFS Director Paul Johnson:

Who knows what to make of party manifestos? When we looked at the manifestos in 2017 we said "the Conservatives would preside over yet more spending cuts" and that their manifesto would mean "another parliament of austerity". That's what their 2017 manifesto said, but it is not what has happened. Current public service spending is due to be around £27 billion higher next year than implied by their 2017 manifesto. That's closer to the 2017 Labour pledge than to the Conservatives' own manifesto.

Maybe we are in for more of the same. They are not promising any more spending cuts but nor, essentially, are they promising any spending increases beyond those set out in September. Conservative plans if delivered would leave public service spending outside of health still 14% lower in 2023-24 than it was in 2010-11. No more austerity perhaps, but an awful lot of it baked in.

The contrast with Labour’s offer couldn’t be greater. In 2017 we said that "Labour would raise spending to its highest level since the 1980s and tax to record levels in peacetime" and also that they “would increase capital spending dramatically and would accept a much bigger budget deficit than would the Conservatives”. They have doubled down this time around. £50 billion of additional current spending has become £80 billion. A £58 billion promise to the so called WASPI women sits on top of that. Instead of aiming to increase investment spending by £25 billion a year they are now wanting a £55 billion increase. Taxes are not supposed to rise by £50 billion but by £80 billion. Under Labour both taxes and spending would rise to peacetime highs. On generous assumptions they would see the national debt rise by around 3% of national income.

Neither is a properly credible prospectus.

Should they win this time it is highly likely that the Conservatives would end up spending more than their manifesto implies and thus taxing or borrowing more. The chances of holding spending down as they propose over a five-year parliament look remote. Why have they been so immensely modest in their proposals? Because to do otherwise would either mean resiling from their pledge to balance the current budget or would mean being up front about the need for tax rises to avoid breaking that pledge.

Labour would not be able to deliver investment spending increases on the scale they promise. The public sector doesn’t have the capacity to ramp up that much, that fast.

It is highly likely that Labour, at least over the longer-term, would need to implement other tax raising measures in order to raise the £80 billion of tax revenue that they want and even just sticking to those proposals they would clearly increase taxes for many millions outside the top 5%. In reality, a change in the scale and scope of the state that they propose would require more broad based tax increases at some point.

Much of Labour’s manifesto should presumably be seen as a long term prospectus for change rather than a realistic deliverable plan for a five year parliament. Beyond renegotiating Brexit and doubling investment spending, overhauling substantial parts of the tax system and massively increasing day-to-day spending, their plans for widespread nationalisation, increased labour market regulation, changes to corporate governance and effectively transferring 10% of private share capital to a combination of employees and the state, would all be huge and complex undertakings that would all need to be carefully done.

All that said much of Labour’s vision is of a state not so dissimilar to those seen in many other successful Western European economies. Labour’s proposed increase in the size of the state would still leave UK public spending at a lower share of national income than that seen in Germany. Water companies are more often than not in public ownership. And, for example, collective pay bargaining is widespread in many European economies.

Labour’s promise to abolish in work poverty within a parliament is not achievable. Indeed, one of the few relatively modest elements of their manifesto is the limited additional spending on benefits for the working age poor, one area where they are outdone by the Liberal Democrats. They would spend considerably more over a parliament on the so called WASPI women, a group who are relatively well off on average, than the additional sums they are providing to the much bigger group of much poorer working age benefit recipients.

Of course, the deliverability of all the parties’ plans will depend on what happens to the economy. Labour’s Brexit plans would prolong uncertainty but would presumably result in either a softer Brexit than proposed by the Conservatives or in remaining in the EU - though whether that would end uncertainty about our eventual destination must itself be uncertain. Ignoring that last point this would help the economy grow faster under Labour and faster still under the Liberal Democrats. Higher levels of investment spending would also promote growth. On the other hand, big increases in corporates taxes, minimum wages, labour market regulation, and possible uncertainty over property rights associated with nationalisations and the inclusive ownership fund could point in the other direction. One simply cannot say with confidence whether the overall effect of Labour’s plans on growth would be positive or negative. Given the scale of what they are proposing simply assuming that because they want to increase investment, and want a softer Brexit, that growth would be higher is far too simplistic.

The risk for the Conservatives is that their “die in a ditch” style promise to exit the Brexit transition period by the end of 2020 could mean something rather like a “no deal” outcome. That would harm the economy and of course increase the debt and deficit.