General Election 2019: IFS Manifesto Analysis - Public Finances

28th November 2019

Given the uncertainty over the actual policies that would be pursued, the actual tax revenues that would arise, and even the timing of policies, it is incredibly hard to make precise statements over the public finance impacts of these sets of policies. Broadly speaking we can say:

• On their stated policies the Conservatives would be borrowing just over 2% of GDP each year going forward, broadly in line with their aim for a current budget balance. This would keep debt fairly constant as a fraction of national income. But, it seems highly likely that they would spend more than they are suggesting in their manifesto, not least as they have a number of uncosted commitments. If, as remains possible, we were not to reach a negotiated settlement with the EU by the end of next year and moved forward without a deal then the deficit would rise very substantially, perhaps to 4% of GDP. Under this latter scenario debt would once again rise sharply as a fraction of national income;

• Labour if they were to raise the tax revenue they want, and if they were to ramp up investment spending more gradually than they suggest, might preside over borrowing of 3.5% of national income. This would not quite be compatible with their desire to balance the current budget - their decision on WASPI two days after manifesto launch immediately set their public finance aggregates off target. Debt under these polices would rise as a fraction of national income, even ignoring the debt that would arise from their planned nationalisation programme (which would, after all, also be associated with an increase in public sector assets);

• The Liberal Democrats' plans would seem to involve somewhat lower levels of borrowing than implied by either Labour or Conservative manifestos, and they would appear to be the only one of these three parties which would put debt on a decisively downward path.

Conclusions

The implication of the Conservative manifesto is that they believe most aspects of public policy are just fine as they are. Little in the way of changes to tax, spending, welfare or anything else. Yes, there are some spending increases for health and education already promised, but essentially nothing new in the manifesto.

Labour, by contrast, want to change everything. Their vision is of a state with a far greater role than anything we have seen for more than 40 years. They would tax and spend more than ever before, putting in place a new universal welfare state with free childcare, free university, free personal care, free prescriptions and more besides; they would impose a swathe of new labour market regulations; their minimum wage would directly set the wages of a quarter of private sector workers; they would nationalise a series of companies whose performance is of vital importance to the UK economy; they would enforce transfer of effective ownership of 10% of large companies from current owners to a combination of employees and government. For good or bad five years of Labour government would involve enormous economic and social change.

In the face of such vast ambition from Labour, one should not forget that the Liberal Democrat manifesto is itself a radical document that would involve a decisive move away from the policies of the past decade.

Rarely can a starker choice have been placed before the UK electorate.