Labour's plan to radically expand the role of the state, revealed in its leaked draft manifesto yesterday, would result in a level of government intervention not seen since the 1940s and cause public spending to balloon by tens of billions of pounds a year.
Paul Johnson, one of the most respected fiscal economists in the country, said the party’s interventionist policies were “unprecedented”.
“This is about the state getting deeply involved in much more of the private sector than it has been, certainly since the 1970s, and perhaps since the 1940s,” said Johnson, head of the non-partisan Institute for Fiscal Studies (IFS).
“If you take what’s here at face value, then much of it I think is unprecedented even in the 1970s. This is a level of state intervention that probably goes back more decades than that.”
Labour’s election pledges include a £250bn splurge on infrastructure, an extra £15bn per year on health and education, and tens of billions of pounds put towards scrapping university tuition fees and planned increases to the state pension age.
These measures would necessitate a rise in government spending of around £65bn per year according to early estimates by the Institute of Economic Affairs.
It is unclear whether a government led by Jeremy Corbyn would aim to fund the measures through tax hikes or greater borrowing. Higher spending funded through borrowing would cause public sector debt to soar and lead to a likely downgrade for the UK’s credit rating, analysts at a major credit ratings agency told City A.M. This could cause government borrowing costs on international bond markets to leap on lower demand for UK gilts.
Meanwhile, Labour’s plan to raise the minimum wage to £10 per hour “would result in the wages of more than a quarter of private sector employees being set directly by Whitehall,” the IFS added.
Kallum Pickering, senior UK economist at Berenberg Bank, said: “Increased command and control policies would lead to lower long-term trend growth.”
Alex Wild, research director at the TaxPayers’ Alliance, estimated the book value of the National Grid and its distributors at £48.2bn. “This of course does not take into account the price the country will pay in terms of lost jobs and investment, stifling economic growth,” Wild said.
Yesterday, former Lib Dem pensions minister Steve Webb warned that scrapping planned rises to the state pension age could add up to £300bn to the national debt.
“These are eye-watering sums of money which would either have to be found from somewhere or added to the national debt,” Webb said. Government debt already exceeds £1.7 trillion, equivalent to nearly 87 per cent of GDP.
Theresa May is due to make her pitch in the traditional Labour heartlands of the north east today. The PM will say that a Corbyn government “would mean more debt, fewer jobs, higher taxes and would weaken Britain’s bargaining position on Brexit”.