Neither the Tories nor Labour have presented voters with credible tax and spending plans in their General Election manifestos, according to damning analysis by the Institute for Fiscal Studies (IFS).
Labour is unable to raise the money it wants to and the Conservatives cannot meet the pledge to balance the budget with tax freezes and extra spending, the respected think tank warned today.
Paul Johnson, director of the IFS, said he could not overstate the difference between the two parties’ pitches to the country ahead of the 12 December vote, however. He said the Tories’ manifesto is “remarkably free of real change” whereas under Labour “both taxes and spending would rise to peacetime highs”.
“Neither is a properly credible prospectus,” he said. Both parties are set to breach their own rules due to a number of pricey but uncosted policies in their manifestos, with Labour on track for the biggest overshoot.
The IFS said Labour’s promise to spend £58bn compensating women born in the 1950s who have been hit by a rise in the state pension age could take yearly extra spending to well above £90bn. This is much higher than the roughly £80bn a year Labour plans to bring in through extra taxes.
Moreover, Johnson ripped into the party’s tax plans, casting “serious doubt” on whether higher corporation tax and other levies would bring in as much as Labour says. He also said the party’s plan to hand over 10 per cent of shares of big companies to workers could simply mean firms cut wages to compensate.
Senior research economist Stuart Adam added that almost everyone would be hit in some way by tax increases on companies because they would be partly passed on to consumers.
Hostage to fortune
The IFS also attacked the Tory manifesto, saying there is only a “remote” chance that it would hold spending down and pointed to a number of uncosted policies. It did not include raising the national insurance threshold to £12,500 in its sums, for example, but this would cost £6bn a year.
Johnson said: “It is highly likely that the Conservatives would end up spending more than their manifesto implies and thus taxing or borrowing more.” He said this is what happened after 2017, when the Tories promised more austerity but ended up raising spending.
Both parties’ plans could fall apart if the economy took a bad turn, the IFS said. It highlighted that a Conservative government could well still cause a no-deal Brexit at the end of 2020, hurting the economy and raising borrowing.
Johnson said it was hard to say “with confidence whether the overall effect of Labour’s plans on growth would be positive or negative”.
Senior research economist Stuart Adam said he was “not convinced” the Labour’s proposed financial transactions tax is a “good idea”, as it could lead to money fleeing the country. He also said the party’s plan to hand over 10 per cent of shares of big companies to workers could simply mean firms cut wages to compensate.
Johnson criticised the Tories’ policy to continue the “triple tax lock” freeze on income tax, national insurance, VAT. He called it “very unwelcome” as it would hold down government revenues when an increasing burden is being put on the state by an ageing population.
He said the Conservatives’ plans would leave public spending outside health still 14 per cent lower in 2023-24 than it was 13 years earlier. “No more austerity perhaps, but an awful lot of it baked in.”