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Tory and Labour tax and spending plans are not credible, think tank warns

The Institute for Fiscal Studies says it is ‘highly likely’ both the main parties will have to raise taxes more than planned.

(Stefan Rousseau/Aaron Chown/PA)
(Stefan Rousseau/Aaron Chown/PA)

By Gavin Cordon, PA Whitehall Editor

Both the Tories and Labour failed to set out “properly credible” tax and spending plans in their General Election manifestos, a leading economic think tank has warned.

The Institute for Fiscal Studies (IFS) said Labour’s claim that its plans to raise an additional £83 billion in taxes would not affect 95% of the population was “not true”.

And it said that if the Conservatives were returned to power on December 12, it was “highly likely” they would spend more than their manifesto implied, meaning higher taxes or more borrowing.

It warned that a no-deal Brexit under the Tories – if Boris Johnson was unable to secure a free trade deal with the EU by the end of 2020 – could lead to a “big downturn” and a return to the politics of austerity.

The findings came as senior Labour figures warned the party needed to find a way to reconnect with working class Leave voters after a major poll suggested the Tories were on course for a 68-seat majority.

The constituency-by-constituency estimates by YouGov for The Times, based on more than 100,000 interviews, suggested Labour were set to lose 51 seats – leaving them with just 211 MPs in the new parliament.

The Unite trade union general secretary Len McCluskey – a close ally of Jeremy Corbyn – said they needed to explain to people who voted for Brexit why they would still be better off under Labour than the Tories.

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Unite general secretary Len McCluskey has said Labour must connect with working class Leave voters (Owen Humphreys/PA)

“I’ve always felt that was the challenge, that we needed to explain to working-class communities who voted Leave and are maybe considering voting for the Conservatives or worse still the Brexit Party – that whatever their concerns that made them vote to Leave, if there’s a Tory government those concerns will stay the same,” he said.

At a news conference to present the IFS analysis of the main parties’ manifestos, director Paul Johnson warned Labour could not raise all the revenues it needed through taxes on big corporations and the better-off.

“In reality, a change in the scale and the scope of the state that they propose would require more broad-based tax increases at some point,” he said.

IFS senior research economist Stuart Adam said party was wrong to claim that 95% of the population would not be affected by its planned tax increases.

“That is clearly not true,” he said.

Abolishing the marriage allowance and raising the tax on dividends would affect people across the income distribution spectrum, he said.

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PA Graphics

At the same time, he said the planned increases in corporation tax would also have a wider impact than simply the businesses which paid it.

“Given that there’s a good chance that the corporation tax rise would result in at least some increase in workers’ wages and some increase in prices, that would suggest most people would be affected in some way,” he said.

He warned that over the longer term, Labour was unlikely to bring in the £24 billion-a-year it was predicting from the increase.

“Higher rates of corporation tax discourage investment in the UK and therefore reduce the tax on profits and wages in future,” he said.

Mr Johnson was also critical of an unfunded £58 billion pledge in the manifesto to compensate the so-called “Waspi women” who claimed to have lost out as a result of changes to the state pension age under Labour, saying it was a recipe for “complete stasis” in policy.

Meanwhile, IFS deputy director Carl Emmerson warned a no-deal Brexit at the end of 2020 under the Tories would be “economically damaging” and could result in a recession.

In the short-term, he suggested borrowing would have to rise to even higher levels than those planned by Labour with the national debt reaching up to 85% of GDP.

Ultimately, however, he said action would be needed to repair the public finances.

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PA Graphics

“A return to austerity would be perhaps the most likely outcome, not immediately but in the medium-term,” he said.

Mr Johnson said the chances of the Conservatives being able to hold spending down in the way they proposed appeared to be “remote” – with the manifesto containing a number of unfunded commitments including the plans for six new hospitals.

He said the party had been “immensely modest” in the way it presented its proposals as otherwise it would have had to abandon its pledge to balance the current budget or admit taxes would rise.

As it stood, the Conservative plans if delivered would leave public spending – apart from health – still 14% lower in 2023-24 than it was when the Tories came to power in 2010-11.

In contrast, he said that Labour would raise both taxes and spending to peacetime highs, with the national debt set to rise by around 3% of national income.

PA

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