Labour leader Jeremy Corbyn on Thursday unveiled the party’s most leftwing election manifesto in a generation, promising to “transform” the UK and increase the role of the state in ways not seen since the second world war.
Labour’s plan to “rewrite the rules of the economy” comes via an enormous jump in public borrowing and taxes to fund much higher public spending.
Mr Corbyn claimed the vast majority of voters would not be affected by tax rises, saying the increases would be only for “those at the top to properly fund the [public] services we all rely on”. Below are five key findings about Labour’s plan.
1. Labour is proposing a massive increase in the size of the state
Labour’s 2019 election manifesto seeks to “double down” on the party’s borrowing, tax and spending proposals set out at the 2017 poll, according to Torsten Bell, director of the Resolution Foundation, a think-tank.
By 2023-24, Labour wants to add another £83bn of day-to-day spending every year to existing totals and those additions outlined by chancellor Sajid Javid in his September spending round.
On top of that, Labour proposes capital spending would rise from £47bn in 2019-20 to £114bn to 2023-24.
Total public spending would therefore rise from the March spring statement plan of 37.8 per cent of national income in 2023-24 to about 44 per cent.
This rise of more than 6 percentage points in gross domestic product was described by Jonathan Portes, professor at King’s College London, as “the biggest in living memory”.
In the past, the British state has only taken that share of the economy at times of crisis or in world wars.
2. The party could struggle to implement its plan
Economists agreed that it was perfectly possible to run a successful economy with state spending amounting to about 45 per cent of GDP.
Under a Labour government led by Mr Corbyn, spending would be lower than in France, around the same as Germany and only a little higher than the Netherlands. All are successful capitalist economies.
But the change from today in the UK would be great. Britain usually occupies a mid-Atlantic position, with more spending than the US but less than most European countries. Labour’s plan shifts Britain quickly from that to the European mainstream.
It is the speed of transition that most worries economists. Jagjit Chadha, director of the National Institute of Economic and Social Research, a think-tank, said “doing these things quickly is never a good idea and will lead [to] a misallocation of resources”.
Mark Carney, Bank of England governor, has often spoken about how difficult it is for the UK economy to adjust to the change that Brexit could bring to trading arrangements.
Labour’s plan would involve an even bigger adjustment, as the state displaces private-sector activity.
3. Some of Labour’s costings are questionable or non-existent
Some economists are concerned about Labour’s failure to cost some of its policies in the manifesto, as well as its production of estimates for others that appear too low.
For example, Labour said it would not go ahead with a planned rise in the state pension age from 66 to 67.
The party provided no costing for the impact of this move, but the Institute for Fiscal Studies, a think-tank, said it would cost £24bn a year by the 2050s. Paul Johnson, IFS director, described it as a “particularly expensive commitment”.
One Labour costing that is likely to be too low is that for the party’s proposal for free personal care for the elderly and vulnerable.
Labour estimates this at £10.8bn a year, taking the figure from a report by the King’s Fund, a health charity, but that document made clear that if personal care was free, demand would rise.
4. The party risks disappointment with its tax raising plan
Tax experts said Labour was unlikely to get anywhere near raising the £83bn a year of additional tax that it is seeking to secure.
Stuart Adam, researcher at the IFS, said that corporation tax revenues would decline over time as the high rates proposed by Labour would reduce business investment and future profits.
Dan Neidle, tax partner at Clifford Chance, said it would be impossible to raise much from Labour’s financial transactions tax, particularly on derivatives which have no value when they are put in place.
He added that Labour’s proposed rise in capital gains tax would be easy to avoid because people would time sales of assets to try to minimise their tax bills.
Estimating that various shortcomings might deprive Labour of more than a third of its projected tax revenues, Mr Neidle said “there are a number of items proposed where it is hard to see them raising anything”.
5. Labour is focusing its new taxes on corporate income
In Labour’s 2017 election manifesto, income tax increases formed the mainstay of The the party’s tax rises.
But in the 2019 document it is taxes on corporate income that form the bulk of Labour’s tax raising.
The IFS estimated that three-quarters of the proposed £83bn a year of tax increases would be levied on companies and people holding securities.
Mr Adam said: “You shouldn’t think these are all taxes on the rich as they will be passed on to customers and employees.”
Mr Neidle predicted companies would move to avoid Labour’s corporate taxes, which he said would put the UK on a course to become “the highest in the developed world”.
