Taxes under Labour would be highest since Second World War
- April 8, 2017
- Will Turner
Labour would increase taxes to their highest level since the aftermath of the Second World War but would still not raise enough money to pay for its spending pledges, an independent assessment of the party’s manifesto has concluded.
The Institute for Fiscal Studies said that Jeremy Corbyn’s party would saddle individuals and businesses with at least £41 billion of new taxes while cutting the deficit more slowly. The think tank suggested that Labour had an £11 billion shortfall in its tax and spending plans, in part because the party had made “factual” errors in calculating its tax package.
The IFS was also critical of Conservative spending plans, warning of real-terms cuts in school funding and saying that Tory proposals for NHS financing could be “unsustainable”. It concluded that neither party’s manifesto set out an “honest set of choices” to voters.
Among the IFS’s main findings were:
● Labour plans would result in the UK running a £37 billion deficit in 2022 while public spending would be at its highest level since the early 1980s.
● Labour’s plans to scrap tuition fees and bring back maintenance grants would cost the government £13.4 billion while reducing university funding by 30 per cent.
● A plan to halt rises in the pension age would increase government spending by more than £30 billion in the long term as life expectancy improved. The IFS said it was “hard to see the merit in such a proposition”.
It was also deeply critical of Labour’s claims that its tax plans would affect only companies and the top 5 per cent of earners.
“When businesses pay tax, they are handing over money that would otherwise have ended up with people, and not only rich ones,” the institute’s deputy director, Carl Emmerson, warned.
“Millions with pension funds are effectively shareholders. In the longer term, much of the cost is likely to be passed to workers through lower wages or consumers through higher prices. We shouldn’t pretend that it is somehow victimless.”
The think tank said that the poorest 30 per cent of households would still suffer a significant hit to their incomes under a Labour government because of cuts to benefits. Robert Joyce, associate director of the IFS, said that the Labour manifesto matched the Conservatives by not making any plans to change the impending cuts to child tax credits or the freezing of most rates of working age benefits until 2020. He said this would hit low-income working-age households especially hard.
The IFS was also critical of Tory proposals which it said came with “unacknowledged risks to the quality of public services, and tough choices over spending”. Mr Emmerson dismissed Theresa May’s plans to reduce benefits to the elderly by means-testing the winter fuel payment and scrapping the pensions triple lock as making “wholly trivial” savings. He also criticised the about-turn on social care policy.
“Their proposals on social care have been in, shall we say, flux,” he said. “The original proposals would have been more generous to those in residential care and less generous to those receiving care at home. It now looks like a cap on costs will be introduced, presumably increasing public spending overall.
The Tory commitment to get net migration down to the “tens of thousands” also risked causing considerable damage to the economy, particularly when coupled with the ageing British population, Mr Emmerson said. The Office for Budget Responsibility has already downgraded its forecasts for tax receipts by £6 billion in 2020-21 due to lower than expected net migration. “Meeting the Conservatives’ commitment to reduce immigration to the tens of thousands would hit tax revenues by a similar amount again,” he added.
Jeremy Corbyn promised in his speech yesterday to “reverse the cuts to our emergency services and police”. But just how hard have those services been hit by austerity?
Between 2010-11 and 2015-16, central government funding for the police fell by 25 per cent. Overall police funding dropped by 18 per cent, because policing is funded partly by charges and taxes imposed by local authorities.
Central government funding for the police would fall further under the Conservatives’ plans, by 1.4 per cent in real terms between 2015-16 and 2019-20, according to official figures.
As Mr Corbyn’s claims were made in the context of Monday night’s terrorist attack in Manchester, Ben Wallace, the security minister, responded by noting that spending on counterterrorism rose by 20 per cent under the Conservatives.
This is a Treasury figure from 2015. It does not refer only to policing but also to a range of activities in the Home Office, intelligence services and defence.
Spending on counter-terrorism policing alone would be £675 million in 2017-18, according to a recent statement to the Commons by Brandon Lewis, minister for policing and the fire service. This also represents an increase.
Mr Corbyn has attacked cuts to firefighters, too. The number of firefighters across the country fell during the Conservative government, standing at 29,000 in 2015-16, compared with 36,000 in 2010-11.
However, there are also fewer fires than there used to be. The number of fire incidents has fallen by 17.6 per cent since 2010 and the number of firefighters has dropped by 19.4 per cent.