We’re five weeks into the election campaign – and just days away from polling day – and voters have plenty of parties, and numbers, to consider. Labour will raise everyone’s tax bill by £2,000, claim the Conservatives. Mortgages will rise by £4,800 under another Tory government, insist Labour. Is any of it true?
‘I would suggest that voters entirely ignore all of those sorts of numbers and calculations’, says Paul Johnson, director of the Institute for Fiscal Studies, in The Spectator’s office. ‘I think they’re broadly fictional.’ They are impossible claims to make, partly because ‘we don’t know what would happen under these different governments, because they really haven’t told us.’
The IFS is one of the UK’s leading economic research centres, which in addition to releasing dozens of its own reports, plays a role in assessing the impact of government policy. In the absence of the Office for Budget Responsibility during an election, the think tank thoroughly scrutinises the costings in party manifestos. It’s an exercise that highlights the details in each party’s plans that they might prefer to keep quiet. And it’s Johnson’s job to communicate those findings.
The theme of this election seems to be about what’s missing from party manifestos, including any reference to the tens of billions of pounds that must be found in the next Parliament to fill in spending gaps. ‘The manifestos have got very little in them, and actually particularly the Labour manifesto. If you look at the costings, the numbers at the end, [those are] very small numbers,’ says Johnson.
The Office for Budget Responsibility back in March said, with quite optimistic growth forecasts, that with 1 per cent a year spending rises, which is what the government suggested, that would mean cuts for a whole range of departments… neither party is talking about that. Genuinely we don’t know how they would introduce spending cuts if they had to, whether they would increase taxes if they had to, to avoid spending cuts, or what the priorities would be within a very tight spending budget.
The IFS has dubbed this lack of discussion a ‘conspiracy of silence’ – one in which the difficult public spending decisions in the next Parliament are not being addressed in this election.
Take the NHS. ‘Both Labour and Tory manifestos just don't tell us anything’ he says. ‘Labour has costed £2 billion worth of additional spending on the NHS. That is as near to zero, as it makes no difference in the context of a £200 billion public service, which we know will involve £30, £40, £50 billion a year more spending by the end of the Parliament than it does now – just if it goes up in line with how it's always gone up.’ And that’s before you get to both parties’ commitment to the NHS long-term workforce plan. ‘This is a vast, a vast, and unbelievably expensive plan, hugely expensive,’ he points out.
In addition to all this, Labour has promised that no patient will wait longer than 18 weeks for treatment – something the last Labour government did achieve, when it was increasing spending by 7 per cent a year. ‘In terms of spending, they haven't got close to that kind of scope, says Johnson. ‘The idea that this is costed because they say they've got £2 billion to spend is meaningless… we know that the increase will be more like £30 or £40 billion. It’s just a kind of strange thing to say.’
These costs are racking up at a time when the tax burden is at a near-record high. Both Labour and the Tories plan to push it higher, and that’s before you account for these vast additional costs. Borrowing is thought to be off the cards, though there has been speculation that a Labour government might convince the markets it can borrow a bit more.
‘Supposing Rachel Reeves were to say in the first budget’ having spoken to stakeholders, that ‘rather than getting debt falling in five years’ time, I'm actually happy with debt rising by, let’s say, five percentage points of national income.’
What might happen? ‘Would the markets go bonkers? I don't think so,’ says Johnson. But he adds:
Would that be the right thing to do? It is risky… it probably would increase interest rates a little bit.’ Nor can you gloss over what’s causing so much financial pain right now: high debt servicing payments. ‘I think this is evidence that this was never a free lunch. The cost wasn’t felt at the moment it was being borrowed, but it’s being felt now.
Reeves has also committed to keeping the Tories’ fiscal rule of seeing debt as a percentage of GDP fall by the end of a five-year, rolling term. This might be what ultimately stops any kind of borrowing spree. ‘It will be a very clear manifesto breach if they were to do something else’, Johnson notes.
So if borrowing won’t fill in the gaps, what will? Ask politicians this question and you’ll likely get a rather vague answer about economic growth. Boosting GDP seems to be both Labour and the Conservative’s priority, but it is by no means guaranteed.
Britain has had several very unlucky years when it comes to growth: is it possible the economy could finally be turning a corner?
‘I'm something of an optimist on governments being able to make a difference to growth over the long term,’ says Johnson. But he emphasises that nothing will change overnight. ‘You can't sustainably change growth within a year or two, but within five to ten years, maybe you can.’ He adds: ‘Simply having a stable, non-chaotic government for a period of time would help.’
With the polls showing Labour about to roll into Parliament with a supermajority, are they considering the kinds of policies that kick start growth? Johnson’s assessment is mixed. ‘There are lots of talks about industrial strategies, great British energy wealth funds, all of those sorts of things. I don't know how effective those things are likely to be.’
Johnson notes that according to both the Tory and Labour manifestos, investment spending falls in the next Parliament – one of those crucial details that neither party is boasting about on the campaign trail.
Not quite as fast as the Conservatives are proposing… but nevertheless, the numbers suggest that [Labour is] going to cut government capital spending.’ It’s no big surprise: it’s the fate of successive governments, Conservative and Labour, to pivot towards day-to-day spending which wins you fast praise with voters. It’s also how school roofs end up collapsing in the first week of term. ‘It is bad for growth in the long run,’ says Johnson, ‘at least if it's good capital spending. We've had quite a lot of bad capital spending as well.
But in one area, he is particularly optimistic: ‘I think the most hopeful set of issues in there: what appears to be a determination to really make a big difference to the planning rules. Now that's difficult… probably means taking an awful lot of power away from local authorities. And, as Keir Starmer has almost said, simply ramming through whole new towns or infrastructure where the local people really don't want it. Now that would be politically brave.’
Planning is one of the few growth initiatives that is detailed in the manifesto. There is practically nothing on tax reform or plans to revisit the UK’s trade relationship with the European Union – evidence, says Johnson, that some growth policies are simply ‘beyond the pale’ in an election. But it’s not the only tax information missing. Apart from ruling out key tax rises – income tax, National Insurance and VAT – there is no real indication about which revenue levers Labour will pull.
On this, Johnson is more understanding than others:
I do have a lot of sympathy with them not telling us’ he says, about plans for capital gains tax, for example. ‘If you tell people beforehand, then it's pretty easy to avoid the capital gains. You just realise the capital gains now, rather than in six months’ time for example. I think that is the sort of thing, you need to announce it and implement it immediately in order to not have masses of very straightforward avoidance.
‘History may not be a guide to the future, but historically, Budgets immediately after elections, particularly when you're changing the party in power, tend to involve quite big tax increases,’ he notes. And then there are the tax hikes we are already aware will keep taking their toll: ‘Neither party wants to talk about how they are both committed to a £10 billion tax rise, which is another three years of freezing income tax and National Insurance allowances and thresholds.’ Those freezes are largely the reason the tax burden has gone up so dramatically in the past few years. ‘Are they talking about it?’ Johnson asks. ‘Not surprisingly, no they're not.’
It’s still a little too soon to write the Tory postscript, but I ask Johnson what he makes of the party’s economic record. ‘You know, for a party which has tended to say it’s in favour of low levels of direct tax,’ he says, ‘it has increased the tax rate paid by an awful lot of people.’ But the party’s overall tax record is not one that people might expect.
One thing it is worth saying… this Tory government has really hiked up taxes on people on high incomes and actually done an extraordinary job of cutting taxes for people on average earnings. And they've increased taxes for pensioners and cut them for people of working age. Now, that is not part of the narrative. But it's very, very clear in the figures and what’s happened.
It’s also clear what has fallen away: any serious case being made for a smaller, leaner state. A new party occupies that territory now. I ask Johnson what he makes of Reform’s rather spectacular pledges to slash £90 billion worth of tax, while pledging £50 billion worth of additional spending. He has previously described these pledges as ‘unhelpful’. ‘I think that was me being very generous’ he retorts.
I think there is space for a party, a government to say: look, we want a significantly smaller state. And that is, at face value, what Reform are selling. But then they have to tell us how they're going to get that smaller state. Is this means-testing the state pension? Is it significantly privatising part of the NHS… or is it abolishing the defence budget entirely? It really is on that scale. If you want a smaller state, then tell us how you're going to get it. Don't say: “Oh, we'll find £150 billion of government waste.”
Finding the money – to spend or to give back to the taxpayer – is only going to become a more difficult task in the years ahead. ‘We've got demographic change, pressure on health, social care, pensions is only going to go in one direction. And we're not going to be able to do what we’ve done for the last 70 years, which is pay for some of that by cutting defence spending and, as we did in the 2010s, by cutting pretty much everything else.’
So are we resigned to a state that ends up taxing us more, and also likely providing less? No wonder politicians aren’t keen to talk about these challenges, if this is the offer to the electorate. Johnson insists there are opportunities to be found in the mess, not least through technological advancement, which will likely both improve efficiencies but also increase demand: ‘There’s no point getting richer if we're going to be sick or dead,’ he tells me. Indeed.
But his broader, more depressing point is that something has got to give. And if politicians don’t acknowledge this soon, services will buckle further, with no plans to keep them from falling in. ‘Some people will suggest the IFS worries too much about costing,’ says Johnson, ‘but actually I'm just trying to get a broad sense of direction here.’
With less than a week out from polling day, politicians continue to put in their utmost effort to keep that direction under wraps.
Watch the full interview on Spectator TV:
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