Friday, November 22, 2019

"The longest suicide note in history" has now been surpassed as the worst manifesto ever ...

Until this week the most preposterous manifesto ever put before the British electorate by a major party in a general election in my lifetime was that put by Michael Foot's Labour party in 1983, which was widely described as

"The longest suicide note in history."

(That particular put-down is widely believed to have come from Gerald Kaufman a member of Foot's own shadow cabinet. Conservatives rarely have to think up good lines to use to attack the Labour party- as Ted Heath once said, they do it so well themselves.)

However, the manifesto which Labour have put out this week is so utterly impractical, duplicitous, unworkable, and just downright bonkers that it steals the title of the worst manifesto I have ever seen from any previous offering.

This manifesto would be completely impossible to deliver, but any attempt to do the things Labour promises would have gigantic and in my opinion utterly disastrous consequences.

Labour's manifesto is also completely misleading in that they claim to be able to implement and raise the £83 billion they say it would cost (although that is probably a massive underestimate

Paul Johnson, Director of the independent Institute for Fiscal Studies is one of the many experts who criticised the plans. In this interview he explained that the "colossal" spending programme Labour proposes would double what the government does and mean the largest programme of state spending in British history: he doubts that it would be possible to achieve an expansion that large in a five year parliament.

He also points out that Labour's plans are misleading in that they say they would fund them entirely by higher taxes on companies and those earning more than £80,000 a year, but in practice it is simply not possible to raise that much money without a large chunk of it being paid by people on middle and indeed lower incomes.

For example, you can't put the sort of taxes on companies which Labour propose to impose without a large proportion of the impact falling on the pension funds in which the savings of millions of ordinary people are invested.

Here is what Paul Johnson, IFS Director, wrote about Labour's plans on the IFT site:

“The Labour Party manifesto offers a very substantial increase in the role of the state, one that is even larger than the big increase offered in their last manifesto. They estimate that their measures would push up day-to-day spending by £80 billion in 2023–24."

"They estimate that their tax raising measures would bring in a similar sum, which if delivered would push the tax burden well above levels sustained in the UK since the Second World War. 

They also plan to increase investment spending by £55 billion a year, a doubling on current levels and even more than the substantial increases proposed by the Liberal Democrats and the Conservatives.

There are risks with both the proposed spending increases and the proposed tax rises.

"It will be extremely hard simply to deliver anything like this scale of increase in capital spending, at least in the near-term, certainly in an efficient and cost effective way. If the intention really is to scrap Universal Credit and replace it with an entirely new benefit system then, as the last decade has shown, this would come with the risk of huge administrative complexity and costs. 

"A particularly expensive commitment is on the state pension age. Rather than allowing it to rise as longevity increases, Labour wants to keep it at age 66, a very expensive pledge in the face of demographic change. This would add a projected £24 billion a year to spending by the 2050s.

"The commitment to abolish university tuition fees remains an expensive giveaway to the highest earning graduates and has the potential to make it difficult to maintain a system without a cap on student numbers.

"On the tax side the proposals in the Labour manifesto represent an enormous increase in the amounts they want to raise from corporation tax. If their proposals did raise the sums they suggest then we would be raising more in corporation tax, as a fraction of national income, than any other country in the G7, and more than almost anywhere else in the OECD. This would clearly come with substantial risks.

"The truth is of course that in the end corporation tax is paid by workers, customers or shareholders so would affect many in the population. In the end, it is unlikely that one could raise the sums suggested by Labour from the tax policies they set out.

"If you want to transform the scale and scope of the state then you need to be clear that the tax increases required to do that will need to be widely shared rather than pretending that everything can be paid for by companies and the rich.”

The IFS also had this to say about Labour's tax proposals
  • Labour’s proposed income tax rise for those with incomes above £80,000 would affect only the highest-income 3% of adults. But this accounts for less than a tenth of the additional revenue Labour says it would raise. 
  • About three-quarters of the revenue comes from increasing taxes on companies and their shareholders. It would be a mistake to think of this as falling entirely on ‘the rich’. To the extent that corporation tax falls on company shareholders, that includes everyone with a defined contribution pension. 
  • And in practice much of the burden will be passed on to companies’ employees through lower wages, and customers through higher prices – and that means all of us. Labour proposes to raise the main rate of corporation tax to 26% and reintroduce a small profits rate at 21%. 
  • In terms of headline tax rate, that would move the UK from one of the lowest headline rates in the OECD to above average. Alongside other corporation tax increases proposed, this would move the UK from raising an average share of national income in corporation tax to the highest in the G7 (see chart below) – if the reform raises the revenue Labour hopes. 
  • In the short run, the increase in the rate of corporation tax might bring in the £20 billion Labour says. In the long run it would bring in less, as a less competitive rate would reduce investment, and therefore productivity and wages, in the UK. 
  • Labour’s proposed reforms to the taxation of capital gains and dividends could represent moves in the right direction; its proposal for a financial transactions tax much less so.
It is worth pointing out that the costs in KLabour's manifesto many in many respects be an underestimate. As I explained in my article on Conservative Home, Labour have certainly underestimated the cost of their proposals to nationalise Broadband - the chairman of BT suggests they might not get much change from £100 billion for the policy, if the European Court of Justice allowed to go ahead with it.

Then there is the lunacy of Labour's four day week policy which would handicap business and mean ward, department and hospital closures in public services like the NHS.

Labour's economic policies are the stuff of fantasy. They would bankrupt Britain. They might as well offer everyone a free unicorn.

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