The Tory manifesto is a small, but significant shuffle to the left. In fiscal terms it is probably their most left wing manifesto since Ted Heath, maybe even longer. The headlines are all about spending on health, education and social care:
These spending commitments are great, and position to Tories much closer to the centre or even the left of politics than people give them credit for. The gigantic problem is that the majority of them have already been announced. The NHS increase dates back to Theresa May. The actual spending increases are around £3-4bn a year.
All 3 parties are trying to achieve the same thing. They all want an increase in government spending and the size of the state, but within a fiscal framework that balances the budget. Despite all of the noise of politics all parties have arrived at a similar place – more spending, more tax and some limited flexibility of balancing the books.
The Tories are by far and away the least generous of the big 3, in fact compared to the others their offer is….. timid. I was expecting a much bigger offer from the Tories.
The specific spending commitments are £1bn for childcare, £3bn for a National Skills fund, and more money for social care. Capital commitments are dominated by new rail infrastructure in the North, Social Housing decarbonisation and energy efficiency programmes, plus £2bn for pot holes. The Tories are promising only £4bn of extra spending compared to £80bn+ for Labour and £60bn+ for the LibDems. There is extra money for the NHS and Education, but that had already been announced. On healthcare Labour and Tory spending plans are pretty much identical.
The Conservatives plan to run a revenue surplus, but would count capital spending against the target, capping extra infrastructure investment at 3% of GDP, this is less than Labour, but high for a Tory Government. The Tories would aim to achieve their surplus by year 3 of 5.
If spending is higher, and the government runs a budget surplus, then taxes must go up. This is implicit in all 3 parties manifestos. The Tories are promising not to raise the rates of income tax, National Insurance or VAT, and to increase the NI threshold to £9,500. Instead most of the money is coming from reversing cuts in Corporation tax.
These are the tax cuts:
And this are the tax rises:
It is notable that when George Osborne announced a future cut in Corporation Tax (due to come into affect next year) he claimed it would increase Government revenues. When Boris Johnson scrapped the cut this week he claimed the reverse. Refreshingly honest acknowledgement that the Laffer curve is nonsense.
Also notable that the £20bn of tax cuts that Boris was talking about earlier in the campaign has been quietly dropped.
Finally – both Labour and Tories are assuming that Brexit is cost neutral, and are forecasting no negative impact on Government Finances. NIESR estimate is that Government finances will deteriorate by £26bn, more if we crash out without a deal. The LibDems are claiming a cash benefit from scrapping Brexit which is likely, but not certain to happen.
To pretend that Brexit can be done without a cost is utterly crazy, and renders everything else Labour and the Tories have written almost worthless.
There some big holes in these plans, some of which are similar to the problems I had with the Labour manifesto:
- I’m not convinced the numbers add up. Sajid Javid claims only £3bn of extra spending but it looks to me closer to £5bn
- The are planning to balance the books, but haven’t accounted for the deficit that they will inherit from their own administration – this could be worth £20bn
- They are assuming that Brexit is cost neutral. This is totally unrealistic, even in the best case scenario there is a hit to Government finances of £20bn-£30bn. This is a massive problem, particularly because Labour are banking on lots of money coming from Corporation Tax; if companies leave the UK to avoid Brexit the hole could be massive
- They haven’t given themselves room to increase spending if the economy slows – which is likely
But no matter how boring, how bland these proposals are the reality is that Boris is almost certain now to be returned as PM unless something massive changes.