Tax and spend promises

All change: The three main parties would reverse past cuts to schools; Labour pledges to go further still.

Now all the major manifestos are out, we can do a special analysis of what they are promising. It looks very much like austerity is definitely over. But looks can be a little bit deceiving!

  • So, what are the different public spending plans?

    The gap between the parties has rarely been this large.

    The big picture first. If we take 2009-10 as a baseline, then, in real terms, taking inflation into account, the overall level of public spending, excluding social security, will return to the same level as 2009-10 by 2022-22 under Conservative, Labour and Liberal Democrat proposals. By 2023-24 they would all be higher.

    There are big differences, however. By 2023-24, Tory spending would only be slightly higher — by 2-3%. Under the Lib Dems, it would be about 11% higher. And under Labour, it would be up 22%.

    These are the biggest differences for more than three decades. For most of the New Labour Government (1997-2010), the Tory and Lib Dem spending pledges were rarely very different from Labour’s.

    It was only after the 2007-2008 global financial crisis that the parties started to diverge. First, the Tories in 2008 and, then, the Lib Dems in 2010 (when they joined the Tories in the coalition Government) argued for austerity, which meant making big cuts in public spending.

    But a 20% gap between the Tories and Labour is something quite new and dramatic.

  • Are there even bigger differences in non-health spending?

    Yes. All three main UK parties are pledging to spend more on health, and the gap between them is much narrower.

    But that means the gap for the rest of public spending is much bigger.

    If health is removed, Conservative spending on the rest of public services flatlines at about 15% less than 2009-10 levels.

    By contrast, Labour’s plans put spending 13% higher, meaning a gap of 28% between the two biggest parties plans. This is huge.

    The Liberal Democrats again fall in the middle, spending 3% less on services by 2023-24.

  • How radical are Labour’s spending proposals?

    By historic UK standards, Labour’s proposals are pretty substantial.

    According to the think tank, The Institute for Fiscal Studies (IFS), Labour’s plans would push long-term spending to levels never previously seen in UK history.

    Given that we have seen levels significantly lower than long-run averages over the past decade, this would mark a sharp reversal.

  • And how would the UK compare internationally?

    By international comparisons, Labour’s policies are less dramatic.

    As a proportion of national income, the UK under Labour would move from its current position as the 22nd largest spender amongst the OECD nations to 13th. Still behind countries like Germany, Sweden, Italy and France.

    Conservative and Liberal Democrat policies would keep the UK more or less where it is in this league table.

    Labour’s policies also mark a return to universalist spending in some areas — so that everyone gets the same, regardless of their wealth or income.

    For example, with pension compensation, student finance and free broadband, its policy is to give the same to everyone.

    It is also worth noting that in one area Labour is being fairly cautious in its proposals: welfare benefits. Its proposed extra spending on welfare (excluding pensions) comes nowhere near reversing the cuts during the period of austerity.

  • Are the Tories “baking in” austerity?

    The question implies that they are not reversing the cuts made to most services and welfare benefits between 2010 and 2019.

    With the exception of health, this is largely true.

    Spending on all other areas, excluding benefits, more or less flatlines at current ‘real terms’ levels under Tory plans.

    There are some areas of expansion, such as in education and policing, but they are mostly modest. And the money for them seems to be coming from services that will get less.

  • Who is paying for all this?

    Just as there are dramatic differences in spending plans, there are big divergences in what the parties plan to do about paying for it.

    The Conservatives pledge in their manifesto not to increase income tax, national insurance or VAT. But they do plan to raise other taxes slightly, by £3 billion a year by 2023-24.

    The Liberal Democrats plan to raise taxes by much more — £36 billion a year. Notably, they plan to raise income tax by 1p specifically to fund increases in health spending.

    Labour plans to raise an additional £78 billion a year in taxes — from higher earners, wealth taxes, corporate profits and a windfall tax on energy producers.

    Three things to note though. Firstly, the IFS say all the parties are underestimating how much they will need to raise taxes, and they all have some uncosted commitments.

    Second, none of these plans lead to substantial cuts in the national debt. The Lib Dems, the most aggressive on this front, bring debt down to 72% of national income. In 2007, before the financial crisis, it was under 40%.

    Third, none of the parties plans really factor in the effects of Brexit.

    This briefing is produced by The Day in association with ENGAGE Public Policy.

You Decide

  1. Would you rather live in a country with a big government (like France), or a small government (like Switzerland)?

Activities

  1. After watching some of the IFS videos in our Expert Links, decide which party you would back if you were voting. List three reasons for making that decision. Be prepared to debate them in class.

Word Watch

Baseline
Starting point.
Real terms
A value that has been adjusted to take into account the effects of inflation.
Social security
A system of payments made by the Government to people who are ill, poor, or don’t have a job.
New Labour
Refers to a period in the history of the British Labour Party from the mid-1990s until 2010, under the leadership of Tony Blair and Gordon Brown.
2007-2008 global financial crisis
A severe worldwide economic crisis considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s.
Flatlines
In a state of no progress, or movement.
OECD
Organisation for Economic Co-operation and Development is an intergovernmental organisation with 36 member countries, founded in 1961 to stimulate economic progress and world trade.
Divergences
Differences of opinions.
National debt
The UK national debt is the total amount of money the British Government owes to the private sector and other buyers of UK gilts (gilt-edged securities). When you buy gilts, you are lending the Government money. In November 2019, UK public sector debt was £1,790.9 billion (80.3% of GDP).

PDF Download

Please click on "Print view" at the top of the page to see a print friendly version of the article.