An ultra-Conservative manifesto

The economics of the manifesto

Last week’s presentation of Labour’s election campaign promises was fizzing with ideas and as Philip Collins wrote of the plans in The Times, “if I were running a radical think tank, with no responsibility for implementing a word of this, I might marvel at my handiwork.” The low-key release of the Conservative manifesto yesterday was the complete opposite. Paul Johnson, Director of the IFS, wrote of the Tory plans, “if a single Budget had contained all these tax and spending proposals we would have been calling it modest. As a blueprint for five years in government the lack of significant policy action is remarkable.”

It really was a content free collection of what I hesitate to call ideas. Of the main economic proposals, the Conservatives promised not to raise the rate of income tax, VAT or National Insurance (NIC). As the Tories learned to their cost in 2017, when plans to raise self-employed NICs caused such an uproar amongst backbench MPs who pointed out that it breached their 2015 election pledge, taking these key levers out of the fiscal equation could severely limit the Chancellor’s room for manoeuvre. It is not good policymaking. The plans also envisage raising NIC thresholds to take lower paid workers out of the tax net. The commitment to raising the threshold to £9500 next year will cost just over £2bn per year and the medium-term aspiration to raise it to £12500 will ultimately cost £8.6bn. Some revenue will be clawed back by Boris Johnson’s pledge not to further cut the rate of corporation tax, which was scheduled to be reduced from 19% to 17% next April, and which will give an additional £4bn of resources in fiscal year 2020-21 compared to the latest OBR revenue projections, rising to £6.2bn by 2022-23. In effect, the government has taken away from corporates to give to low earners which is a nice nod to progression in the tax system.

One thing the Tories have not done is to promise a reduction in the income tax burden for the better off, as Johnson indicated in his leadership bid over the summer. From an economic perspective this is a good move: It is (a) unaffordable and (b) regressive. Against that, it is yet another Johnson pledge that has not been fulfilled. Nor are there any measures to “fix the crisis in social care once and for all” as Johnson promised in his first post-leadership election speech. To do so would be expensive, and the Tory manifesto maintains the fiction of governments over the decades that the UK can continue to deliver high quality public services without raising taxes to pay for them. This is a fiscal fallacy which has dogged the UK for years and could be swept under the carpet so long as the working age population was growing sufficiently rapidly to generate the means to pay for them. But as the population ages, this becomes increasingly difficult and if the UK is serious about restricting immigration in a post-Brexit world, the problem will become even more acute.

An ageing population will obviously mean an increasing amount of resources will have to be devoted to health services and the Conservatives have promised “extra funding for the NHS, with 50,000 more nurses and 50 million more GP surgery appointments a year.” Although these plans were not costed in the manifesto, fullfact.org estimates that an additional 50,000 nurses would result in an additional £2.6bn per year of government outlays.

Of the costs we can estimate more readily, once we add in the £11.7bn of spending announced in the September Spending Round, the manifesto is estimated to add just £2.9bn of additional spending by 2023-24 – a rise of 0.3% – which is a drop in the ocean compared to Labour’s planned increase of almost £83bn. Investment spending amounts to an additional £8bn – again significantly below Labour’s planned boost of £55bn per annum. All told, this is likely to be sufficient to limit the budget deficit below £60bn by FY 2023-24, or around 2.2% of GDP (even an additional £2.6bn of spending to recruit more nurses would not make a material difference to the overall figure).

... and the politics

But as with all manifestos they are more about the politics than the economics. The reason the Tories have no interest in a “once and for all” solution to the social care problem is that the attempt to present a solution in 2017 backfired spectacularly when it became clear that the plans would potentially require households to run down their savings in a way which penalised certain groups at the expense of others. It caused such a furore that the Conservatives have vowed not to repeat the mistake, even if it means saying nothing at all.

The real politics behind the manifesto, however, is that of Brexit. It is, after all, entitled “Get Brexit Done. Unleash Britain’s Potential.” On this point, the wish list is truly mendacious: It repeats the old tropes about “take back control of our laws; take back control of our money” as if the UK had lost these functions as a result of EU membership. The Conservatives also promise that “we will negotiate a trade agreement next year – one that will strengthen our Union – and we will not extend the implementation period beyond December 2020.” Most experts agree that to get the kind of deal that the UK wants in anything less than three years would be a miracle, and a period of five to seven years is more like it.

Recall that if it looks unlikely the trade deal will be signed by end-2020, the UK has to let the EU know by 1 July that it wishes to extend the transition period. By ruling out this option the UK is merely creating another set of unnecessary red lines. Worse still, by refusing to countenance an extension with no guarantee that a deal will be in place (it is nowhere near as “oven ready” as Johnson says it is), the risk of a no-deal Brexit at end-2020 could come back onto the agenda. And if that happens, even the miserably thin set of economic promises in the manifesto will become much harder to deliver.

Labour’s plans are open to criticism for the extent to which they rely on much higher levels of taxation to achieve their goal of redistribution. But the Conservative plans get the same short shrift because they offer no vision of what they want to the UK to be, other than out of the EU, and accordingly offer no economic solutions. If this is, as many commentators claim, the most important election for decades, the main parties are offering the electorate a truly desperate set of choices: More taxes or more austerity, and Brexit to boot. It’s no wonder that many voters find the choice before them unpalatable,