Labour will need to make cuts, IFS warns

Launching his manifesto in Manchester on Thursday morning, Sir Keir Starmer said he wanted to make Labour the “party of wealth creation”.

He told activists: “Wealth creation is our number one priority. Growth is our core business.

“The only route to improving the prosperity of our country and the living standards of working people and that’s why we made it our first national mission for government.”

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Labour's manifesto sets out plans to raise £8.6 billion-a-year through charging VAT on private school fees, abolishing the non-dom tax status, and closing “loopholes” in the windfall tax on oil and gas companies.

They are also committed to keeping the £23.5bn post-election tax hikes already announced by Chancellor Jeremy Hunt.

Mike Brewer, the Resolution Foundation’s interim chief executive, said Labour’s cautious approach to the public finances “sets the scene for a parliament of tax rises and spending cuts for unprotected departments.

“Even then, a modest dose of bad economic news could force a fresh round of tough fiscal choices if the debt rule is to be met.”

Paul Johnson, IFS Director, said the public spending increases announced by the party were “tiny, going on trivial.”

He said there was “almost nothing in the way of definite promises on spending” despite Labour “diagnosing deep-seated problems across child poverty, homelessness, higher education funding, adult social care, local government finances, pensions and much more besides.”

The economist added: “Definite promises though not to do things. Not to have debt rising at the end of the forecast. Not to increase tax on working people. Not to increase rates of income tax, National Insurance, VAT or corporation tax.

“One public service where there are big promises is on the NHS. Labour has recommitted to the workforce plan, to getting rid of all waiting times more than 18 weeks, and to more hospitals. Big promises, but that will require big spending too.

“All that will leave Labour with a problem. On current forecasts, and especially with an extra £17.5 billion borrowing over five years to fund the green prosperity plan, this leaves literally no room – within the fiscal rule that Labour has signed up to – for any more spending than planned by the current government.

“And those plans do involve cuts both to investment spending and to spending on unprotected public services. Yet Sir Keir Starmer effectively ruled out such cuts. How they will square the circle in government we do not know.

“Yes, growth could surprise on the upside – and if it does, then the fiscal arithmetic would be easier.

“But if it doesn’t – and it hasn’t tended to in recent years – then either we will get those cuts, or the fiscal targets will be fudged, or taxes will rise.”

“Like the Conservatives and the Liberal Democrats, Labour continues in a conspiracy of silence on the difficulties they would face,” he added. “These challenges are already perfectly clear. The books are open. A post-election routine of shock-and-horror at the state of the public finances will not cut it.”

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Labour has defended its manifesto against the analysis.

“You are dealing with measures like tax avoidance, for example, that is money that should already be coming into the exchequer,” a spokesperson said.

The party spokesperson said claims the tax burden would go up under Labour are based on growth estimates produced under the Conservatives, and that they do not account for Labour’s growth plan.

“The whole purpose of what we’ve set out today is the fundamentally different way in which we want to run the economy, which means we will ensure that we get the higher levels of growth, and so therefore that obviously affects the numbers that you have there,” the spokesperson added.

“I fundamentally don’t accept that we are only going to have Conservative Party-projected levels of growth in the next parliament.”

When asked whether growth could be “guaranteed”, the spokesperson said: “This growth will happen, and if you read the 4,500 words that are dedicated to growth within the manifesto, you will see the clear commitments that we have got there, from whether it’s you know the three pillars that we have of our growth plan – of stability, of investment, and in reform.

"So therefore if you look at what we want to do around stabilising the economy, where we want to invest, where we want to have the reforms, whether it’s on planning reform, on labour market reform, on ensuring that we can sort of knock down those barriers to growth that we’ve seen previously, we are absolutely confident (the country) can have higher levels of growth than we have seen under the Conservatives.”