An economic evaluation of the Labour Manifesto.
Most significant elements of Jeremey Corbyn’s Labour Party manifesto include
- Higher income tax on top 10% of earners
- Rail re-nationalisation
- Freezing pension retirement age.
- Abolition of tuition fees
- Promise of 30 hours’ free childcare,
- 10,000 more police officers
- Brexit – may or may not stay in Single Market.
What I think:
Higher taxes on the rich. As a high-income earner, I support the idea of higher marginal income taxes. There is a diminishing marginal utility of money over £70,000, I would rather contribute to better public services.
Abolition of tuition fees. I don’t support this. It is very expensive (cost of £11.2bn) and it is not particularly progressive. It is essentially a tax cut for middle class students who go to university. I would prefer a graduate tax to pay for tuition and any available money to be targeted at primary/secondary education and vocational training – where there is a bigger social return. Tuition fees probably have more political appeal than spending on vocational training – which always has low status in the UK. But, the UK needs more vocational training.
Triple lock guarantee for pensions and freezing pension age at 66. I don’t support the triple lock guarantee and am glad the Conservative party were brave enough to end it. To be honest, I don’t really support the double-lock. Why should pensioners get generous benefit rises when real wages are stagnant and falling? The most important thing about pensions is the sheer cost. Freezing the pension age at 66 could cost between £90bn and £300bn over the next 30 years. Pensions are by far the biggest single cost to government spending. For example, state pensions will cost an estimated £158.6bn in 2018 compared to £3.0bn for unemployment benefits. The cost of pensions is set to rise, even without freezing the pension age.
“The ONS’s projections for the future costs suggest that figure will rise to £170bn by 2032/33 and to £438bn by 2062/63. When other benefits paid to some pensioners, such as housing benefit and disability living allowance, are factored in, the cost in 2012/13 rises to £110bn (7.1% of GDP) and the forecast for 2062/63 to £491bn (9.4% of GDP).” (Guardian)
At least 100,000 council and housing association homes a year. Good if they can do it. Housing is a real problem for young people and the current situation is not good.
Borrowing for investment. A good idea. The UK needs investment in transport and housing. Borrowing costs are very low so it makes economic sense to do it. Also, given relatively weak economic growth (GDP per capita) increased spending will help improve economic growth. I would like to see the Conservatives pay a price for the misplaced austerity of the past seven years. See: Growth will be lower if the Conservatives win
Healthcare – extra £8bn. I’m disappointed it wasn’t more. Labour should have been highlighting the decline in health care spending as a % of GDP over the past seven years. The amount Labour has promised doesn’t go far enough to fill in the ‘relative funding cuts’ and deal with the expected growth in demand. (from ageing population)
Rail Nationalisation – I support this. Railways are a public service with positive externalities. I would feel better about paying high fares if there was a sense of public ownership. Private ownership has been mixed. Chiltern Railways have been excellent, but too often the taxpayer has bailed out private failures.
Fully costed spending. To Labour’s credit, they have attempted to cost spending and prove taxes will pay for it. However, I worry both parties are ignoring the potentially devastating impact on public finances of Brexit and leaving the Single Market. Whilst philosophically I support higher taxes on city financers, I do worry the impact on tax revenues from Brexit and higher tax rates will cause this source of tax revenue to dry up.
Brexit. Labour’s stance on Brexit seems to be to leave the EU, leave the Single Market and introduce an immigration policy which will result in a little less immigration. But, it does raise the question – wouldn’t we be better off just staying in the single market?
The Labour manifesto is politically appealing, but from an economic analysis, I’m disappointed. After doing all the hard work of raising taxes, the spending commitments are less progressive than a first glance may suggest.
From a personal point of view, I would love Labour to pull off the greatest political upset since 1945, but if they did get into power some of their spending commitments may prove a millstone around their neck. I feel this election may prove difficult for whichever party wins.
A disclaimer. I have already voted Labour (by post).
The main motivation for voting Labour is that I think Jeremey Corybn would be a good leader. I support his stance on foreign policy and feel he has a lot of sincerity. I also admire the fact he has restrained from attacking the personalities of other politicians.
I’m supportive of his general stance on creating fairer society, even if I disagree with many of the individual policies.