Labour’s manifesto: let’s focus on the big choices not the small change

Published on Fiscal Choices

Labour’s manifesto is a big deal, in the simple sense that it has a lot of stuff in it. Nationalising this, nationalising that. Scrapping tuition fees. Borrowing billions for investment. Higher taxes, from corporation tax to financial transactions and on those earning over £80,000. More spending on health, social care, schools, and childcare. Oh, and four new public holidays.

There is so much going on it’s hard for the very interested, let alone the public, to grapple with what exactly it all means. To try and keep things manageable the media are today focused less on the individual policies and instead on whether the policies contained in the manifesto are fully funded. Indeed that is also the approach being taken by the Labour Party, who have published an entire additional document to try and show that their sums on each individual policy add up. Lots of heat will be generated arguing whether or not they do.

Now in some senses this is important. After all the public want to know that politicians take seriously the task of managing the money they raise via tax, irrespective of what the overall level of that spending is. This isn’t the macro-prudence of overall debts and deficits, but the all too often neglected micro-prudence of how carefully decisions about individual promises are made.

But this approach is both over optimistic about the level of science that can be brought to bear on such an endeavour, and also misses the big picture. Over optimistic because putting exact predictions on how much very large tax rises focused on rich individuals and corporations will raise is next to impossible.

While it’s relatively easy to estimate how much a 1 per cent change in this rate or that rate of tax will bring in, once you move to talking about big shifts of 9 per cent on Corporation Tax, or an additional 5 per cent on earnings over £80,000 you enter much less certain territory. Behavioural change by those facing these tax rates becomes as important as the rates themselves – as does government action to try and respond to those changes. We’re then into a complex world of shifted incentives, changed behaviour, tax avoidance and tax enforcement. Those telling you that such tax rises would raise nothing are as wrong as those telling you with equal certainty what they will raise in pounds and pence.

Equally costing manifestos suffers from another big problem – you can’t cost a fudge and politics is full of fudges. For example the manifesto uses the word “review” 37 times, ranging from “the entire business rates regime”, to state pension age, legal aid funding and the Mineworkers Pension Scheme. Good luck costing a review.

One “review” that has disappeared from the manifesto text itself since the leak of the draft last week is of the cuts to Universal Credit. In its place is an allocation of £2bn to reversing an unspecified amount of those cuts – and without a firm policy it’s hard to know if £2bn will cover it. That switch is welcome, but it is only enough to reverse less than half of overall cuts associated with reduced work allowances and the two-child limit on benefit entitlement in 2021-22. To further see the difficulty of costing parties plans compare the fact that Jeremy Corbyn said at his manifesto launch today that Labour would not freeze benefits, but the manifesto makes no reference to reversing the benefit freeze that is set to bite hard in the next few years. Should we cost the manifesto or what the party leader says?

More importantly this accountancy approach to the manifesto also misses the big picture. This manifesto is really about significantly increasing the tax take to spend significantly more. Rather than getting our calculators out, we should really be debating the desirability or otherwise of a larger state. Now, even under current Conservative plans, the share of government receipts as a share of GDP is set to rise over the coming years – topping 37 per cent for the first time since the 1980s. Here’s a sense of how Labour’s plans compare using their own figures –receipts as a share of GDP would increase by a further 2 percentage points to a level last seen in 1984-85.

These are significant changes in what the state brings in, and would mean significantly more money to spend on public services. That’s a real choice and something worthy of real debate.

The other big picture that a manifesto with this much in it should leave us to reflect on is the ability of government to deliver. That is always true but it should be front of mind given we are already seeing government creak under the strain of the technical, diplomatic and political weight of delivering Brexit. Promising to nationalise things is relatively straightforward. Doing it sensibly and then making sure those industries are well run is incredibly complex. This programme looks like more than enough to keep a three term government busy.

Pre-election debates often get bogged down in the details of individual policy promises. But for voters what tends to matter more is the general direction of travel: Labour’s manifesto offers a choice of higher taxes for more spending, alongside the hard slog of the state engaging in a much wider range of interventions. The election itself will tell us whether or not it proves popular with the electorate, but there is at least a clear debate to be had. And you don’t need a calculator to have it.