First thoughts on Labour’s manifesto

Labour’s 2017 manifesto delivers plenty of crowd-pleasing policies. Nationalisation of the railways, more funding for public services, and giveaways such as free childcare will always poll well individually. However, taken as a package, there remain lingering doubts that Labour will be able to raise the funds to pay for all of it.

Sensitive to the criticism that they cannot be trusted as custodians of the nation’s finances, Labour has committed to adhering to a “fiscal credibility rule” which states that a Labour government would not borrow for day-to-spending but could borrow for “capital expenditure”, which is spending to grow the economy. To further build their image as a financially responsible party, Labour has produced a separate document outlining the full costs for each area of spending and showing where new funds will be raised.

The Party expects the bulk of new funds to flow from reversing cuts to corporation tax and the creation of a new 45p rate of tax on those earning above £80,000 and a 50p rate on those earning above £123,000. Critics will challenge Labour’s expectation that they will be able to raise an additional £48.6bn a year through these measures on the grounds that forecasting tax intake on the basis of increasing or decreasing taxes is notoriously difficult; companies and wealthy individuals can simply move abroad or move more of their operations off-shore if the cost and effort of doing so compares favourably to their tax burden. The groups that Labour are targeting with tax rises are amongst the most mobile and if they do choose to leave, the expected tax intake could be reduced significantly below Labour’s estimates. Tax receipts are also dependent on the strength of the economy which is itself difficult to forecast, especially with continuing uncertainty on Brexit.

Labour will face questions on some expenditure that they have apparently not accounted for. An example of this is the (probably exorbitant) cost of renationalising industries such as water and energy. Labour has chosen to classify these costs as “capital expenditure”, part of their programme of infrastructure spending which they will be funding through an additional £250bn of borrowing. Although Labour have set out their logic for accounting for spending in this way it will be easy for the Conservatives to suggest that Labour has not fully costed its manifesto, despite promises to the contrary. It is also not clear whether Labour have accounted for the cost of reversing some Conservative policies, such as increasing the pension age which, over time as the average age of the population increases, could cost the country £93bn.

The biggest challenge that Labour faces is that the electorate do not trust the Party’s leadership to manage the country or the economy. The manifesto leaves enough questions about how the policies are funded to reinforce this belief. This will likely render the individual popularity of the policies irrelevant as voters will not be persuaded to trust the Labour Party to deliver on their promises, however popular.