U.K. Tories Court Votes With ‘Responsible’ Tax and Spending Plan
U.K. Tory Party Says Capital Spending Plans Won’t Exceed Revenue
U.K. Chancellor Sajid Javid drew election battle lines over tax and spending, offering voters limited giveaways as he accused the Labour opposition of “reckless plans and ideological experiments” that would send foreign investors fleeing.
The Conservative Party manifesto unveiled on Sunday emphatically ditched promises made by Prime Minister Boris Johnson to deliver tax cuts totaling more than 20 billion pounds ($26 billion). Instead, it commits to just 3.5 billion pounds by 2024, mainly to give workers a payroll saving of less than 100 pounds a year.
Day-to-day spending will rise by just 3 billion pounds, a fraction of the 83 billion pounds pledged by Labour. This together with the proposed tax cuts will be more than offset by over 7 billion pounds of tax increases on companies. Capital spending will be limited to 3% of GDP, amounting to an extra 80 billion pounds of investment and borrowing over the next four years.
The Conservatives, which have a commanding lead in opinion polls, are seeking to portray themselves as the most responsible with the public finances as all parties campaigning for the Dec. 12 general election vow to end almost a decade of austerity. Johnson’s promise of big tax cuts for people earning more than 50,000 pounds a year, made during the Conservative leadership campaign, had exposed the Tories to a familiar taunt: that they are the party of the rich.
Jeremy Corbyn’s Labour Party is by far the most extravagant, last week pledging to raise taxes by 83 billion pounds, around 10% of total revenue, to regenerate public services ravaged by budget cuts. The party would add to the budget deficit to fund an extra 275 billion pounds of investment during its first term, while issuing bonds to pay for its plan to nationalize key industries.
In the foreword to their manifesto, Javid said the Conservatives’ “responsible and fully costed” plans contrast with those set out by Labour, which he said would cause debt and taxes to soar. “Businesses and investors would flee these shores,” he said “That’s not a risk our country can afford.”
The Tories would keep the current budget in surplus throughout, meeting newly imposed fiscal rules that require revenue and non-investment spending to be in balance within three years, according to costings produced alongside the manifesto. The Institute for Fiscal Studies said the plans are notable for their lack of scale.
‘Baked In’
“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,” said IFS Director Paul Johnson. “Taken at face value today’s manifesto suggests that for most services, in terms of day-to-day spending, that’s it. Health and school spending will continue to rise. Give or take pennies, other public services, and working-age benefits, will see the cuts to their day-to-day budgets of the last decade baked in.”
Torsten Bell, chief executive of the Resolution Foundation think tank in London, said that while Labour envisages German levels of public spending at around 45% of GDP, the Conservatives are aiming to “go Dutch” at around 41%.
The Tory spending commitments come on top of the 34 billion-pound long-term boost for the National Health Service announced in 2018 and the additional 13.4 billion pounds for 2020-21 in September’s spending review, which included extra resources for education and policing.
They include 879 million pounds for recruiting and training nurses; 695 million for appointments at local medical practices; 624 million for skills; and 260 million to expand free child care.
Most of the extra revenue comes from a decision to keep the main tax rate on company profits at 19% instead of cutting it to 17% as previously planned.
Workers are the main beneficiaries of tax cuts, with plans to raise the amount people can earn before they start paying national insurance contributions -- a levy that funds state benefits and pensions -- projected to cost the Treasury 2.6 billion pounds.
The Conservatives also revived a 2015 election campaign pledge not to raise income tax, value-added tax or national insurance contributions by employees. Together, the three taxes account for about 60% of government revenue, including NICs paid by employers.
“It’s tying the hands of the chancellor for the next five years in terms of the most obvious increases you could put into place if you wanted to transparently raise more money,” Johnson at the IFS told the BBC. He predicted the government will raise tax in other areas instead. He also expressed disappointment at what he said was the lack of a plan to fix the funding crisis in social care.
--With assistance from Brian Swint.
To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Stuart Biggs
©2019 Bloomberg L.P.