New Times,
New Thinking.

A conspiracy of silence

Both Labour and the Conservatives are being disingenuous on spending. They must reckon with the choices facing the country.

By New Statesman

A spectre is haunting the UK’s general election: that of economic stagnation. Since 2010, GDP has grown by an average of just 1.5 per cent a year. Once population growth – principally driven by immigration – is accounted for, the record is even worse. GDP per capita has increased by a mere 0.9 per cent a year and average real wages remain below their 2008 level.

This mediocre performance has had consequences. Britain’s national debt is at its highest level since the early 1960s and the amount collected in tax has increased to a postwar high (36.5 per cent of GDP). Public services, meanwhile, are in a state of permanent crisis, with overwhelmed hospitals, crumbling schools and bankrupt councils.

As such, the next government will face unpalatable economic choices. But during this election campaign, no party has been prepared to confront them.

The Conservative manifesto combines real costs – £17bn of tax cuts, £6bn more for defence – with fantastical savings: a £12bn reduction in the disability benefit bill. As the Chancellor, Jeremy Hunt, confirmed in a newsletter to his Surrey constituents, the government has previously announced several of the measures and already allocated the savings. The Tory manifesto resembles one that even its own authors do not expect to deliver.

Labour’s manifesto, by contrast, is costed – at least in a narrow sense. Its limited spending pledges are matched by tax rises on non-domiciled residents, oil and gas companies, private schools and private equity executives. As a demonstration of its prudence, the party has held back £2.5bn of projected tax revenue.

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But the document elides the real choices that Labour would face in office. Keir Starmer and Rachel Reeves have repeatedly pledged that there will be “no return to austerity”. Yet they have refused to explain how they would maintain this commitment.

Labour has pledged not to raise income tax, National Insurance, VAT and corporation tax in the next parliament and to reduce debt as a share of GDP by the fifth year of the forecast period. These promises dramatically narrow the scope to fund greater spending.

Mr Starmer and Ms Reeves insist that higher economic growth – through measures such as planning reform –  is the key to “a decade of national renewal”. But while the UK has catch-up potential, growth alone cannot prevent austerity. Under Labour’s plans, as the Institute for Fiscal Studies has calculated, unprotected departments such as the Home Office, Justice, Transport and local government would face cuts of between 1.2 per cent and 2.9 per cent a year and require an extra £6bn to £16bn by 2028-29.

There are alternatives available to Labour. It could, as Ms Reeves argued in her 2018 pamphlet “The Everyday Economy”, introduce new council tax bands (unrevised since 1991) for valuable properties and equalise capital gains and income tax rates (raising around £16.7bn a year). But when such proposals are put to shadow cabinet ministers, they merely insist that Labour has “no plans” to introduce them. Like Schrödinger’s cat, these policies are both dead and alive.

This is the conspiracy of silence that has too often characterised UK election campaigns. In spring 2010, George Osborne insisted that he had “no plans” to raise VAT as chancellor; a few months later he did just that.

Political parties should not be expected to produce a Budget or a Spending Review in advance. But they do need to reckon with the choices facing the country and win a democratic mandate for action.

For too long, politicians have promised European-style public services with tax levels closer to those of the US: our tax take is four percentage points below that of Germany and 11 points below that of France. As Britain seeks to rebuild from a decade of austerity, it needs an honest conversation about how to fund its social priorities. It must also confront the cost of an ageing population, climate change and geopolitical threats.

Betting on economic growth – which has disappointed ever since the 2008 financial crash – is not enough. A Labour government would need to either increase borrowing, raise taxes or cut spending. Which of these options do Mr Starmer and Ms Reeves ultimately favour? Voters deserve to be told now.  

[See also: Europe turns right]

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This article appears in the 19 Jun 2024 issue of the New Statesman, How to Fix a Nation