This election was made, as Proudhon said of the 1848 revolution, without an idea, beyond that of bunkering the Tories in power and shielding them against blowback from Brexit. Their strategy assumed that people had made up their minds about the party leaders’ competence, and that voters were fixated on Brexit, so cluelessness elsewhere wouldn’t matter (though the government seems clueless about Brexit, too). Hence the uncosted Conservative manifesto.
The Institute for Fiscal Studies has road-tested the numbers in the Tory and Labour manifestos. As befits its neutrality, the IFS wishes a plague on both their houses, though as it suggests, the Tories don’t have much of a house to wish a plague on. In their case, the IFS is largely forced back onto making projections from current policy.
Some of the IFS data makes interesting reading. Labour’s spending plans leave Britain in the lower-middle range of developed economies as regards the ratio of public spending to GDP, well below such collectivist dystopias as Iceland, France, Singapore, New Zealand and Germany. Labour would add £81 billion or 3.5 per cent of GDP to public spending by 2021-22. It aims to eliminate the deficit on non-capital spending within five years. The Conservatives are promising a balanced budget ‘by the middle of the next decade’; on the IFS projections they, like Labour, still run a deficit by the early 2020s.
They came to power in 2010 promising to wipe out the deficit by 2015, and to have the debt falling as a share of GDP; it’s still increasing despite seven years of sado-austerity. Much of the warrant for austerity when Cameron was in power lay in work by the economists Carmen Reinhart and Kenneth Rogoff, which suggested that growth is choked off when the debt-GDP ratio exceeds 90 per cent. That chimed with the Cameroons’ ideological mission to shrink the state. Subsequent work discredited Reinhart and Rogoff’s thesis; they had understated growth at debt levels over 90 per cent. But austerity marches on despite the collapse of its intellectual props and the Conservatives’ repeated failure to meet their promises on pegging back the debt. Their manifesto now specifies no debt target at all.
The IFS thinks that Labour’s extra £25 billion a year on infrastructure investment can be realised without breaching its debt target. It doubts, however, that Labour’s planned tax rises for the rich will realise the £49 million its manifesto claims, because of avoidance.
The elephant that doesn’t bark in both manifestos is Brexit, whose effect on national income is imponderable. An LSE report last year on the macroeconomic impact of Brexit found that it would lead to lower GDP figures than if the country remained in the EU, but not to zero or negative growth.
Labour plans to push up net public sector investment from 2 per cent to about 3 per cent of GDP. This compares with an average of 4 per cent between 1945 and 1979. The main aim of investment in human and other capital is improving productivity – a notorious weakness of the UK economy, owing not, as in right-wing myth, to British workers’ indolence, but the negative correlation between productivity and long hours (UK workers average around 300 hours per year more than German ones). Investment in productivity promotes growth.
Unlike Labour, who propose higher tax rates for the highest earners, the Tories remain strong in their defence of those just about managing on a few million a year. David Metter, the CEO of the private finance firm Skanska Innisfree, took home not much more than £8 million in 2010; his firm is the major creditor for a £7 billion PFI contract, to be paid off by 2049, for building at Bart’s and the Royal London hospitals. The NHS funding hole is largely the product of the ruinously expensive PFI – which, in fairness, is mostly the product of the Blair and Brown years. Its estimated contribution to the debt (currently about £1.8 trillion) is around £250 billion.
Notwithstanding Lynton Crosby’s inane ‘magic money tree’ attack line (trotted out by Theresa May and Amber Rudd in the last week) and commentary in the right-wing press, Labour is offering a studiously moderate social democratic programme.