As a veteran of many a budget and manifesto, I can testify to one big truth: it is always the small print that catches out successive Chancellors of the Exchequer and party leaders.
So it has proved with Labour’s manifesto, ambitiously titled It’s Time For Real Change. As Paul Johnson of the Institute for Fiscal Studies (IFS) pointed out yesterday: ‘Under Labour, both taxes and spending would rise to peacetime highs.’
The fundamental promise underlying the Labour programme is that the rich will pay for the party’s eye-watering £83 billion splurge. As well as billionaires and companies, the ‘rich’ here include individuals and married couples earning more than £80,000 a year – comfortable, but by no means rich. But, the IFS notes, the proposed taxes ‘will only raise a small fraction’ of the revenues required. The sums will never add up if Labour imposes taxes ‘which levy more on the average worker’.
Rich pickings: Labour’s top brass Jeremy Corbyn and John McDonnell
What is really worrying is that the leader of the opposition and would-be Prime Minister, when subjected to forensic questioning, appeared not to have a clue about the toxic impact on ordinary working families, pensioners and those saving for retirement, on what are supposedly ‘fully costed’ budget measures.
Top of the list of Labour’s manifesto whoppers is the marriage tax. The party’s plan to abolish this valuable benefit, enjoyed by some 3.6m households last year, will pick the pockets of those couples who have chosen a traditional family union or a civil partnership.
On its website, the Government in fact urges middle-income couples to claim the allowance and save ‘between £345 and £891.50 a year’.
That is money that could make a far bigger difference to couples lower down the income scale than Labour’s promise of a higher living wage.
The fundamental error at the heart of Labour’s tax plans is to think that the ‘rich’ are somehow exploiting the rest of the population. When Jeremy Corbyn was confronted with this question in his interview with the BBC’s Andrew Neil, he floundered, even though it is an assumption on which the whole edifice of the party’s class warfare is based.
The reality, according to the latest HMRC figures, is that the highest-paid 10 per cent of earners in Britain are responsible for paying 60 per cent of the nation’s income tax. The top 1pc alone pay 27 per cent of income taxes. And an astonishing 43 per cent of the workforce pays no income tax.
The economic concern, if taxes are piled on the better-off, is that, in an increasingly global labour market, the most talented people in Britain would simply leave of their own volition or ask the big companies they work for to find a job for them elsewhere.
The most potent recent example of this occurred when socialist Francois Hollande was elected president in France in 2012, and promptly raised taxes on higher earners to 75 per cent. It led to a huge exodus of wealth and talent, with an estimated 100,000 people moving to London, transforming whole neighbourhoods in the capital and turning it into one of the biggest ‘French’ cities in the world.
Needless to say, this madcap policy was reversed at the earliest opportunity.
Alongside the obscene marriage tax, Labour has also set out to attack Britain’s pensioners and savers. Under its plans, basic-rate taxpayers will see their tax bill on dividends surge from 7.5 per cent to 20 per cent. That would mean someone earning £5,000 a year from their savings, including pensioners, would see their tax bill rise by a shocking £8,579 over a decade.
My concerns about Labour’s swingeing taxes on capital and dividends run much deeper than this, however.
When, in 1997, Gordon Brown ended a tax break on dividends paid into company pensions – to fund a youth employment scheme – he destroyed the gold standard ‘defined benefit’ pension schemes that had been part of British life since the early 20th century.
The fear must be that the thoughtless policy of dramatically escalating taxes on dividends will not only hurt the pensioners and the thrifty, but also undermine the pensions of 10m people who have been enrolled automatically in new private sector pension arrangements.
Labour’s Shadow Chancellor John McDonnell has made a fetish of how the fantastic spending commitments have been fully costed. Indeed, after proposing to spend an extra £42 billion in the 2017 election, this year’s promises of free everything – from broadband to prescriptions – has caused that bill to double. But that is not the end of it. With the ink barely dry on the manifesto, the party unveiled a plan to fully restore the pensions of women, mainly born in the 1950s, who have been forced to work longer until retirement as the pensions age was raised to make the system more affordable.
Labour is right to say this is a terrible injustice. But its plan to pay as much as £58 billion over five years to correct matters is pie-in-the-sky economics. Corbyn ignorantly suggested it could be covered by Government reserves. The fatal flaw in this piece of financial chicanery is that the contingency reserve is normally close to £5 billion each year, to fund surprises such as wars and disasters such as flooding.
Since the Brexit referendum, former Chancellor Philip Hammond built up reserves to £15 billion to pay for potential disruption caused by the UK leaving the European Union without a deal. But it couldn’t possibly come close to paying for Labour’s dishonest pensions promise.
What we have learned, as the Labour pledges have unravelled, is that the promises have been built on the most fragile of foundations and no proper understanding of how budgetary policy works. It is a frightening thought that such a naive bunch could be so close to power.
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