Your guide to how the IFS dismantled the two parties' plans

The IFS report warns that Labour's tax raising plans don't add up
The IFS report warns that Labour's tax raising plans don't add up

By Chaminda Jayanetti

Today the Institute for Fiscal Studies published its analysis of the Tory and Labour manifestos. It does not make for pleasant reading.

The IFS is an independent think tank and widely respected, but that doesn't mean it's beyond reproach - some economists believe it underestimates the boost that Labour's investment plan would bring to the economy. Nevertheless, here's a simple guide to what the IFS said:

Labour's costings don't add up


The IFS took apart Labour's funding plans. Labour says it can raise £49bn a year through tax rises - £52bn minus £3bn of slack.

The think tank ditched £11bn of the £52bn on the grounds that the party has overestimated what it will get from taxing the rich and hitting tax avoidance (see below). It then warned that the remaining £41bn was "very generous" given that its other tax-raising measures were doing a lot of fiscal heavy lifting, and that corporation tax rises wouldn't deliver the claimed savings beyond 2022.

(The Tories, of course, provided no costings worthy of the name...)

Taxing the rich doesn't just tax the rich

The IFS warned that Labour's planned rises in corporation tax and stamp duty will hit more than just the rich.

The party's decision to extend stamp duty to derivatives and bonds will include those saving in private pension funds among the "likely losers", said the institute.

And deputy director Carl Emmerson said Labour's plan to hike corporation tax for larger businesses to 26% would again hit pension funds with shareholdings, and would ultimately be passed on to workers through lower wages or consumers through higher prices.

"This isn’t to say we shouldn’t tax businesses," added Emmerson. "But we shouldn’t pretend that it is somehow victimless and hence fundamentally different from personal taxation. The impacts on households are just less transparent."

Whack high earners and they may whack back

Labour's flagship tax measure is to hit the highest earners with an income tax rise, so as to protect everyone else. Tax will be raised on everyone earning more than £80,000 a year.

Not so fast, says the IFS. While Labour is planning to raise £6.4bn a year from these measures, the think tank warned that just a low level of "responsiveness" - higher earners changing their behaviour, such as by moving abroad - would reduce this to £4.5bn a year. Medium responsiveness would cut it to £2.5bn, and high responsiveness would slash it all the way down - rather improbably - to nothing.

Labour's tax avoidance figures are unreliable...

Left wingers have a habit of ascribing heroic new funding streams to clamping down on tax avoidance. Labour's manifesto pledges to raise £8.8bn from hitting tax avoiders and evaders.

The IFS warned "at least half of that is unlikely to materialise". Ouch.

The party has double counted £2.5bn in extra revenue, while the £1.6bn the offshore company levy is expected to raise won't materialise at all as people respond by ditching those ownership structures, said the think tank.

And what's left of the plans comes with "downside risk".

...but at least they have them

The Tories' anti avoidance measures are described bluntly: "vague and no attempt to quantify".

Which could act as a summary of their entire manifesto.

So much for swimming through vomit

The government is planning £11bn a year in cuts to working age benefits - £4.8bn cuts to child tax credit, a £3.3bn benefit freeze, and £3bn in cuts to universal credit.

The Tories will keep all of them, Labour will keep most of them, and only the Lib Dems will cancel most of them.

Labour will reverse benefit cuts in other areas, but offers little defence against these three big hits - choosing to focus on other areas of public spending.

This remains a gaping political black hole in Labour's agenda.

Labour's investment could work

The IFS said Labour's £250bn ten-year programme would return public sector investment to levels not sustained since the 1970s. It said this "could well be beneficial", boosting lagging research and development, but warned that the party would need to ensure investment projects offered a good return.

The public sector pay squeeze matters

With inflation rising and set to rise further, the Tories' plan to raise public sector pay by one percent a year to 2020 is likely to mean real terms cuts.

Labour will lift the cap, but the Conservatives will instead cut public sector pay to "a level not seen in (at least) the last 20 years", which is "likely to exacerbate current recruitment and retention problems", warned the IFS.

As an aside, this would probably increase the need for immigration, but let's not go there...

No such thing as a free lunch

Labour will extend free school lunches to all primary school children, while the Tories will means test them and bring in universal free primary school breakfasts.

The IFS gave some support to the Conservative line.

While it said there was "unclear" evidence that free school lunches raised attainment, it pointed to its own research on free school breakfasts in disadvantaged schools delivering similar academic benefits to free school lunches, but "significantly improved" behaviour and concentration, and reduced absences.

Given that breakfasts are cheaper than lunches, the IFS concluded that they were likely to give better value for money.

The IFS really doesn't like scrapping tuition fees

It'll cost more than Labour says, mostly benefit high earners, and risk lower funding for universities in future - in fact, Labour's costings imply a 30% cut in funding per student per year by 2022.

That's the IFS' take, anyway. Your mileage may vary.

It doesn't say much about the Tory plans....

...because there's not much to say, because there aren't many plans in the first place. It's a vacuous manifesto - if you ignore the exploding landmines whenever it provides any substance.

Neither party will raise productivity

In one of its most subtly withering judgements, the IFS said there would be no impact on the productivity of the economy from either party.

This is despite low productivity being the single biggest long term drag on Britain's economic performance.

Labour's infrastructure spending would, if well targeted, deliver a productivity boost, but the IFS warned that this was cancelled out by the negative impact of more workers' rights, a higher minimum wage, more bank holidays and higher corporation tax.

This analysis is disputed by left-leaning economists, but it's how the IFS sees it.

As for the Tories, their target to cut immigration would weaken growth and public finances if it was actually met.

Labour will eliminate the deficit

The IFS said that for all the Conservatives' warnings about public finances, Labour would meet its target to eliminate the deficit on day-to-day spending with £21bn to spare. 

This owes a lot to the fact that chancellor Philip Hammond has built a lot of 'headroom' into his net spending plans, which Labour is largely matching (by balancing spending rises with tax rises).

The IFS actually said that Labour's approach had "much to commend it" - largely as it matched the IFS' own approach.

Chaminda Jayanetti is covering the general election for Politics.co.uk. He tweets here.

The opinions in politics.co.uk's Comment and Analysis section are those of the author and are no reflection of the views of the website or its owners.

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