The vision of the future offered by the Tories implies, according to the Institute for Fiscal Studies :
I. Living standards in 2022 will be no higher than in the pre-financial crisis year of 2007, which means the Conservatives will have presided over the longest period of stagnating incomes since the Napoleonic wars.
ii. The poorest third of the population will actually be worse off than in 2007, due to the benefit cuts that have yet to take effect.
iii. Further misery will be caused by collapsing public services, as the Tories extend to 12 years the most severe squeeze on the NHS since it was founded in 1947
The Labour manifesto offers a less bleak outlook, with significantly higher borrowing to fund investment (something the IFS supports), and higher expenditure on public services funded by taxes on the better off. The Labour vision would imply a role for the state somewhat larger than at present, but in line with other high income countries in Europe.
The main IFS criticism is that Labour may need to extend some tax increases beyond the higher income groups that it says it will target, because IFS analysis suggests that just hitting the very well off will not raise as much as claimed. That need not be a fundamental criticism:- it requires an adult debate when and if Labour are in Government concerning what can be afforded and what levels of taxation the electorate are willing to support in order to secure better services. It might also require some better targeting of expenditure promises – but at least an attempt has been made to cost the Labour manifesto, something that the Conservative manifesto does not do.
The bigger problem for both manifestos is that they may not be deliverable if the UK is simultaneously self-harming by proceeding with BREXIT. BREXIT will mean:
I. Economic growth is likely to be slower:
a. We are in for a prolonged period of uncertainty as to our future trading relationships not just within Europe but in the wider world. Decisions to invest will be delayed, some investments that might have come to the UK will go elsewhere to avoid the uncertainty, some activity will re-locate to the EU.
b. There is no evidence to suggest that there are offsetting benefits to growth as a result of looser regulation or lower taxation. Our growth rate within the EU has been comparable to that of Germany and the US and slightly higher than the average of high income countries – so there is no reason to believe that the EU has been holding us back. The fast growing countries are those like China who are still catching up with income levels in the rich countries, and no mature economy can expect to do as well.
ii. The budget situation will be even worse:
a. Any savings on our contributions to the EU will need to be offset by the cost of existing commitments, and the cost of expensively creating at national level equivalent institutions to those that currently provide needed services at European level (or paying for continued use of EU institutional arrangements). The amount of unnecessary or wasteful expenditure that we pay for is likely to turn out to be a relatively small share of our contribution, outweighed by the higher overheads and duplication of creating UK equivalents from scratch after 50 years without them.
b. If we succeed in reducing migration, which seems to be a major demand by those who supported BREXIT, there will be an immediate impact on the budget through the loss of tax revenues the migrants would have paid, the increased cost of training and recruiting national staff to do jobs nationals were previously unavailable or unwilling to do, and the cost of expensive and inefficient non-solutions like trying to recruit agency staff to cover the gaps.
c. The biggest impact of leaving the EU is likely to be felt initially in London and the South East. Those elsewhere in the country can be forgiven for shedding no tears for the wealthy city folk, but the impact on the budget is less easily dismissed, with London and the South East the only part of the country that raises more in taxes than it spends on services. If the impact on London turns out to be significant, as seems worryingly likely, then the effects of a reduced tax surplus will be felt in even less money for supporting public services and paying benefits in the regions.
Whichever party forms the next Government will face severe economic and social problems caused by the unprecedentedly long period of flat incomes and underfunded public services. It seems utterly bizarre that both parties are committed to making these serious problems disastrous by proceeding with a BREXIT that offers no benefits. We are ‘taking back control’ of the ship in order to steer it into the iceberg. Both parties are grossly irresponsible to continue to steer full speed ahead on the current course on the basis that a fairly small majority of the crew thought that it was a good idea almost a year ago.