Conservative response to John McDonnell's Speech

Chief Secretary to the Treasury, Liz Truss MP said: 

“These unaffordable Labour promises wouldn’t improve public services and the costs would just rack up and up. 

“Working people would pay higher taxes and we would spend more and more on debt repayments instead of public services. It all shows that Labour just aren’t fit to govern. 

“Only the Conservatives will take a balanced approach: dealing with our debts to keep our economy strong, investing more in key public services, and keeping taxes low for working people. That’s the best way to deliver a better future for our country.”

ENDS

Notes to Editors

Promises Labour already made since their manifesto lanch would add £253 billion more to the national debt than under Conservative plans. Those in McDonnell’s speech would add billions more.

      The IFS says debt would be £106 billion higher under Labour’s manifesto plans – excluding the cost of nationalisations. IFS analysis of the Conservative and Labour Party manifestos found that debt under Labour would be £106 billion higher by the end of the Parliament than under the Conservatives. This excludes the cost of nationalisations (IFS, General Election Analysis, 25 May 2017, link, slides 18-19).

      Labour’s nationalisation programme will cost at least £134 billion – and in reality billions more. On a conservative estimate, the nationalisations committed to in the Labour manifesto of water, energy, Royal Mail and rail will add £134 billion to public sector net debt. In reality, this would cost much more because Labour would have to pay a market premium to buy up the shares of publicly listed companies on the stock exchange.

     Following publication of Labour’s manifesto, Corbyn has committed to end the benefit freeze, costing £12.9 billion over the Parliament.

‘We’re not going to freeze benefits that is very clear’ (Jeremy Corbyn, Labour Manifesto Launch Q&A, 16 May 2017).

Ending the freeze on working age benefits would cost £505 million in 2017/18, £1,755 million in 2018/19, £3,470 million in 2019/20 and £3,580 in 2020/21 and 2021/22 (HMT, Budget 2016, Table 2.2, link)

     Adding all this together, Labour would add £253 billion more to the national debt than the Conservatives by the end of this Parliament – or £14,328 of debt per working household. There are 17.6 million working (working and mixed) households in the UK (ONS, Working and workless households in the UK: Jan to Mar 2017, 31 May 2017, link).

That means Labour would have to spend at least £5.8 billion more on debt interest payments every year

     Labour would spend £5.8 billion more – every year – on debt interest payments. The below table shows the forecast from the Office for Budget Responsibility for public sector net debt and for the Government’s debt interest payments in 2021/22. These figures are then used to calculate the effective interest rate in that year, which has been applied to Labour’s additional debt. This calculation assumes that interest rates remain low. Of course in reality under Labour the cost of borrowing would likely be much higher and so even more money would be spent on debt interest rather than on vital public services.

But John McDonnell admitted that he didn’t know how much it would cost…

     Mr McDonnell admitted he doesn't yet know how a Labour government would fund its ambitious water industry policy.  Mr McDonnell told the BBC that a Labour government could launch an ‘outright purchase’ or exchange shares in water companies for bonds (Mirror, 16 May 2017, link).  

They wouldn’t be able to raise as much as they claim.

Studio: Let’s talk first about Labour and your assessment, having looked through the numbers in the manifesto – the tax plans in particular?

Paul Johnson: ‘actually they can’t raise the £50bn they say they would raise just from the increases that they say, so you can’t raise that amount of money just by taxing companies and a little bit off the rich’ (Interrupted)

Studio: And you’re absolutely sure about that – that it doesn’t add up?

Paul Johnson: ‘It absolutely doesn’t add up. Partly there are just some errors in their numbers for some of the tax numbers’ (Interrupted)

Studio: Such as?

Paul Johnson: Some of the particular avoidance schemes and so on that they’re talking about – you just can’t make work, but the big numbers here – there’s £20bn from an increase in corporation tax rate, there’s some unspecified more billions from changing corporate tax allowances and so on. Now in the short run you might be able to get quite a lot of it – whilst you couldn’t get the £50bn, in the short run you might get £30bn or £40bn and that is quite a lot, but in the long run, again you would probably be reducing investment.

(Paul Johnson, Today programme, 7 June 2017)

    The IFS say that the chances of raising the amount of money that they state is ‘pretty small’.  Paul Johnson said: ‘The chance of getting £50 billion are pretty small. It seems to us is that if they were able to raise that amount that would take tax burden in the UK to its highest level in 70 years’ (Daily Telegraph, 16 May 2017, link).

Experts also say working families would end up footing the bill for their tax hikes…

     The IFS said that this would be the biggest tax increase in peacetime history.  ‘Labour by contrast is proposing very big increases in tax, a bigger increase in spending and, as a result, borrowing continuing around its current share of national income. They would increase spending to its highest sustained level in more than 30 years and taxes to their highest ever peacetime level … their proposed plan for paying for this expansion in state activity would not work. They would not raise as much money as they claim even in the short run, let alone the long run. And there is no way that tens of billions of pounds of tax rises would affect only a small group at the very top as their rhetoric suggests. If they want the advantages of a bigger state they should be willing to candidly set out the consequences – higher taxation affecting broad segments of the population’ (IFS, 26 May 2017, link).  

     These tax hikes would hit ordinary working families with lower wage and higher prices. Carl Emmerson, Deputy Director of the IFS, said: ‘What Labour actually want you to hear is that the spending increases they promise… would be funded by tax increases solely affecting the rich and companies. This would not happen … In the longer term, much of the cost [of tax rises] is likely to be passed to workers through lower wages or consumers through higher prices’ (Carl Emmerson, IFS, 26 May 2017).

Even Labour figures can’t make the maths work

      Andrew Gwynne was asked SEVEN times to give an example of Labour saying no to more spending and couldn’t give one (Andrew Gwynne MP, Daily Politics, 4 July 2017).

      Ed Balls said that families would end up footing the bill, and that labour’s sums don’t add up.  Ed Balls said: ‘The argument from this Labour manifesto that only the rich will pay, I don’t think it stacks up. From opposition, you can say, “Don’t worry, someone else will pay” – but you can’t do that in government’ (The Sun, 26 June 2017, link).