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| Labour's manifesto: analysis of the key points and pledges | Labour's manifesto: analysis of the key points and pledges |
| (about 1 hour later) | |
| The final 128-page version of Labour’s manifesto includes details of the party’s tax plans, a pledge to renationalise the water industry, a promise of 30 hours’ free childcare, a new section on security and counter-terrorism and tougher language on defence compared with the draft leaked last week. | |
| A separate short document balancing fresh spending commitments with tax-raising pledges is significant in not including the costs of the big pledges to renationalise the railways, Royal Mail, the energy companies or the water industry. Instead, a short note on a new £250bn “national transformation fund” implies these costs will be funded through capital borrowing. | |
| The manifesto also costs the commitment to abolish tuition fees and restore student grants at £11.2bn, a £7.7bn boost to health and social care, a £6.3bn boost for schools, including free lunches, an end to the public sector pay cap at a cost of £4bn and £4bn increases in social security, including scrapping the bedroom tax. | |
| Income Tax | Income Tax |
| Top 5% of earners, those on more than £80,000 a year, to face a 45p marginal rate of income tax and a new 50% rate on earnings above £123,000 to raise £6.4bn a year. Pledges to not increase VAT rates or personal national insurance contributions. Scotland sets own tax rate. “Fat cats” levy. | |
| Analysis: The Institute for Fiscal Studies said lowering the threshold for the 45p rate from £150,000 to £80,000 would bring 1.3 million people into the higher rate and could raise £7bn rather than the £4.5bn estimated by Labour. But recent evidence from the imposition of a 50p rate in 2010 shows that the measure could spark mass avoidance by the individuals affected and raise no extra funds for the exchequer. | |
| Critics say higher income tax will drive top earners offshore. The VAT and national insurance pledge does not rule out raising company NI contributions or extending the range of VAT, but says food, children’s clothes, books, newspapers and fares will remain exempt. | |
| An excessive pay levy is Labour’s attempt to tackle stratospheric wages with an extra tax. It would affect everyone from company bosses to well-paid sportspeople. With a starting rate of “total compensation” of £330,000 a year, the total raised “would be over £1.3bn”. | |
| A promised review of council tax and business rates and new options for local government funding, including a land value tax, are also likely to increase the tax burden. | |
| Company taxes | Company taxes |
| Labour plans to raise £48.6bn to pay for extra spending. It says estimates of extra revenues are conservative and take into account that businesses and individuals will change their behaviour when confronted by higher taxes. It plans to raise an extra £19.4bn a year from corporation tax by raising the headline rate from 21% to 26%. This is two percentage points below the 2010 rate inherited by the coalition government. | Labour plans to raise £48.6bn to pay for extra spending. It says estimates of extra revenues are conservative and take into account that businesses and individuals will change their behaviour when confronted by higher taxes. It plans to raise an extra £19.4bn a year from corporation tax by raising the headline rate from 21% to 26%. This is two percentage points below the 2010 rate inherited by the coalition government. |
| Analysis: Labour plans to balance the books with a near-doubling of tax receipts from Britain’s businesses. The Treasury’s most recent analysis of corporation tax payments show it steadily rising in the years from 2012-13 to 2015-16 to £44.4bn, despite steep declines in revenues from North Sea oil. In each year, industrial and commercial firms have paid more. A bounce back in the profitability of banks and insurance companies across the City has also boosted tax receipts. | |
| Low tax-free market advocates argue that higher tax receipts are a result of cuts in the headline corporation tax rate, which has encouraged firms to expand their activities and declare more of their profits in the UK. | |
| Tax on City | Tax on City |
| A tax on derivatives dealing and other exotic trading areas will generate £5.6bn, according to Labour. | A tax on derivatives dealing and other exotic trading areas will generate £5.6bn, according to Labour. |
| Analysis: This is seen as an invisible tax on an area of the City that few understand, but banks claim the costs will ultimately be passed on to shareholders in the form of lower dividends. | Analysis: This is seen as an invisible tax on an area of the City that few understand, but banks claim the costs will ultimately be passed on to shareholders in the form of lower dividends. |
| Water industry nationalisation | Water industry nationalisation |
| Labour say water bills have risen 40% since privatisation by Margaret Thatcher in 1989. Labour’s manifesto promises to “replace our dysfunctional water system with a network of regional publicly owned water companies”. The party claims this could reduce household bills by £100 a year. | |
| Analysis: Ofwat says the regulatory capital value of the water companies in England and Wales stands at £66bn, excluding debt or pension liabilities. The cost of taking them back into public ownership is not included in the manifesto costings as it would be funded through capital borrowing. John McDonnell said on Tuesday the process could either be through outright purchase or an exchange of shares in water companies for bonds. Senior Welsh Labour figures immediately suggested Welsh Water’s not-for-profit structure might be a better model. | |
| Funding nationalisation of rail, water, energy and Royal Mail | |
| Labour’s John McDonnell said: “Every spending commitment is fully costed. Every source of funding is explained.” But the shadow chancellor is under pressure to explain why the renationalisation of the water industry at a cost of more than £60bn and moves to take the National Grid and Royal Mail into public ownership are not included in his costings. | |
| Labour says the cost of buying out shareholders will be matched by the purchase of valuable, profitable businesses. The net effect on the government’s balance sheet will be zero. | |
| Analysis: If the purchase is carried out via an equity for debt swap, the current shareholders become bondholders, and rather than expect a dividend each year, they are paid a fixed level of interest, say 5%. | |
| To renationalise at zero cost, it presumes that the new state-run businesses can perform as the privatised ones, paying the interest coupon to the bondholders and financing the planned investments. This should be possible if shareholders were taking out 10% in dividends, creating 5% of headroom. | |
| However, McDonnell also wants to cut bills and that could turn profitable state-owned companies into loss makers needing taxpayer subsidies. Voters may also fear that nationalised utilities become more concerned to raise the pay and pensions of employees than to increase investment, thereby reducing the value of the new state-owned asset. | |
| Late amendments compared with leaked draft | Late amendments compared with leaked draft |
| Immigration: Explicit statement that Brexit will mean an end to freedom of movement for EU nationals. While rejecting “bogus immigration targets” for the first time, Labour says a new immigration system, which by implication includes EU nationals, “may include employer sponsorship, work permits, visa regulations or a tailored mix of all these”. | Immigration: Explicit statement that Brexit will mean an end to freedom of movement for EU nationals. While rejecting “bogus immigration targets” for the first time, Labour says a new immigration system, which by implication includes EU nationals, “may include employer sponsorship, work permits, visa regulations or a tailored mix of all these”. |
| Public sector recruitment: An earlier pledge to recruit 1,000 extra border guards has been halved to 500 and a promise to recruit 3,000 firefighters has been added. The extra costs of 10,000 police officers are budgeted at £300m but the costs of 3,000 more prison officers, the extra firefighters and border staff are not separately identified. | |
| Defence: Explicit commitment to Nato added, and a section promising a Labour prime minister will be “extremely cautious” before ordering the launch of nuclear weapons has been dropped. A late section on cybersecurity appears to have been added after the cyber-attack that hit the NHS. | |
| Security and counterterrorism: A new section has been added to the manifesto promising that the security agencies will get the resources they need, but Labour will also ensure their powers do not weaken individual or civil liberties. Judicial oversight when the powers are used. | |
| Free childcare and early years support | |
| Labour say they will introduce a £5.3bn package, including extending 30 free hours of childcare to all two-year-olds, and moving towards making some childcare available for one-year-olds and extending maternity pay to 12 months. | |
| Analysis: To create sufficient childcare places to meet the pledge Labour would replace parents’ vouchers with directly government subsidised places. The party acknowledges this will need substantial capital investment in the first two years to create the places. | |
| Ending freeze on welfare benefits | |
| Jeremy Corbyn said at the manifesto launch that Labour will end the freeze on welfare benefits. The current benefit cap means an extra £12bn is taken from low income families this year. The Tories plan restrictions on housing benefit, disability benefits and universal credit, which replaces tax credits. | |
| Analysis: There is no mention of this pledge in the manifesto or costings document. There are no spare funds in Labour’s calculations for extra welfare spending. To counteract the effects of planned cuts, under Labour’s current plans it would need to increase borrowing. A further policy paper is promised. |