(Bloomberg) -- U.K. opposition leader Jeremy Corbyn sought to eclipse Prime Minister Boris Johnson by unveiling plans for an extra 83 billion pounds ($108 billion) of day-to-day spending if the Labour Party wins the Dec. 12 general election.
The figures, set out in Labour’s election manifesto published on Thursday, would come on top of the additional tens of billions of pounds that the party is proposing to plow into infrastructure projects over the next five years.
In theory, the commitments should be neutral for borrowing as they are fully covered by higher taxes on companies and top earners. Labour reckons the current budget should be in balance by 2023-24, meaning revenue and non-investment spending are at broadly the same level.
However, there will inevitably be doubts about whether a Labour government could raise as much as it thinks. The estimates include 6.2 billion pounds from cracking down on tax avoidance and evasion, a commitment that has historically delivered less than promised. There’s also 5.4 billion pounds from higher levies on the top 5% of taxpayers, above the amount the Institute for Fiscal Studies deems likely.
Labour also banks 5 billion pounds in revenue returns from its plan to increase investment by 55 billion pounds of borrowed money a year during its first term, more than doubling the current level of net investment. That’s based on the evidence that spending on infrastructure provides a far greater boost to the economy than government money spent on wages and public services.
The commitments represent a near doubling of those made before the 2017 election, when Labour planned to increase day-to-day spending by 49 billion pounds a year and up capital spending by 25 billion pounds -- only slightly more than the investment boost the Conservatives are now proposing.
They also come on top of the extra 12 billion pounds of day-to-day spending promised by the Conservatives in September. It points to spending rising to its highest since the 1970s under Labour, with the tax burden climbing well above levels sustained since World War II.
“These are enormous numbers, these are really, really big numbers,” Paul Johnson, director of the Institute for Fiscal Studies, told BBC Television. “Ignoring the money, can you actually deliver something on this scale? And they are talking about getting that enormous amount of money just from companies and people on high earnings. There has to be serious doubt about whether that is genuinely credible.”
The manifesto includes a fiscal credibility rule that commits a Labour government to “eliminate the current budget deficit by the end of the rolling five-year period,” while improving the strength of the public balance sheet and keeping debt-interest payments below 10% of tax revenue. However, the rule can be suspended if the Bank of England restarts quantitative easing.
Labour has already suggested a number of changes at the BOE, and this latest idea may prove controversial if it’s seen a way of dragging the independent central bank into the fiscal policy debate -- an arena officials have previously been at pains to avoid.
Labour’s spending plans include more money for schools and public-sector workers, the abolition of university tuition fees and a 6 billion-pound boost for the National Health Service that tops the investment promised by the Conservatives.
Total tax revenue would rise by around 10% relative to current forecasts. More than 5 billion would come from reversing cuts to inheritance tax and the Bank Levy, imposing a charge on second homes and slapping value-added tax on private-school fees. Corporations take the biggest hit, though, with plans to raise the tax rate on company profits to 26% from 19% and to introduce a levy on financial transactions together projected to generate almost 33 billion pounds.
(Adds reaction from Institute for Fiscal Studies)
--With assistance from David Goodman.
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