A big row has broken out over whether Labour's spending plans are feasible or, as Sajid Javid put it, "fantasy economics".
Campaigning for the upcoming UK election is underway, and there’s been lots of drama around how much money the Labour Party’s would spend if it won. Sajid Javid, the Chancellor of the rival Conservative Party, has said that the Labour Party has not been honest about how much taxes would be put up, and that their plans would cost each UK worker £2,400 a year more they expect. That’s about the same as the average monthly income. Labour says this figure is based on a series of false assumptions.
To get to the £2,400 tax statistic, the Conservative Party estimated costs for all the policies Labour has proposed in both its 2017 manifesto and the two years since. That added up to £1.2 trillion over five years. Based on previous statements by Labour’s Shadow Chancellor, John McDonnell, about which policies he would fund with loans and which with taxes, the Conservatives figured out that £651 billion of this money would come from taxes, and that Labour’s current tax plans would raise less than half of that (£277 billion). So they divided the shortfall by the number of income tax payers in the UK. That resulted in £12,000 per income taxpayer over five years, or £2,400 a year.
But there are several reasons why this might not be how much most actual employees would stump up under a Labour government. For a start, the Labour Party has not yet released its official 2019 manifesto. Parties often ditch older policies when they put together a new manifesto, so Labour might not actually be intending to do all the things the Conservatives included in their figures.
Secondly, dividing an amount of tax revenue by the number of taxpayers doesn’t reflect how income tax works in the UK. Income tax is progressive, which means it's structured so the more you earn, the more you pay. Governments who want to increase or decrease income taxes change the percentage of tax you pay on income over a certain amount. So they might say that for every pound you earn over £50,000 each year, you have to give them 20p or 50p or 99p.
Labour, as a left-wing party, is firmly committed to raising taxes on richer people rather than poorer ones. So even if McDonnell did want to raise an extra £374 billion through taxes, the most likely outcome would be that high earners’ tax bill would go up by significantly more than an extra £2,400 a year, and lower earners would go up by significantly less, if at all.
Read our explainer on: tax.
