Labour launched its 2015 manifesto today and made much of its so-called “budget responsibility lock”.
“Not one commitment requires additional borrowing,” the document claims. “We are the first party to make that pledge and with this manifesto it is delivered.”
Do the numbers actually make sense?
Scrapping the “bedroom tax”
The government calls it the spare room subsidy. Opponents call it the bedroom tax.
Tenants in the social rented sector with spare rooms have been handed a cut in housing benefit under the coalition, a move Labour today branded “cruel” and vowed to reverse.
But this, of course, will cost money – about £500m a year, according to the Office for Budget Responsibility (OBR).
How will Labour pay for it? By doing three things: reversing a tax cut for hedge funds announced in Budget 2013; scrapping George Osborne’s “shares for rights scheme”; tackling disguised employment in the construction industry.
The hedge fund move will only bring in about £150m a year.
Scrapping the scheme where employees are given shares in exchange for giving up some of their employment rights is interesting. Labour quote the OBR as saying the long-term cost to the exchequer could be as much as £1bn.
The independent budget watchdog did say that, but it also predicted that the scheme would cost just £80m a year by 2017/18 and there was considerable uncertainty around the numbers.
In fact a recent parliamentary answer revealed that just 350 companies – instead of the 6,000 expected by the government – have signed up to the policy, suggesting that Labour will not make massive savings if they pull the plug on it.
This covers less than half the cost of Labour’s “bedroom tax” pledge. Will the crackdown on disguised employment – where people are falsely registered as self-employed despite effectively being an employee of company – cover the rest?
Labour haven’t put a figure on this, and the coalition has already claimed to have strengthened existing rules to close off this loophole, raising £400m.
£2.5bn more for the NHS
Labour want to spend £2.5bn a year more on the NHS. Again, there are three policies that will supposedly pay for this: a mansion tax on properties worth over £2 million, a levy on tobacco firms, and by tackling tax avoidance.
The tobacco levy has been costed at £150m a year. The mansion tax is supposed to bring in £1.2bn a year and tax avoidance measures are said to be worth £1.1bn. (That doesn’t quite add up to £2.5bn, but whats £50m between friends?)
How do we get to £1.1bn? As far as we can tell, the plan is to get £500m from closing the Eurobonds loophole that lets companies shift profits out of the country to dodge corporation tax. Another £600m would come from preventing hedge funds avoiding paying tax on shares.
But there is some uncertainty around these numbers: in 2013 HMRC said the Eurobonds loophole was only costing the exchequer £200m.
Labour have a broader target of raising an extra £7.5bn a year from tax avoidance and evasion by the middle of next parliament, but the details are sketchy, and it’s not clear to us whether the £1.1bn earmarked to pay for the NHS plans is part of this sum.
As we have found in previous FactChecks, the real extra cash brought in by the coalition after dozens of tax avoidance measures is incredibly hard to pin down.
Labour say they will launch a “review of culture and practices at HMRC”, but they are not actually committing to spending any more money.
Paul Johnson, director of the Institute of Fiscal Studies, has bluntly accused all parties of simply “making up numbers” when it comes to tax avoidance projections.
He told the BBC: “Frankly, they’re not at all credible. I mean – all of the three main parties are just making up numbers, quite honestly.
“The Conservatives have made up a £5bn number, the Liberal Democrats a £7bn number and Labour a £7.5bn number.
“They’ve essentially said ‘these are targets for what we want to get from tax avoidance’. Who knows whether that’s feasible? Who knows whether that’s the kind of money which is actually achievable?”
It’s probably fair to say that Labour have provided more detail than the Conservatives so far about how they intend to pay for their various policy commitments.
But it’s possible to poke holes in many of Labour’s numbers. Most are projections and subject to varying degrees of uncertainty.
Changing tax rules usually changes people’s behaviour, so predicting future revenue is notoriously difficult.
In some cases, like changing the rules for “non-doms”, Labour haven’t even put a figure on how much they think could be saved.