The Liberal Democrats have launched their election manifesto, with promises to invest in schools, tackle in-work poverty and put more money into health and social care.
They say they have balanced the books when it comes to day-to-day spending.
Their plans rely on a £50bn “Remain Bonus” — a figure that is contested.
The Lib Dems say it could underestimate the true benefit of staying in the EU. But the party admitted to FactCheck that if there was an economic shock and the £50bn did not materialise, they would have to borrow money to make up the shortfall.
The £50bn ‘Remain Bonus’
Lib Dem analysis anticipates that the economy will be 1.9% larger in 2024-25 if we Remain in the EU than it would be under the Conservative government’s Brexit deal.
According to the party’s calculations, that would translate to an extra £50bn in tax revenue over the next five years, of which £14.3 billion would arrive in the year 2024-25.
Paul Johnson, director of the independent Institute for Fiscal Studies, has said of the £50bn figure: “We could expect the economy to be bigger if we were to remain and this assumes a relatively modest effect if anything, although obviously subject to a huge amount of uncertainty.”
In other words, the logic is sound, but the precise figure is contested. The uncertainty over the “Remain Bonus” figure has been pointed out before.
A party spokesperson told us: “Every Budget or manifesto costings is based on forecasts of economic growth, with associated uncertainty.” He told us the Lib Dems “actually think the Remain Bonus would be bigger than £50bn — but we have based our costings on very cautious forecasts to ensure that our spending commitments are credible.”
Balancing the books?
The Lib Dem manifesto says: “Our plan is to fully fund day-to-day public spending”.
In other words, the cost of this extra spending will be covered by taxes, without the need to borrow money. (Though they do intend to borrow for capital spending).
The party have published figures on how much tax they expect to raise in 2024-25 and how much they plan to spend on each new policy.
We should say that this doesn’t appear to be a full “costing”: it only tells us about the final year of the parliament, rather than a full breakdown of expected revenue and cost in the intervening years.
A spokesperson told FactCheck that the balance sheet “is in surplus in every year of the parliamentary term”, but we can’t verify that claim as the party won’t be publishing any further costings documents.
In total, they expect the new policies will cost £62.9bn in 2024-25, which they say will be offset by an extra £63.8bn in tax revenue.
So on the face of it, it looks like the Lib Dem programme will pay for itself.
But there’s a catch: £14.3bn of that expected tax revenue is supposed to come from the “Remain Bonus”.
We asked the Lib Dems what would happen if it doesn’t materialise, or is lower than expected. After all, the economy could be hit by other factors beyond Brexit. A spokesperson told us: “If there is an economic shock the government would have to borrow more — that’s true for any party’s plans in any election.”
The Lib Dems say their plan is to “fully fund day-to-day public spending” — i.e. they won’t need to borrow money to cover new pledges announced this week.
But there’s an important caveat: a significant chunk of the funding is supposed to come from a “Remain Bonus” that the party have estimated will be worth £50bn over the next five years.
It’s true that the economy is expected to be larger if we stay in the EU compared to any form of Brexit, and in theory that should translate to more tax revenue for the government. But economists have questioned whether the precise figure of £50bn is reliable.
This puts the Lib Dems in an awkward position if the “Remain Bonus” doesn’t materialise or is smaller than they expect. They admit that if there were an economic shock, they would have to borrow to make up the shortfall.
So will the Lib Dems balance the books? We won’t know unless and until that “Remain Bonus” appears.