17 Jun 2024

Reform UK plans to cut spending ‘won’t be painless’ say IFS

Carl Emmerson from the independent Institute for Fiscal Studies, which studies UK government taxation and spending, spoke to us, and we began by asking what he makes of Reform UK’s position on tax cuts.

Carl Emmerson: They’re proposing really quite big tax cuts, some big spending increases, all of which they think can be paid for by some very large cuts to spending. I think the problem is that the tax cuts are probably, in reality, tens of billions of pounds a year more than they expect. And actually, for example the pledge on the NHS, probably likely to cost a lot more than what they expect.

Krishnan Guru-Murthy: So it doesn’t add up?

Carl Emmerson: The numbers look really challenging. I think in practice if a government tried to implement this package, it would either have to do some, but not as much of it, or it would have to find some tax rises or some additional spending cuts elsewhere to make the numbers work.

Krishnan Guru-Murthy: Give me an example of why you think the cuts would actually cost more.

Carl Emmerson: These tax cuts, big cuts to income tax taking people out of basic rate tax, taking people out of high rate tax. We think that would cost more than Reform expects. The corporation tax cut, they give the average cut per year over the parliament. But the second part of that cut comes in year three. So by the end of the parliament, the tax cuts are worth a lot more than they expect.

Krishnan Guru-Murthy: So you suddenly need to find a lot more money somewhere else?

Carl Emmerson: You’d need to find more in, say, year four or year five of the parliament if you did try and implement the whole package.

Krishnan Guru-Murthy: What about their assumptions on growth?

Carl Emmerson: They have some very punchy assumptions, assuming that you get a lot more growth. They actually don’t rely on that to make their numbers work. I think in reality, it’s not clear that this package of measures would bring about anything like the boost to growth they expect, at least not in the near term.

Krishnan Guru-Murthy: There’s an appeal to sort of common sense with their cuts of 5p in every pound in public money that would save £50 billion. They say, in any business you can say, let’s take out 5 per cent and you can do it. Can you do that when it comes to government spending?

Carl Emmerson: It’s obvious there are some inefficiencies. I think the challenge is you say you’re going to take 5 per cent across the board, but I would expect you to then say, but we want to increase the NHS budget, we want to increase the defence budget, we want to protect the state pension. So all of a sudden you’re looking at much more than 10 per cent across the rest of government. And, of course, many of those areas are the areas that had really big cuts during the 2010s. Now you can cut spending in those areas if you want. What you can’t do is cut spending and claim it will be painless. It’s not all going to come from just waste and inefficiencies. You have to accept some reduction in what the state is actually doing.

Krishnan Guru-Murthy: When they say, this is just the Westminster Oxbridge elites telling us, patronising, if you like, saying we don’t know what we’re doing, what’s the reply?

Carl Emmerson: I’ll give you a concrete example. They want to eliminate waiting lists in the NHS within two years. Now, clearly it obviously would be great if there were no waiting lists in the NHS. But the NHS has always had waiting lists. It’s never been able to eliminate them. They cost that at £17 billion. It’s just obvious it would cost a lot more than that. You can see during the first decade of the 2000s much, much bigger increases in spending over a ten year period, waiting lists came down. They were not eliminated. So I can pretty much guarantee you could not eliminate them within two years for £17 billion.

Krishnan Guru-Murthy: And when you look at their headline tax cuts, where does that place us historically as to where we would be if we implemented their tax cuts?

Carl Emmerson: I think there it’s worth noting that, yes, these are big tax cuts, and it would be a big bold manifesto offer. But I think it’s worth saying the tax cuts are not unachievable in the sense that they would only put tax as a share of national income around the level we had in 2019, which is another way of saying we’ve had a really big increase in tax over the last five years. Reform would be looking to wind that back over a full parliament.