Some thoughts on Labour’s costings

The official release of the manifesto has been supplemented by outline costings, identifying, in terms similar to a budget, both expectations of tax revenue and projected expenditure.  (I made a general comment about the Labour manifesto last week.  I had initially thought to write only one comment as each of the manifestos came out, but I’m not the BBC and I have no duty to offer equal time to all participants.  Labour deserve points at least for turning the election campaign to thoughts of policy.)

In relation to tax, most of the money raised is to come from corporation tax, a tax on very high incomes and tax avoidance.  The Institute for Fiscal Studies has commented that tax revenues are uncertain, and that people will change behaviour to reduce their tax liability.  Those points are certainly true, but the same uncertainties infect Treasury budgets, which in recent years have been increasingly fantastical – thumping great savings on benefits like PIP supposed to materialise out of thin air.  The best we can hope for are indicators, and for the most part Labour’s costings are neither unreasonable nor unsound.

The projected expenditure on social security is £4bn, mainly devoted to reversing existing cuts.  The main list of measures is this:

increase ESA by £30pw for those in the work-related activity group, scrap bedroom tax, implement the PiP legal ruling, restore Housing Benefit for under 21s, scrap Bereavement Support Payment reforms, £2 billion of additional funding for  Universal Credit for review of cuts and how best to reverse them, uprate Carers’ Allowance to the level of JSA

I’ve commented on the timidity of these proposals; it’s not about making benefits better, but stopping them getting even worse.  There are seven measures there:  five of the seven imply not new commitments, but reversion to former patterns, and the ‘cost’ is based on the removal of intended savings from the Treasury’s plans.

There is one element in the spending proposals which I’m sceptical about: that is the assertion that increasing the minimum wage will come in at zero cost.  In terms of the economy overall, there’s good reason to think  that increasing the minimum wage generates as much economic activity as  it suppresses.  In terms of the public sector, however, raising the minimum wage has two more specific effects:  it raises the cost of public service employment, because the public services in general and local government in particular are notoriously stingy employers, and it raises the cost of outsourced contracts, because many local authorities have ducked the first problem  by engaging external firms which pay even less for essential services.

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