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Labour’s Manifesto, are they in dreamland?

Labour’s Manifesto, are they in dreamland? The Institute for Fiscal Studies might think so.

Labour has launched its ‘radical’ general election manifesto, promising to “transform” the UK and to renationalise mail, rail, water, energy and communications.

Leader Jeremy Corbyn also vowed “a green transformation” of the economy, aiming to get the UK “on track” for a net-zero carbon system by the 2030s.

The 105 page manifesto includes a windfall tax on oil firms and scrapping rises in the state pension age.

Mr Corbyn said his offer to voters was “radical” and would mean “real change”,  accusing “bankers, billionaires and the establishment” of wanting to thwart his plans, adding: “They don’t own the Labour Party. The people own the Labour Party.”

However, Paul Johnson, IFS Director, said:

  • Labour’s proposed income tax rise for those with incomes above £80,000 would affect only the highest-income 3% of adults. But this accounts for less than a tenth of the additional revenue Labour says it would raise.
  • About three-quarters of the revenue comes from increasing taxes on companies and their shareholders. It would be a mistake to think of this as falling entirely on ‘the rich’.
  • To the extent that corporation tax falls on company shareholders, that includes everyone with a defined contribution pension. And in practice much of the burden will be passed on to companies’ employees through lower wages, and customers through higher prices – and that means all of us.
  • Labour proposes to raise the main rate of corporation tax to 26% and reintroduce a small profits rate at 21%. In terms of headline tax rate, that would move the UK from one of the lowest headline rates in the OECD to above average. Alongside other corporation tax increases proposed, this would move the UK from raising an average share of national income in corporation tax to the highest in the G7 (see chart below) – if the reform raises the revenue Labour hopes.
  • In the short run, the increase in the rate of corporation tax might bring in the £20 billion Labour says. In the long run it would bring in less, as a less competitive rate would reduce investment, and therefore productivity and wages, in the UK.
  • Labour’s proposed reforms to the taxation of capital gains and dividends could represent moves in the right direction; its proposal for a financial transactions tax much less so.

Stuart Adam, a senior research economist at the Institute for Fiscal Studies, said: 

“Labour claims its measures would raise £80 billion in 2023–24, with most of this coming from increasing taxes on companies and their shareholders. This would imply the UK raising more in corporation tax than any other G7 country. The biggest tax rise is an increase in corporation tax rates, which is unlikely to bring in as much revenue as Labour hopes, at least in the longer term. Increases in corporation tax would affect far more than the very rich: much of the burden would ultimately be felt by employees and customers.”

On the question of Leave or Remain – he still refuses to give a straight answer.

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