More of the same or a massive change to the economic system? This is the choice that the U.K.’s two biggest parties are offering at the upcoming election, according one independent British think tank.
“Rarely can a starker choice have been placed before the U.K. electorate,” Paul Johnson, director of the Institute for Fiscal Studies (IFS), said at event in London Thursday.
The opposition and pro-social justice party, Labour, has promised a total revamp of the U.K.’s economics. It wants to nationalize the six big energy firms, the National Grid, the water industry, the Royal Mail, the railways and the broadband arm of telecoms firm BT. Labour also wants to increase taxes for corporations.
On the other hand, the incumbents and pro-business Conservative Party has put forward a somewhat “modest” manifesto, according to the IFS.
“It is hard to imagine two parties offering more different prospectuses to the British population,” Johnson said in an interview with CNBC.
“The Conservative manifesto is essentially ‘steady she goes’, no increases in taxes, very little in the way of spending rises, nothing changing in the welfare system. The Labour manifesto, on the other hand, is enormous in its ambition, literally £100 billion worth of spending increases, £80 billion worth of tax rises,” Johnson added.
Reacting to the IFS analysis, John McDonnell, a Labour lawmaker and prominent figure within the party said: “The IFS assessment of Labour’s plans is that we are too ambitious — we take that with pride. We are ambitious for our country and will be investing on the scale needed to end austerity, tackle climate change and build our county’s future.”
On the other hand, Sajid Javid, the Conservative minister for finance said Thursday: “Independent experts have again confirmed today that (Labour leader Jeremy) Corbyn’s plans would mean millions more people paying higher taxes — leaving his manifesto promises in tatters.”
What are some of their economic pledges?
The Conservative Party said it will no longer go ahead with a previous plan to reduce the corporation tax (the levy for businesses) from 19% to 17% — instead, Prime Minister Boris Johnson wants to invest more in public services.
He also committed to a “triple tax lock,” meaning that the three main taxes from the government (income tax, value-added tax and National Insurance) will not rise during its next period in power.
Under a Conservative government, the National Insurance threshold (which states the amount by which people start paying tax on their income) will increase to £9,500 in 2020, with the aim to reach £12,500 in the future.
On the other hand, the Labour party has announced plans to raise the main rate of corporation tax to 21% from April 2020, 24% from April 2021 and 26% from April 2022.
It also intends to raise income tax for those who earn more than £80,000 a year as well as freezing National Insurance and income tax for all other brackets. VAT (a sales levy on goods and services) will also not increase under a Labour government, according to the party’s manifesto.
What do their plans mean for UK debt?
“Conservative plans if delivered would leave public service spending (excluding health services) still 14% lower in 2023-24 than it was in 2010-11,” the IFS said.
“Labour propose to increase current public service spending by an additional £73 billion by 2023-24 taking it to almost one-third above today’s level,” the think tank also said.
The U.K.’s public debt pile sits at about 86% of its GDP (gross domestic product). The yield on the 10-year U.K. bond is at about 0.671%.
“Borrowing at the moment in the U.K. is about average by its long-term historic standards and of course interest rates are very low, so there’s probably scope for more borrowing and debt overtime, if that’s where we want to go,” Johnson said, while adding that, nonetheless, “you can’t have the debt rising forever.”