Keir Starmer’s spending plans would cost the equivalent of a 3p income tax rise as Jeremy Hunt claims inflation would rise under Labour
- Experts say Labour may need to raise taxes or borrow more to keep its promises
Labour’s spending plans would push up taxes, inflation and interest rates while costing the Treasury an extra £20billion a year, Chancellor Jeremy Hunt warned yesterday.
The Opposition’s policy pledges – which include extending free childcare to all those aged 11 or under and increasing foreign aid spending – would cost the equivalent of a 3p rise in income tax, analysis suggests.
Shadow chancellor Rachel Reeves has promised in the past that every Labour policy announcement ‘will be carefully costed and fully funded’.
But experts, including the head of the Institute for Fiscal Studies, said the party may need to raise taxes or borrow more to fulfil its promises in government.
Mr Hunt, who has made reducing inflation one of his key goals, said: ‘It is just not possible for Labour to promise so much extra spending without pushing up taxes, inflation and interest rates – as the IFS says in this powerful analysis.
Jeremy Hunt has made reducing inflation one of his key goals
Any sensible economic policy needs one simple goal: get inflation out of the system and do so as soon as possible.’
Labour has promised to raise funds for its policies by imposing VAT on private school fees and ending the non-domiciled tax status. Officials believe the latter will raise up to £3.2billion.
But IFS director Paul Johnson said increasing revenues through closing tax loopholes would be a ‘drop in the ocean’ of what is needed.
He told the i newspaper: ‘It is hard to say how, without tax rises, they do anything more generous than is currently planned.
‘At the moment, the fiscal rule that is binding is the one that says debt should not be rising in the medium term, and the one thing they have committed to is the big increase in capital spending.’
The most expensive of all policy pledges made by the Shadow cabinet team is party education spokesman Bridget Phillipson’s promise of free childcare for all those aged 11 or under.
The net cost of this will be around £13.6billion, according to the IPPR think-tank. Another £5.5billion would be spent on increasing foreign aid levels from 0.5 per cent to 0.7 per cent of GDP.
Almost £2billion would go to increasing GP salaries under the party’s plans for the health service, while hundreds of millions have already been promised for police and mental health staff.
Chancellor Jeremy Hunt believes Labour’s spending plans would push up taxes, inflation and interest
The party’s one-off capital spending pledges – which include a ‘green prosperity plan’ mirroring Joe Biden’s Inflation Reduction Act and extending the Northern Powerhouse Rail to run between Liverpool and Hull – could cost £55billion.
Tory party chairman Greg Hands said: ‘The mask has slipped – Labour have again run out of money and must now draw up plans for a huge tax raid on hardworking Brits.
‘The message from the IFS is clear, Labour’s borrowing spree will see inflation and interest rates spiral and the only choice they have will be to hike taxes – hammering families and business.’
But Labour’s shadow chief secretary to the Treasury Pat McFadden said last night: ‘Where we commit to policies we will say how they are funded – something the Tories never do. And don’t forget they crashed the economy last year. Mortgage holders are still paying.’
At last year’s Labour party conference Mrs Reeves said: ‘Labour will not waver in our commitment to fiscal responsibility.
‘That is why I set out the fiscal rules for the next Labour government a year ago. Every policy that Labour announces – and every line in our manifesto – will be carefully costed and fully funded.’
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