Three ways politicians always promise to raise money without increasing taxes – and why they rarely deliver
- Written by Steve Schifferes, Honorary Research Fellow, City Political Economy Research Centre, City, University of London
After weeks of controversy over Labour and Conservative costings – in which each side[1] accused the other[2] of dishonesty – the manifestos show that both parties had wildly exaggerated their rival’s plans.
But there has been far less focus on their plans to fund the promises, which both parties claim are “fully costed”. This may be because, to a greater or lesser extent, they are both banking on income streams that may not materialise.
There are three main tropes that UK political parties have used in past elections to square this circle without much political cost. They are a crackdown on tax evasion, efficiency savings in public services, and sharp cuts in welfare spending.
These potential savings are attractive because they feed into popular cliches. That the government and the NHS are bloated bureaucracies. That there are lots of people getting benefits who could get a job. And that there are plenty of rich people who are avoiding taxes that the government could easily collect.
But in practice they have often proved difficult to implement, yielded far less than projected and have taken much longer before they realised any savings at all[3]. It often turns out that there are significant political costs, and has been insufficient preparation for such big changes. Having an aspiration to save money is not the same as having a plan.
Labour also has factored in some efficiency savings (called “reallocations”), but these amount to a much more modest £1.5 billion. The party has been coy about whether it will seek more efficiency savings, but shadow health secretary Wes Streeting has suggested that[12] the NHS needs reform rather than pouring money into a “leaky bucket”.
Tax dodgers
It is significant that the one figure neither party has questioned is the large amount both say they could raise by cracking down on tax evasion.
HM Revenue and Customs (HMRC) has already been reducing the “tax gap”[13]. But further progress would probably require a big increase in staffing as well as improvements in technology, something Labour (but not the Conservatives) explicitly recognise. Given the severe staff cuts at HMRC[14], it might be some time before the gains outweigh the costs.
HMRC says that the bulk of tax avoidance is by small businesses, not the rich. But it could be politically costly to target a sector that both parties want to show they support as part of their growth strategy.
Bloated bureaucrats
The Conservatives have a long list[15] of efficiency savings (mainly from sacking people, including tens of thousands of civil servants and 5,500 NHS managers[16]). But studies suggest[17] that there are actually too few managers to run an organisation like the NHS, Europe’s largest employer, efficiently.
NHS productivity[18] has fallen since the pandemic, but this may stem from the fact that experienced staff are demoralised and leaving in record numbers[19]. So productivity might actually be improved in the long term by raising pay as well as training more doctors and nurses, rather than with cuts.
And factors outside the NHS’s control, for example the lack of social care beds, have had a significant effect on waiting lists[20].
Benefits
There is no doubt that spending on health-related welfare benefits has risen sharply. But it is much less clear whether making big cuts would be either possible or desirable. Spending sharply increased after the pandemic, with disability and incapacity benefits forecast to rise by £9.7 billion[21] by 2028-29.
The Conservatives have outlined a broad range of measures to curb disability benefits[22], but the key measure would be stopping key benefits[23] for those who refuse to go to work if judged capable after one year.
But the very large savings of £12 billion pencilled in by the Conservatives would be difficult to achieve without significant pain[24], for example by forcing one in five people off disability benefits. Despite this, Rishi Sunak claimed recently it would be possible to shave nearly £35 billion[25] from the bill.
Labour has not made explicit claims about how much can be saved by reducing the disability benefit bill – but might be tempted to try for both ideological and financial reasons.
Its manifesto says the welfare system will be underpinned by rights and responsibilities – and that there will be “consequences”[26] for those who “do not fulfil their obligations”. But it stops short of spelling out what those would be.
This election is being held at a very difficult time. Living standards have been squeezed, public services have been battered and the economy is barely growing.
But making false promises or providing seemingly easy answers during the campaign may make it harder for people to trust politicians after the election.
No matter how attractive some funding sources may appear in theory there are unlikely to be any magic formulas, whether by saving on battered public services, squeezing those on benefits, or finding hidden tax revenues. A hard slog lies ahead for whoever wins the election.
References
- ^ each side (news.sky.com)
- ^ accused the other (www.bbc.co.uk)
- ^ any savings at all (ifs.org.uk)
- ^ election newsletter (theconversation.com)
- ^ Conservative manifesto (public.conservatives.com)
- ^ childcare places (www.bbc.co.uk)
- ^ infected blood scandal (theconversation.com)
- ^ Labour’s manifesto (labour.org.uk)
- ^ £4.8 billion (www.politico.eu)
- ^ raise £5 billion (labour.org.uk)
- ^ Martin Suker/Shutterstock (www.shutterstock.com)
- ^ has suggested that (www.ft.com)
- ^ “tax gap” (obr.uk)
- ^ staff cuts at HMRC (www.cityam.com)
- ^ long list (public.conservatives.com)
- ^ 5,500 NHS managers (www.health.org.uk)
- ^ suggest (www.nhsconfed.org)
- ^ NHS productivity (www.nhsconfed.org)
- ^ record numbers (www.nursingtimes.net)
- ^ waiting lists (www.health.org.uk)
- ^ £9.7 billion (www.resolutionfoundation.org)
- ^ curb disability benefits (public.conservatives.com)
- ^ stopping key benefits (public.conservatives.com)
- ^ significant pain (ifs.org.uk)
- ^ £35 billion (www.telegraph.co.uk)
- ^ “consequences” (labour.org.uk)
