Wednesday, 27th November 2019 07:43 - by Shant
This weekend saw the release of the Labour manifesto, in which the bottom line spending will amount to nearly £83bln a year, funded primarily through taxes along, but augmented by fresh public borrowing. According to Paul Johnson, director of the Institute of Fiscal Studies, the radical plans by Jeremy Corbyn will require borrowing of another £12bln a year for the next five years. As has been widely termed through the UK press this weekend, this 'drives a cart and horses' through their previous manifesto pledge to maintain the current budget balance.
The key spending areas include a £250bln national transformation fund, aimed at improving transport, energy systems, communications, housing and scientific research. £2bln would be spent on the NHS, but if Labour aims to raise public sector wage growth to levels in line with the private sector, the Institute of Fiscal Studies estimates that this would cost £2.9bln for the NHS alone. The Labour leader has pledged to increase public sector pay by 5% from April 2020 in the first instance, putting further immediate burden on the public purse.
Also included in the Labour pledges is the scrapping of tuition fees to the tune of £7.2bln, free full-fibre broadband for everyone, free TV licences for the over 75's, free bus travel for the under 25's and free dental check-ups. The Fire Service will also get an extra 5000 firefighters. Labour has earmarked nearly £11bln on social care, £5.6bln on free childcare for 2-4-year-olds and £5.5bln on schools. On housing, Labour plans more building of Council Houses and will introduce rental caps. It will also introduce taxation on second homes, forcing landlords to sell homes to their tenants at a 'fair price'.
Impacting more directly on some key areas in the market, Labour also plans to nationalise Royal Mail, the big size Energy companies, the Water industries, Rail and Bus Networks as well as certain parts of BT.
Looking at his targets on taxation, some of the more radical elements smack of pure desperation in trying to get more of the electorate onside. He has planned the seizure of 10% of shares of every major company through an annualised transference of 1% into an Inclusive Ownership Fund (for workers), including any dividends attributed to the shares in question. A financial tax will also be introduced on the City, raising $8bln, as well as lifting Corporation Tax from 19% to 26% over the next three years. A windfall tax will also be levied on the oil and gas industry to fund an £11bln scheme to retain North Sea workers into lower carbon-intensive industries. Naturally, there will be a higher tax rate for the super-rich, while Inheritance Tax will also be raised.
Needless to say, this is one of the most radical manifesto's offered by an opposition party since the 1970s. No surprise then that analysts deem this manifesto as a 'Hail Mary' play, a move which suggests that Jeremy Corbyn is going for broke as he aims to not only dismantle the familiar political establishment but also the economic landscape he sees benefiting the wealthy and super-rich. Political analysts seem to be of one voice in believing this leftfield plan is doomed to failure, and that it will perhaps cement government back into the hands of the Tories. At this point, we haven't even addressed the issue of Brexit, where many Leave-voting Labour constituencies will have felt let down by the party's stance - which was only until recently focused on getting a second referendum.
Watching the markets in recent weeks, Sterling - as the Brexit gauge - has been singularly focused on the outcome of the election. Brexit is now a 2 stage process where a return to power of the Conservatives is expected to see Boris Johnson forging ahead with his EU agreed deal. There is now, however, an added edge as Labour has - at the very least - take some of the limelight away from Brexit. When the polls show the Tories widening their lead over Labour, we see stronger levels in the Pound playing through. Based on what we can expect if Labour was to come to power, we can now clearly see why.
The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.