Most of us would expect political parties to spell out how much their manifesto pledges might cost and how they will be paid for, especially when they are promising to spend copious amounts of OPM (Other People’s Money). Of course, manifestos now seem to be little more than works in progress. The Tories have already performed a screeching U-turn on social care, while Labour has hit the accelerator by bringing forward its plans to abolish tuition fees.

However, politicians should sometimes be allowed a little wiggle room. It may not always be right to ‘balance the books’ every year so that every penny in additional spending is fully financed from taxation. And it is not always possible to cost every policy at the manifesto stage. If this sounds like heresy, read on…

A manifesto is simply a public declaration of the aims and objectives of a political party and the policies that it intends to implement to achieve them. They should inform voters and provide the next government with a clear mandate. But it is up to the parties themselves to decide how much or how little detail to include, and up to the voters to decide what they think of the offerings before them. There is no absolute right or wrong here.

That said, it is reasonable to look for some quantification of specific spending commitments, such as the provision of free school meals or the abolition of university tuition fees. These commitments are usually relatively straightforward and parties should be able to put a price on them. Voters are then better able to judge whether the benefits might justify the costs.

The same principle applies to any specific commitments on taxation. If a political party is planning to raise or lower taxes, it is surely right that voters should be given some idea of how much more they might have to pay and how any changes might affect the amount of money that the government can spend on public services.

However, it may not always be possible, or even desirable, to cost every policy or pre-empt the decisions that a Chancellor may need to make in every future Budget. For example, a government may want to consult on the best way to implement a manifesto pledge – such as the reforms to social care proposed by the Tories or changes to in-work benefits under Labour. Including specific costings in a manifesto may limit the options available when many details still need to be worked out.

What’s more, it is not always necessary for spending and tax commitments to be exactly offsetting. Labour’s manifesto attempted to gain credibility by identifying (precisely!) £48.6bn of additional tax revenues to pay for £48.6bn of additional current spending – in 2021/22. As it happens, this has since been undermined by the (apparently unfunded) pledge to abolish tuition fees as early as this autumn. But did the numbers really have to add up in the first place?

The point here is that there may be times when the economy could actually benefit from a fiscal boost in the form of an increase in public expenditure financed, wholly or in part, by increased borrowing. Of course, we can debate whether now is such a time. (It’s a resounding ‘no’ from me.) But this may still be a reasonable proposition to put before the electorate.

After all, this is what the Lib Dems have done. Their manifesto promised a £30bn increase in current spending, ‘paid for’ by £16bn in tax rises and £14bn in borrowing. And both the Lib Dems and Labour costed their plans for additional spending on infrastructure but made clear that these sums would be borrowed, rather than financed from taxation. That is surely legitimate too – even though many of us might baulk at the idea.

What about Labour’s failure to cost its plans to renationalise energy, water and Royal Mail? One possible justification is that Labour has not yet decided how or when it would repurchase these assets and that it is impossible to predict what the price would be in advance. However, it should be possible to provide some ballpark estimates based on current valuations (£50-100bn?).

A better defence is that the additional borrowing should be offset by the value of the assets purchased. Put another way, gross borrowing and debt would rise, but not the net amounts. On this basis, the precise numbers might not actually matter. And because government borrowing costs are generally lower than those of private owners, there could be an immediate saving to pass on to customers.

But this begs a lot of questions. What if the markets don’t take such a sanguine view of Labour’s economic plans and demand a bigger risk premium for lending to the government, whatever the purpose? What if the government runs the new companies badly and the value of the assets deteriorates? What if it actually decides to run the businesses at a loss, requiring additional borrowing? And what would be the impact on investor confidence if Labour took the advice of some and decided not to pay the full market price for the assets in the first place? Putting some rough numbers on the cost of renationalising these assets would at least make it easier to gauge these risks.

Overall, then, the issues are perhaps rather more nuanced than some of the headlines might imply. However, more information is usually better than less. Politicians need to earn our trust and being forced to think through and explain the costs of a policy proposal is often a good test. This applies just as much to those already in government as it does to the opposition; parties with a poor track record of meeting their own fiscal rules surely cannot expect a free pass.

In addition, we can all accept that some estimates may be less reliable than others and that plans may need to change. But that’s often a poor excuse for not providing at least an indication of what the numbers might be. If no-one really has a clue how much something might cost, isn’t that a massive red flag? After all, you expect to see prices on a restaurant menu and ask for a quote before employing a plumber. Politicians should not complain when they are held to the same standard.

 

Julian Jessop is Chief Economist at the IEA. He has thirty years of experience as a professional economist in the public and private sectors, including senior positions at HM Treasury, HSBC and Standard Chartered Bank. Prior to joining the IEA in March he was a Director and Chief Global Economist at the leading independent consultancy, Capital Economics. Julian has a First Class degree in economics from Cambridge University and post-graduate qualifications in both economics and law.

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