Why the Institute for Fiscal Studies (IFS) is wrong when it comes to the Labour and Tory manifestos

The Institute for Fiscal studies (IFS) has shared their response to both the Tory and Labour 2019 manifestos today.

Conservative manifesto

Addressing the Conservative manifesto first, the IFS they “believe most aspects of public policy are just fine as they are.

“Little in the way of changes to tax, spending, welfare or anything else. Yes, there are some spending increases for health and education already promised, but essentially nothing new in the manifesto”.

The IFS remains silent but the Conservative spending plans effectively mark the continuation of economic stagnation and what a report this week called the most extreme form of capitalism.

The IFS has nothing to say about the impact of Conservative policies on low wages, widening inequalities in the distribution of income and wealth, longer queues at hospitals, crumbling schools and roads, unprecedented use of foodbanks by the working poor, rip-off prices for gas, water, electricity, trains; and an unprecedented decline in life expectancy. 

The IFS analysis mistakenly treats the economy as some kind of a household where income and expenditure has to be balanced each year. This is nonsense and no government can afford to pursue such policies.

The impact of the 2007-08 banking crash was mediated by taxpayer funded bailout of banks and a quantitative easing programme i.e. government effectively printed money. That benefitted banks and large corporations and we did not hear a peep from the IFS. 

Even then, the IFS is silent on the huge increase in the UK public debt under the Conservatives. Despite austerity, the public debt is at the end of October 2019 stands at £1,798.5bn compared to £960bn in April 2010.

The IFS does not even note that over the last nine years, tax revenues of between £300bn to £500bn/£1100bn have not been collected.

The state we are in

No matter how the IFS dresses its comments, it can’t conceal its neoliberal agenda. Its ire, as is now common, is reserved for the Labour policies. The biggest criticism is that a Labour government would play a greater role to stimulate the economy and would introduce redistributive measures. Labour has provided costings for all its policies and they are all affordable.

The IFS seems to subscribe to the myth that the neoliberals have somehow rolled-back the state and that is a good thing to do. This is rubbish. Neoliberals have reconstructed the state to advance their project.

The Private Finance Initiative (PFI), outsourcing and partial privatisation of the NHS have made the state the ultimate guarantor of corporate profits. It has showered tax cuts on corporations. The headline rate of corporation tax has declined from 28% in 2019 to 19% in 2019.

Between 2010 and 2016 alone, this boosted corporate coffers by £16.5bn a year. Tax cuts have been thrown at the rich and the marginal rate of income tax on incomes above £150,000 was reduced from 50% to 45%.

The same state increased the rate of VAT from 17.5% to 20%, and hit the poorest the hardest. Conservatives imposed wage freezes on normal people whilst nothing has been done to control exorbitant executive pay.

One outcome is that 42% of UK adults have an annual taxable income of less than £12,500 a year. An estimated 14.3 million people live in poverty. This includes 8.3 million working-age adults, 4.6 million children, and 1.3 million people of pension age. 4 million people are trapped in deep poverty, meaning their income is at least 50% below the official breadline. 

Such inequalities systematically prevent a large section of society from realising its full potential. It can fade away, search for pitch forks or mobilise the state to secure a fairer distribution of income and wealth. Labour’s manifesto offers the latter possibility.

The IFS says Labour “would impose a swathe of new labour market regulations; their minimum wage would directly set the wages of a quarter of private sector workers”. It does not explain how in the absence of mobilisation of the state workers are going to secure a decent wage or employment rights.

Markets and corporations do not voluntarily address such matters even when they can see that erosion of people’s purchasing power has turned large swathes of town centres into economic deserts. It is a matter of national shame that a quarter of private sector workers don’t even earn £10 an hour.

The IFS is concerned about Labour’s plan to bring energy firms, National Grid, railways, Royal Mail and the broadband arm of BT into public ownership. However, it does not say anything about profiteering by energy, water, gas, electricity or train companies and its impact on prices and quality of life.

Despite privatisation, the rail industry received taxpayer subsidy of £7.1bn in 2018-19, which is an increase of more than 200% since privatisation. Fares are 20% higher in real terms than they were in January 1995. Public ownership of railways would end subsidies which finance dividends to shareholders.

Overall, the IFS analysis provides support for status-quo and despair rather than a reconstruction of society to enable everyone to live a fulfilling life.