After last week’s leak of the Labour manifesto, the release of the final 128-page version adds details and costs to the policies already announced, as well as new commitments. There are specifics on the party’s tax plans, a pledge to renationalise the water industry, a promise of 30 hours’ free childcare, a new section on security and counter-terrorism, and tougher language on defence.
A separate short document balancing fresh spending commitments with tax-raising pledges is significant in not including the costs of the big pledges to renationalise the railways, Royal Mail, the energy companies or the water industry. Instead, a short note on a new £250bn “national transformation fund” implies that these costs will be funded through capital borrowing. The most significant new measures of the final version:
Top 5% of earners, those on more than £80,000 a year, to face a 45p marginal rate of income tax and a new 50% rate on earnings above £123,000 to raise £6.4bn a year. Pledges to not increase VAT rates or personal national insurance contributions. Scotland sets own tax rate. “Fat cats” levy.
Analysis: The Institute for Fiscal Studies said lowering the threshold for the 45p rate from £150,000 to £80,000 would bring 1.3 million people into the higher rate and could raise £7bn rather than the £4.5bn estimated by Labour. But recent evidence from the imposition of a 50p rate in 2010 shows that the measure could spark mass avoidance by the individuals affected and raise no extra funds for the exchequer.
Critics say higher income tax will drive top earners offshore. The VAT and national insurance pledge does not rule out raising company NI contributions or extending the range of VAT, but says food, children’s clothes, books, newspapers and fares will remain exempt.
An excessive pay levy is Labour’s attempt to tackle stratospheric wages with an extra tax. It would affect everyone from company bosses to well-paid sportspeople. With a starting rate of “total compensation” of £330,000 a year, the total raised “would be over £1.3bn”.
A promised review of council tax and business rates and new options for local government funding, including a land value tax, are also likely to increase the tax burden.