With under a fortnight to go until polling day, Rishi Sunak and Keir Starmer have little in common. One is leading a scandal-stricken campaign, and bar a miracle, looks about to be turfed out by the electorate. The other is on the cusp of a historic victory for his party. But they do have one shared experience: a ticking-off from the Institute for Fiscal Studies (IFS).
The think tank has kicked off the week with the publication of its report into the party manifestos. It does not make for pretty reading for either main party. The IFS’s director Paul Johnson goes for the jugular, and accuses both Labour and the Tories of leaving voters in the dark over how they will fund their spending commitments – despite claims that the documents are “‘fully costed”.
Johnson argues that public service spending will likely need to be cut over the next parliament unless government debt rises or taxes go up. He says “these raw facts are largely ignored by the two main parties in their manifestos” leading to a “knowledge vacuum” around what whichever party is in government will actually do when confronted with the reality.
Now, it would be wrong to say that the difficult state of the public finances hasn’t been acknowledged in the campaign so far. The feeling among voters that they are less well off than they were before is one of the reasons Sunak has struggled to turn things around, or close the gap even by a little bit. Likewise, the lack of big, new, bold policy announcements in the Labour manifesto was an implicit acceptance of the fact there is little money to go around.
One of the reasons Starmer and his Shadow Cabinet keep talking about a “decade of renewal” is a concern that they will be so restrained financially in the first term, they won’t be able to do much. Hence the need to lower expectations and not make big pledges. It’s why, despite pressure, Labour has not set a date for raising defence spending to 2.5 per cent.
Instead, its candidates expect Rachel Reeves and Starmer to try to buy themselves some time and leeway on entering government by saying that now they are on the inside and have seen the books for themselves, the situation is even worse than they feared. At that point, a wave of new tax rises could be brought in as part of a ‘”doctor’s mandate” – emergency measures to remedy the patient (the patient this time being the UK).
For now, both parties can be accused of not being completely transparent on tax and spend. The Tories have promised a series of tax cuts or tax changes, as well as mandatory national service, funded by various spending cuts including on welfare. There is scepticism over the feasibility of these. Labour has not matched these but Reeves has promised not to raise taxes on working people and ringfenced national insurance, income tax and VAT as triple-lock-protected. At present, spending cuts – planned by Jeremy Hunt as Chancellor – are priced in – but the feeling is both the Tories and Labour could struggle to enact them.
Therefore both parties can be accused of not being frank with the public about the choices that could be coming down the track. But given Labour are 20 points ahead, this is really a problem for Starmer rather than Sunak. The Tories can promise many things – there is very little chance they will be around to have to try to deliver it. It is a Labour government that will have to contend with tricky finances, tax promises and unsympathetic markets.
It’s why Starmer has almost sounded Trussite in his focus on the need for economic growth – he suggested he doesn’t need to get into tax rises or borrowing as he will create economic growth. His team insist they mean it – that growth will be front and centre as the alternative is tax rises or borrowing.
“The manifesto was actually really bold despite some of the commentary,” says a Labour aide. “It shows how we would be focused on economic growth from day one and that will occupy a lot of ministers’ time.” That means radical decisions on planning reform early on as the party tries to go for growth.
The risk, however, is if that fails and Reeves is left having to debate tweaking her fiscal rules and other unpalatable decisions. The fact that Starmer last week defined a working person as someone who could not get the cheque book out when in trouble has rung alarm bells for some middle-class voters. Would they find their taxes going up on the grounds that they are more comfortable so don’t fit the definition?
Notably, Starmer later tried to walk back from his comments and reassure such voters. If his growth agenda falters, difficult decisions are coming, and fast. For a party that looks set to win a big majority on a comparatively low vote share, the risk is that the public will feel taken aback if these decisions have to be made.