David Cameron’s warning that working families face an average £3,000 tax rise if Labour is elected has been undermined by a leading economic thinkthank’s description of the figure as “unhelpful and of little value”.
Cameron, determined to make the economy pivotal to the next 38 days of campaigning, revealed the figure on Monday after heading to Buckingham Palace to inform the Queen of the dissolution of parliament – but within hours his claim was rebutted by the Institute of Fiscal Studies.
The Conservative leader used the steps of Downing Street to make a partisan attack on Ed Miliband, saying the country faced a stark choice between himself or Labour’s weak leadership. He added that “the next prime minister walking through that door will be me or Ed Miliband.”
Prime ministers normally refrain from deploying party political rhetoric in Downing Street, but after failing to develop a clear poll lead over Labour, Cameron felt he had to spell out that a vote for Labour would mean Ed Miliband in No 10, a prospect that Tory polling shows deters many potential Labour voters.
The prime minister said that voters “can choose an economy that grows, that creates jobs, that generates the money to ensure a properly funded and improving NHS, a government that will cut taxes for 30 million hardworking people and a country that is safe and secure. Or you can choose the economic chaos of Ed Miliband’s Britain – over £3,000 in higher taxes for every working family to pay for more welfare and out-of-control spending. Debt will rise and jobs will be lost as a result.”
But the personalised attack was weakened within hours when the IFS issued a strongly worded critique of the £3,000 figure, pointing to at least four different potential flaws in the Tory assumptions. In a note, the thinktank said: “There is little value in bandying around numbers which suggest either party would increases taxes by an average of £3,000 for each working household. We don’t know what they will do after the election. But neither of the two main parties has said anything to suggest that is what they are planning.”
Paul Johnson, the thinktank’s director, added the figure was unhelpful, saying “you certainly cannot draw up such a precise figure”.
The intervention wrongfooted the Conservative party chairman, Grant Shapps. Initially Shapps said the £3,000 figure was absolutely solid, but then described it as “guesswork”.
The IFS said Labour could meet its own vague fiscal targets with as little as £3bn in tax rises from 2018-19, and not the £15bn in tax rises from 2017-18 onwards that the Conservative numbers assumed.
In a point-by-point rebuttal, the IFS said the £3,000 figure was a cumulative increase over parliament and not an annual increase. The figure also assumed that all of the burden fell on only 17m working households, and not on the 26.7m total households in the UK. If the figure was recalculated on an annualised basis, households would only be £560 a year worse off, the IFS argued.
Unabashed, the chancellor, George Osborne denied the IFS had described the Tory attack as misleading, and said the party’s figures “were based on what the Labour party has voted for in parliament. They voted for a £30bn saving and Ed Miliband has said half of that should come from taxes, that is £15bn, and then you take the working families and you come up with that number, £3,000, for the next parliament.”
However, despite the IFS criticism, the Tories dominated the airwaves on the first full day of campaigning and the party can also point out that the IFS analysis highlights the laxity in Labour’s fiscal rules.
The IFS pointed out that Labour is only committed to balancing the current account, as opposed to the capital account, by 2018-19, something that requires extra fiscal consolidation of £6bn, which could be achieved either by tax rises or cuts. There was also no up-to-date evidence that Labour has committed to half its consolidation coming from tax rises, Johnson added.
The IFS said there is “real uncertainty about what path Labour wants to follow for the public finances. The Conservatives have been clearer about what they want to achieve, but they have not been clearer about how they would achieve it.”
The IFS judgment about Labour’s lack of candour will place pressure on Labour during the campaign to spell out more precisely when it will bring the current account into balance. If Labour wants to defer the moment of balance right until the end of the next parliament, the IFS said Labour “may need no tax increases or real terms spending cuts – beyond those planned for 2015-16 – at all.”
John McDonnell, the leftwing Labour MP, predicted a Labour government would anyway be forced by a bloc of 30 to 40 leftwing Labour MPs to change course on cuts, saying he would vote against austerity in either the budget or spending review. He said: “I think it will be clear from pressure coming back from constituencies and individual MPs that we need a Labour government quickly making a change.”
Ed Miliband spent the first day of the general election campaign on more narrow terrain, trying to woo business by warning of the chaos likely if David Cameron went ahead with his plan for a European in-out referendum by 2017.
The Labour launch had been backed by an advert placed in the Financial Times that used old quotes from company executives opposed to Britain’s withdrawal from the EU. Some business leaders quoted in the ad complained that Labour had dragged them unwillingly into the political domain.
Juergen Maier, chief executive of Siemens UK, was quoted as saying: “The prospect of a referendum that may or may not happen, at a date yet to be decided upon, with a choice between two unknown options, is profoundly worrying for business leaders.”
But speaking after the Labour manifesto launch, Maier said: “We don’t want to see our comments attributed specifically to any particular party.”
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