Tory party manifesto is released late Sunday PM. Can be afforded in the short term but in the long term someone will have to pay…..

November 25, 2019

We produced our comments on the Lib Dem and Labour manifestos over the weekend. Our line was that they were unaffordable. But the Lib Dems, with some squeezing and rescheduling, could probably be afforded in the short term if not in the long term. The Labour manifesto was another thing – if they won sterling would collapse overnight and the economics simply fails to add up.

 

Coming back from a cheerful birthday lunch I now have to comment on the Tory party manifesto released at 2pm on a Sunday afternoon and only put up with costing documents on the website much later on.

 

The maths appears to add up, simply because some of the key commitments are not included or costed. The immigration policy is claimed to reduce immigration – if it does so it will reduce GDP and hence tax receipts and this is simply excluded from the calculations. My guess is that it won’t reduce immigration – but you can’t have your cake and eat it.

 

The baseline analysis clearly missed the fact that the data released last Thursday showed that the deficit was already overrunning by about £20 billion and getting dangerously near the prudential budgetary limit.

 

Cebr’s take on Modern Monetary Theory is that it is correct that there is a magic money tree in the very short term. This is because banks have done so much damage to their balance sheets that they have difficulty in lending. Also the BIS and other lending restrictions have turned out to be one of the worst cases in history of stable doors being shut after bolted horses. And finally the Chinese still save and therefore create difficulties for the rest of us.

 

But just because it is possible to get away with more spending in the short term without the economy collapsing doesn’t mean that the Tories’ plans add up.

 

The conditions for extra spending (or tax cuts) being manageable in the long term is that they are economically sustainable. Higher spending on nurses financed by higher taxes on companies fails both times – more nurses are consumption while higher corporate taxes are ultimately a tax on investment.

 

To be fair – the Tories plans for increased spending are about a twentieth of Labours’. And there is no assumption – like the Lib Dems – of a magic but implausible £50 billion remain windfall.

 

Nevertheless, though the plans will not collapse the economy, if they are implemented they will cost us all in the long term.

 

It would be better for the economy if they were not really planning to do what they promise in the manifesto….

 

Contact: Douglas McWilliams dmcwilliams@cebr.com phone: 07710 083652