Ed Balls’s flagship announcement at his party conference speech was a “five-point plan for growth”. Some of the policies were old, some were new. He said that if Labour was in power it would:
- Repeat last year’s bank bonus tax, using the money to build 25,000 affordable homes and guarantee a job for 100,000 young people;
- Bring forward long-term investment projects, such as schools, roads and transport;
- Reverse the VAT rise now for a temporary period;
- An immediate one-year cut in VAT to 5 per cent on home improvements, repairs and maintenance;
- A one year national insurance tax break for every small firm which takes on extra workers.
So how much would all this cost? These are Balls’ own predictions:
- Balls reckons the repetition of the bank bonus tax would bring in £2bn, accounting for the impact of having lower bonuses, which reduces the amount of national insurance payments. The OBR says last year’s brought in £3.5bn in total revenue last year, while David Cameron has claimed that amounted to £2.3bn net.
- Bringing forward capital projects is very difficult to put a price on. Team Balls say they want to do more than Nick Clegg, who refuses bring forward projects from one year to the previous. If that is spending that has already been allocated, it technically costs nothing extra, but there must be associated costs with forcing projects through the system. Either way, Balls does not have an answer for this.
- The VAT cut is the most costly part of the plan, adding up to somewhere between £12bn and £13bn. This is funded by the fact that Labour’s plan to cut the deficit is much more gradual than the government’s, aiming only to halve it by 2014.
- According to Experian, the further DIY VAT cut would cost somewhere between £100m and £500m. Half a billion is not vast, so could probably be accommodated within Labour’s deficit reduction plan.
- The national insurance holiday is actually a widening of current government policy. George Osborne announced soon after becoming chancellor that there would be a NI tax break for start-ups employing ten people or more. The Treasury allocated £1bn for the policy, but most of that money has not yet been spent, with a lower take-up than ministers expected. Balls thinks making more companies eligible for the tax break would soak up that extra cash. He would also do more to promote the policy, which could become a problem if there is a sudden surge of companies looking to take up their tax break.
All this adds up to £16.5bn in spending proposals, funded by a mixture of tax rises on bankers, existing spending plans and Labour’s more gradual deficit reduction plan.
The Tories are claiming the policies add up to £20bn in extra spending commitments. So far they have not shared their reasoning, so I’m not sure how they come to that figure. My guess is they have put a number on bringing forward capital projects, but I don’t know how they would have managed to do so.
One note: as with all Labour policies announced this conference, these aren’t actually commitments – the party isn’t saying this is what it would do if elected in 2015, rather what it would do if it were in power now. To that extent, this is purely an attempt to try and regain a reputation for fiscal credibility rather than serious policy proposals.
UPDATE - CCHQ have provided me with their breakdown. Sure enough the extra cost comes from an estimate for capital spending. They have taken the total capital spending for next year from the two departments Balls mentioned – education and transport – and added it to the bill, totalling an extra £8bn.
But this is misleading for two reasons:
- Balls didn’t say he wanted to reallocate all capital spending;
- It is spending moved from one year to another, rather than extra spending. Presumably, although this adds to this year’s bill, it takes away from next year’s.
Balls was deliberately vague on the capital spending plans, for which he could justifiably be attacked. But sticking an arbitrary £8bn figure on it is not right either.