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Don’t Believe the IFS on Labour’s Programme

30th May 2017

Don’t Believe the IFS on Labour’s Programme

The Institute of Fiscal Studies has set itself up as the oracle on economic policy. David Cameron (former failed Prime Minister) regarded its judgements as “the gold standard.”

In fact the IFS is made up of mainstream economists. Mainstream economics is a faithful reflection of establishment politics. Let us remind ourselves that none of the orthodox economists saw the Great Recession of 2008 coming – the biggest economic cataclysm since the Second World War. In the 2001 issue of the ‘International Journal of Forecasting’, an economist from the International Monetary Fund, Prakash Loungani, published a survey of the accuracy of economic forecasts up to that time. He concluded: “The record of failure to predict recessions is virtually unblemished.” More recently Robert Chote of the Office for Budget Responsibility confirmed to the ‘Financial Times’ that “forecasts are always wrong.” Mainstream economists are incapable of forecasting economic trends, and that includes the IFS!  This is because they don’t really understand how the capitalist economy works.

The IFS has come out in support of the Tory programme to replace cooked school lunches with breakfast. In fact the proposal is arithmetically wildly astray. If there were a full take-up of the breakfast, the proposed budget would allow just 6.8p in ingredients for each child! How many Coco Pops is that? Nutritionists and educationalists are strongly against the Tory plan. The IFS is not an expert on these matters. It should listen to the experts, not lord it over them. It is half-witted to think that the Tory breakfast will be as nutritious as the cooked lunch provided to some school children now.

The IFS is correctly scathing about the Tory manifesto. Essentially it offers more of the same failed austerity policies we have had to put up with over the past seven years. Moreover it is completely uncosted. How many pensioners will lose their Winter Fuel Allowance – six million; ten million? The government won’t decide till after the election – if they win. How many will lose their homes on account of the ‘dementia tax’ on social care costs? They’re not saying. None of their proposals are costed. Are we really supposed to vote for this? The IFS indicts the Tories with proposals for, “big cuts in welfare spending” and “another parliament of austerity for the public services, including an incredibly challenging period for the NHS and cuts to per pupil funding in schools.”

Presumably in the interest of ‘balance’, after rubbishing the Tory manifesto, the IFS even-handedly slags off Labour’s manifesto ‘For the many, not the few’:
“The shame of the two big parties’ manifestos is that neither sets out an honest set of choices. Neither addresses the long term challenges we face. For Labour we can have pretty much everything – free [higher education], free childcare, more spending on pay, health, infrastructure. And the pretence is that can all be funded by faceless corporations and ‘the rich’.”

This comparison is outrageous. There is a fundamental difference between the parties. Labour’s manifesto is carefully costed; the Tories’ is pie in the sky. In addition to the 128 page document Labour has produced an annexe called ‘Funding Britain’s Future’ which weighs up the cost of the £48.6bn in promises and shows exactly how they will be paid for.

For instance the cost of childcare subsidies is £4.8bn. This is the figure Jeremy Corbyn was unable to remember when he was called out on ‘Women’ Hour’ on May 30th. OK, he hasn’t got an infallible memory, but the commitment to policy reform is there and is fully costed.  What’s the problem?

Labour’s commitment is that £48.6bn will be raised on taxes on corporations and the rich to match the spending commitments, and 95% of us won’t pay a penny more. The IFS queries this:

“That is an overestimate. They certainly shouldn’t plan on their stated tax increases raising more than £40 billion in the short run, and more likely than not they would raise less than that. They would certainly raise considerably less in the longer term.”

Where does the IFS get the ‘only £40bn’ from? It doesn’t say. Unlike ‘Funding Britain’s Future’ which is painstakingly referenced, the IFS comes up with a pure assertion – a guess.

We have seen a huge increase in inequality in Britain since 1979, the year Thatcher was elected. She inherited a top rate of income tax of 83%. The following year she cut it to 60%. Successive Tory governments favouring the rich have edged the top rate down to 45%. Why should it be impossible for a Labour government to raise it to 50p, as Labour’s manifesto proposes?

Similarly with corporation tax: in 2010 it stood at 28%. The Tories have cut it to 19% and it is due to fall further to 17% by 2020. Why shouldn’t Labour put it back up to 26%?

The IFS presumably argues that higher tax rates will act as a disincentive, so rich people won’t work as hard and corporations won’t invest if they are taxed more. Hang on. Did anyone notice the investment surge when corporation tax was cut by the Tories? Did the economy get a boost as rich people worked harder when the top rate of income tax was cut? No, these were just gifts by the Tories to the rich and their big business backers.

The overall result on tax cuts for the rich and big business would be a race to the bottom. US corporation tax is at 35% (though there are loopholes). Donald Trump wants to cut it to 15%. Would Tory Britain go lower and load the whole burden of taxation on to the poor and the working class?

In the longer term, the IFS argues, rich people will move abroad to avoid paying tax. So, instead of getting £6.4bn, Labour might only get £4.5bn, or £2.5bn, or nothing. Where do they get these figures from? They made them up. They are Tory propaganda masquerading as economic analysis.

Shadow Chancellor John McDonnell admits there is uncertainty in the exact take from the programme, “which is why we have allowed headroom” (£3bn) “in our plans.” The IFS argues that the rich have a better chance to avoid tax. That is true. The difference is that a Corbyn-led Labour government would be on the side of ordinary working people, not servants of the tax-dodging rich and powerful like the Tories. As John McDonnell said of how we extract from the rich what they owe:

“We know it is harder than squeezing ordinary households. A substantial tax avoidance industry has grown up to help those mega-rich and corporations that want to duck their tax obligations to society, as the Panama Papers and other leaks have exposed. So it may be easier for the Tories to tax ordinary working people through stealth taxes, like the shocking rise in cremation and burial fees, and let their big business backers off the hook, but Labour won’t duck out of taking on the tax dodgers.”  We’ll take them on.

Then the IFS comes up with a very old anti-socialist argument from orthodox economics about taxation on companies. It’s really a tax on our pensions invested in the corporate sector, so we’d be cutting off our nose to spite our face. In other words really we’re all capitalists! This is rubbish. There is no clear link between company taxation and the level of share prices. Economists, including those at the IFS, can’t help themselves. Every phoney argument shows them to be lackeys of the rich and powerful.

The IFS critiques Labour’s plans to protect the income of pensioners by keeping the triple lock, not means testing the winter fuel allowance and maintaining the retirement age at 66. They complain that this could cost up to £50bn in 50 years’ time. Excuse me. If the Tories are still in power in 50 years’ time the National Health Service, social care and any trace of the welfare state will have gone up in smoke long ago. The urgent need is to stop them now – next week in the general election!

Then the IFS moves on to criticise Labour’s fantastic pledge to raise the minimum wage to £10 per hour by 2020, lifting millions out of in-work poverty in the process. It’ll cause a loss of jobs, the IFS asserts. We’ve been here before.  When Labour originally proposed a national minimum wage the then Tory leader Michael Howard, speaking from the heights of economic orthodoxy, described it as “a piece of staggering economic illiteracy.” He predicted it would cause “between one and two million more unemployed.” It didn’t happen. He was only between one and two million out in his prediction!

Labour is accused of dishonesty. In fact the IFS is dishonest, rubbishing our programme with wild assertions and no evidence, from the discredited premises of orthodox economics while pretending to be impartial. Labour is campaigning for hope and a better future for Britain. Support them with all your might next week.