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5 mistakes from Lucy Powell

    Yesterday, Andrew Neill interviewed Lucy Powell, Labour’s campaign coordinator, on the Sunday Politics. It was certainly quite a tense exchange with Powell accusing Neill of conducting a “Paxo-style interview.” However, it is not usually a good sign when a politician complains about tough interview questions and is unable to provide important details - for example being corrected on the number of zero-hours contracts. Here are five other mistakes that Powell made during the interview.

    1.       The 50% income tax “is the only tax that we have set out that will be increasing”

    When questioned over which taxes Labour would increase, Powell claimed that Labour was only planning to increase the highest rate of income tax to 50%. Powell obviously seems to have forgotten that Labour has also pledged to increase corporation tax, property taxes, pension taxes, financial sector payroll taxes etc etc.  Even if all of those tax rises were used to reduce the deficit rather than to pay for the party’s extra spending commitments, they would be wholly insufficient to meet even Labour’s modest deficit reduction targets. Furthermore, the economic damage of the 50% rate of income tax makes it counter-productive and as the IFS has pointed out, it would raise very little revenue anyway.  Also rather concerning was her repeated exhortation to “Let’s see how much it increases.” It is hardly reassuring that Labour’s fiscal policy seems be based on a wing and a prayer.

    2.       “We are very clear that what we can do is increase the tax base”

    Powell argued that instead of raising tax rates (other than the 50% rate), Labour would increase revenues by broadening the tax base. Ultimately that means making more people who are not paying tax currently to pay tax in the future. Either they could do that by increasing employment or by cutting, for example, the Personal Allowance. Given that the employment rate is currently at a record high of 73.3% and will probably continue to rise anyway, it is not clear how much more progress could be made on that front. On the Personal Allowance, it is telling that Labour is the only major party not to have committed to a big rise in the next Parliament; making low paid workers pay more income tax would be a terrible thing to do.  Perhaps Powell means that Labour would somehow boost real wages which would generate revenue and reduce welfare payments. Of course, such a process would take a number of years to feed through leaving Labour with an even bigger borrowing black hole. More importantly, the plethora of new tax rises and heavier regulation the party is proposing would damage productivity growth and make it less likely to see sustained real wage growth.

    3.       “We have set out sensible spending cuts”

    Sadly Labour has been consistent in its opposition during this Parliament to spending cuts aimed at reducing the deficit. When pushed, Powell outlined three things the party would cut. A small reduction in the Winter Fuel Allowance, a child benefit cap which seems already to have been taken into account and the old chestnut of cutting the pay of Government Ministers. As Andrew Neil pointed out, even including all of Labour’s other suggestions, these cuts barely add up to £1 billion. Given the scale of task of deficit reduction which remains, this is the proverbial drop in the ocean. Of course, this is to say nothing of the numerous other spending commitments which appear to funded from the magic money tree.  

    4.       Closing free schools will cut the deficit

    Powell also argued that Labour could cut the deficit by making savings in the education budget because “there are a huge amount of savings that can be made in the free schools programme”. Apart from the minor point that closing free schools would be an utter disaster for education reform and standards, this is particularly misleading. Powell seems to have forgotten that Labour has promised to protect education spending. Any savings made however dubious they may be – would not help to reduce the deficit because it would mean that Labour would simply spend more on education in order to meet the pledge to protect the budget. In particular, the apparent savings from blocking free schools has already been earmarked by Labour to fund its pledge on class sizes.

    5.       “We will balance the books as soon as possible and definitely by the end”

    Powell seems to have confused the different definitions of the deficit. At one point she claimed that “we have been absolutely clear about what we intend to do and that is to bring the deficit down to zero by the end of the Parliament.” This is of course untrue because Labour has promised to eliminate the “current budget deficit” which leaves room for more borrowing. Indeed, near the end of the interview, Powell did admit that “we may use some investment borrowing”. As has been pointed out, that would imply that Labour could borrow about £30 billion more annually in 2020. This can hardly be called balancing the books.  

    Adam joined the Centre for Policy Studies as Head of Economic Research in January 2014. 

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    John Burton - About 2007 days ago

    It is on record that in his 2014 annual Party
    Conference speech Ed Balls bound 'Labour to
    austerity policies with [a] promise of no extra
    borrowing'; a clear commitment subsequently
    confirmed by a Spokesman: 'we will not make
    proposals in the Manifesto [next year] for extra
    capital spending paid for by borrowing' (George
    Eaton,New Statesman, "Balls Binds Labour to Austerity With Promise Of No Extra Borrowing",
    22/9/2014). This meant that Labour would need to meet any spending promises by tax rises; or spending cuts elsewhere.
    In view of Lucy Powell's recent admission that
    '...we may use some investment borrowing'
    it is not at all clear how binding, and credible, Mr Balls'/ the Labour Party's earlier "commitments" regarding fiscal/deficit policies
    really are.

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