Labour’s Cautious Pitch for UK Power Ducks Hard Economic Choices

(Bloomberg) -- Labour Leader Keir Starmer set out his party’s plan for government in a cautious pitch focused on growth and security that prioritized preserving a commanding lead in UK polls, while skirting the tough economic choices he’ll have to make if he wins power.

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Labour’s 133-page manifesto published on Thursday contained no major surprises, with Starmer reiterating his pledge not to raise taxes on working people and positioning himself as the change candidate after 14 years of Conservative Party rule.

“Today we can turn the page,” he said in Manchester, northwest England. “We can lay a new foundation of stability and on that foundation, we can start to rebuild Britain.”

Yet by making promises aimed at keeping voters on side — such as ruling out a return to austerity in public spending, and talking down the prospect of future tax increases — Starmer and his would-be Chancellor Rachel Reeves risk restricting their ability to fund new policies should Labour win the July 4 general election.

“This manifesto is absolutely boxing Labour in,” the party’s former shadow chancellor Ed Balls said on the ‘Political Currency’ podcast. “It will be seen as a straitjacket.”

Starmer’s priority has been to maintain his 20-point-plus polling advantage over Rishi Sunak’s Conservatives, a margin that’s changed little over three weeks of campaigning so far. His consistent polling lead has fueled a sense that he is on the cusp of entering 10 Downing Street, with the manifesto launch being perhaps the last significant potential stumbling block in his path.

In shirt sleeves and watched by his shadow cabinet, Starmer struck a serious tone that leaned heavily on the idea that Britain faces a long road to recovery. On a day when National Health Service data showed waiting lists going up, one of the speakers who introduced him was a cancer sufferer who set out how the delayed start to his treatment could have contributed to his condition now being terminal.

“Labour’s first steps for change are a down payment on our long-term plan for the country - an immediate repair job on the damage that has been caused under 14 years of Conservative chaos and decline,” Starmer said.

Labour’s manifesto also included promises to:

  • Create a new national wealth fund

  • Set up Great British Energy to encourage investment in clean power

  • Reform planning rules and build 1.5 million homes

  • Replace the business rates tax system

  • Open an additional 3,000 nurseries

  • Reform workers’ rights

  • Create a new industrial strategy including for AI, to build data centers and infrastructure

But the Labour leader’s economic pitch was criticized by the influential Institute for Fiscal Studies think tank, which flagged the mismatch between the Labour leader’s rhetorical ambition around fixing Britain’s public services and a lack of detail over how he’d do it.

“Delivering genuine change will almost certainly also require putting actual resources on the table,” IFS Director Paul Johnson said in a statement, accusing Labour of participating in a “conspiracy of silence” over the economic difficulties facing the next administration. “Labour’s manifesto offers no indication that there is a plan for where the money would come from to finance this.”

To be sure, Labour’s manifesto detailed some already-announced revenue-raisers, putting their total worth at £8.6 billion ($11 billion) in the 2028-29 tax year. They include charging VAT on private school fees, abolishing the special tax status for so-called non-doms, extending a windfall tax on oil and gas companies, closing the loophole that allows private equity fund managers to pay capital-gains tax on their investment returns, and increasing stamp duty on residential purchases by foreign buyers.

Starmer said there were no plans to raise other taxes, as he stuck to a risk-averse approach on economic pledges that he’s used throughout the campaign in an attempt to neuter traditional Conservative attack lines that Labour will hike taxes if it wins power. Starmer stressed that he wouldn’t increase income tax, value added tax or national insurance, and pledged to cap corporation tax at 25%.

Starmer argued that he doesn’t need to spell out further tax increases because his policies — such as investing in the clean energy transition and reforming planning rules — would generate sufficient economic growth to swell the public purse. A person familiar with the leader’s thinking said Labour also hopes the private sector starts to boost investment now in anticipation of the party coming into power. But the Institute for Government’s chief economist, Gemma Tetlow, said that was unrealistic.

“Labour’s hoped-for economic growth is unlikely to materialize quickly enough to avoid those difficult decisions,” Tetlow said in a statement. “The electorate are in for a nasty shock.”

Challenged in a Times Radio interview later in the day on his economic prospectus, Starmer defended his position, saying: “I reject that suggestion that is out there that the economy has to flat-line forever,” he said.

What Bloomberg Economics Says ...

One of the questions that Labour’s offering leaves unanswered is how it will address the squeeze on public services spending contained in the March Budget. A £4.8 billion top-up falls well short of the £20 billion we estimate is needed to deliver on existing plans for protected departments (health, defense, foreign policy and education) and prevent real spending cuts elsewhere.

—Dan Hanson, Bloomberg Economics. Click for the REACT.

The Conservatives seized on Starmer’s tax pledges, with Chancellor of the Exchequer Jeremy Hunt calling Labour’s plans a “tax trap manifesto”. Labour’s offering contrasts with Conservatives promises of £15.6 billion of tax cuts by 2028-29, including a further 2 percentage points off national insurance.

In Manchester, Starmer brushed off questions about why his manifesto didn’t contain any “rabbits” or new, eye-catching pledges, taking aim in the process at the populist leader of Reform UK, Nigel Farage, whose sudden decision to run in the seaside town of Clacton has shaken up the campaign.

“If you want politics as pantomime, I hear Clacton is nice this time of year,” Starmer said, adding later on: “I’m running as a candidate to be prime minister, not a candidate to run the circus.”

--With assistance from Irina Anghel.

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