Tax cuts by Labour if it wins power would theaten to inflict another “period of austerity” on Britain’s public services, leading economists warned on Thursday.
The Institute for Fiscal Studies said that to avoid such a squeeze on public services Sir Keir Starmer’s party would have to raise some taxes if it wanted to reduce others, while getting overall national debt down.
But it did not believe the overall tax burden could be cut, while also lowering debt, without hitting funding for public services.
Sir Keir and shadow Chancellor Rachel Reeves are reported to be considering tax cuts in Labour’s election manifesto, possibly to income tax, to counter Tory plans.
Chancellor Jeremy Hunt is expected to deliver a tax-cutting, giveaway Budget on March 6, with possible reductions in income tax or inheritance tax.
But IFS director Paul Johnson told BBC Radio 4’s Today programme that he was “pretty surprised” to hear reports Labour, as well as the Tories, was considering tax cuts.
He said “all of the pressure” was in the direction of spending more to shore up struggling public services, which would require raising more funds for the Exchequer.
“What you can do is cut some taxes while increasing other taxes by more, and that may be what the Labour Party are talking about,” he said.
“But what you can’t do given the state of the public finances, and given that both parties say that they’re focused on getting overall national debt down over the next Parliament, if you really want to do that, then you can’t cut taxes and increase spending.
“Indeed, you probably can’t cut taxes and keep spending anywhere near where it is. In other words, if you’re going to cut taxes net, get debt down, then you’re going to have, frankly, another period of austerity on public services.”
Sir Keir and Rishi Sunak were on Thursday on regional visits as the parties were gearing up for what will effectively be a ten-month campaign ahead of an autumn election.
In a visit to the West of England, the Labour leader was due to claim the Tories have “no practical achievements to point towards” after nearly 14 years in Government.
In his pitch to voters, Sir Keir was due to say that he understands why people have turned against politicians, amid various Westminster scandals and a ramping up of political attacks between the parties ahead of the next nationwide poll.
The Labour leader was seeking to continue to draw a dividing line with his predecessor Jeremy Corbyn, while trying to demonstrate to voters he will offer a fresh start from the Conservatives.
He will describe the UK as a nation “exhausted” by “the sex scandals, the expenses scandals, the waste scandals, the contracts for friends” at Westminster.
“So, whether you’re thinking of voting Labour for the first time, whether you always vote Labour, or whether you have no intention of voting Labour whatsoever: my party will serve you,” he was due to say.
The Prime Minister was giving a rival New Year stump speech planned in the East Midlands.
A Government source said: “The PM will be out talking directly to people about his five priorities and the progress the government has made on driving down inflation, cutting waiting lists and stopping the boats.
"He will be saying we’ve made great progress, don’t risk throwing that away with the Labour Party.”
Ahead of Sir Keir’s speech, the Conservatives accused him of being prone to reversing previously-made decisions.
Chairman of the Conservative Party Richard Holden said: “Nothing is more cynical and populist than a weathervane Labour leader who has a consistent track record of telling people whatever he thinks they want to hear on any given day.
“He was for a second Brexit referendum, then he wasn’t. He told Labour members when he was running to be leader he would nationalise industry and scrap tuition fees, but then dropped these policies as soon as the contest was over. And he says he opposes Jeremy Corbyn now despite campaigning twice to make him prime minister and calling him his ‘friend’.”
