by So we have it. The biggest ever victory for the Conservative Party and a huge one for Sir Keir Starmer, who is as popular personally as Ed Miliband was at the time of the 2015 election.
Middle England should be in a state of panic. The Institute for Fiscal Studies said that whichever party won last week, the new administration would have to raise taxes or cut spending to meet fiscal targets. Anyone who believes Sir Keir Starmer – the self-proclaimed socialist – will address the spending side of the ledger, isn’t listening.
Government spending as a proportion of GDP is already around 45pc. But most of the Labor leader’s missions involve expanding the public sector. More NHS mental health staff, more teachers, a publicly owned British energy company and renationalised railways. Through its close relationship with the unions, Labor is specifically on the side of the producers, not the consumers.
All this before you get to the fact that with a majority of this size, Labor will be under significant pressure from the Left to make a spending splash for all the electorates to support those hoping for “change”. What that might be is anyone’s guess. The British Medical Association seems to believe its 35pc pay “reform” is reasonable. Somehow 650,000 green jobs will be “created”.
How will it be funded? Generous estimates suggest that VAT on private school fees will only increase by £1.5bn per year. Abolishing non-resident status could bring in as little as £8,000 per person. As for his other plans to raise billions by cracking down on tax evasion, Einstein’s definition of insanity comes to mind.
Labor was at pains during the election campaign to claim that its new government would not raise VAT, income tax or national insurance. But what of the three million extra workers who will be dragged into the 40pc rate of income tax over the next five years, thanks to Tory policy? What of the many other levies are left on the table?
We will know soon. Within a year of a Labor government we could see an increase in inheritance tax receipts, despite reaching record levels. In March, Darren Jones, the shadow chief secretary to the Treasury, told a public meeting that it could be used to “redistribute wealth” and “address intergenerational inequality”.
Capital gains could soon be brought in line with income tax, although the evidence from America shows that Treasury income could fall after the increase. If Starmer’s hypothetical growth does not materialize, a wealth tax could be on the cards. Tax relief on pension contributions could be capped at around 30pc. The 25pc tax-free lump sum from pension schemes could be targeted. Then there is council tax – something that has been oppressed by the Left for many years. Welsh Labor already wants to revalue the levy and use satellites to spy on homeowners with large gardens.
Given how high the tax burden already is, we should expect marginal gains from any increases. Every time the Government takes a cut it does not make an equally worthwhile activity. Whether that activity is trade and exchange, or earning and spending, it becomes more expensive to do, and people respond by doing less of it. Starmer’s claims to “go for growth” seem more urgent.
Perhaps we should not be surprised if Labor resort to borrowing again, which means higher inflation – and interest rates – in the medium term. As Rachel Reeves likes to talk about the fiscal rules, they are much looser than most people realize.
Then there is the inevitability of higher rents, given the restrictions Labor intends to impose on landlords. They will ban “immediate” Section 21 evictions and allow challenges to unreasonable rent increases (who decides?).
There is a risk of higher energy costs if the winter is harsh and international life worsens.
According to the Institute of Economic Affairs, Labor proposed 63 new regulations in its manifesto, with plans to cut just 13. It will ban fracking, smoking, zero hours contracts, trail hunting. It will introduce rights from day one to parental leave, sick pay and protection against unfair dismissal. Leased flats and new oil and gas exploration will be banned.
All regulation comes at a cost – and it won’t just be the wealthy shareholders as the Left often likes to pretend. It stifles innovation, harms economic growth, and disproportionately affects low-income families. It results in lower wages for workers and higher prices for consumers.
What will life be like under Labour? No one can know for sure. Reeves has promised fiscal prudence and Starmer is likely to be more Blair than Wilson. If Labor brings an “end to chaos”, businesses may thrive in a more stable environment. Interest rates are expected to fall in August now that inflation has returned to the Bank of England’s target. In the last 72 hours, the new government has made many of the right noises about house building and the NHS.
But there is a more frightening possibility: life could be much poorer.
