Ideas for the UK: election manifesto week

With three weeks to go before the general election, the past few days have seen publication of the manifestos of the three main parties. Here, we take a look at some of the key proposals. Next week, we will turn to the ideas from some of the other parties, including election economics in the devolved nations.

‘Change’ – Labour

Labour’s manifesto, published on Thursday, sets its sights on ‘wealth creation’, focusing particularly on the need for business investment and reformed planning regulations. Housing is a central pillar to the party’s proposals, including restoring mandatory housing targets.

The party’s own target is to build 1.5 million houses within five years. Although this is nominally lower than the promises made by the Conservatives (1.6 million) and Liberal Democrats (1.9 million), the target is backed by an ambitious range of reforms. To achieve it, which would include both public and private sector construction, the party has said that it will ease planning restrictions, build on cities’ green belts and construct new ‘towns of the future’.

Keir Starmer has said that he would ‘bulldoze’ planning rules to deliver the additional houses. His party has taken aim at the green belts – the rings around cities where building is highly restricted – and indicated that construction would be allowed on the lowest-quality areas, which the party has dubbed the ‘grey belt’.

Building 300,000 homes a year would be a substantial increase. Current UK house construction significantly underperforms relative to historical standards. Last year, planning permission for new homes fell to a record low in a country that already builds fewer houses than most.

In 2023, work was completed on just 189,260 homes. Comparably, in 1950, the UK had 27 million fewer inhabitants, yet managed to construct 205,000 dwellings. In 1968 – when completions topped 425,000 – the UK managed to build over twice the number of homes than it does today.

Figure 1: House building in England and Wales

Source: Watling and Breach, 2023; based on Holman, 2005

Stitching together disparate data, Samuel Watling and Anthony Breach (Centre for Cities) find that at its peak in the 1930s, housing construction in England and Wales totalled over 3% of the stock. Today, it fails to reach a third of that.

Comparable countries build more. France, for example, has an almost identical population size, yet last year started work on 282,000 houses. Further, over the last ten years for which there are data, the country has built two million more units than the UK.

While the UK is more densely populated than France, dense places are able to build too. The Tokyo prefecture, at the heart of the world’s most populous urban area, started work on 129,000 houses in 2023, despite having a population of 14 million. Housing in Tokyo is frequently replaced and improved, and – in contrast to London and other major UK cities – the city’s construction and flexibility has left it one of the few affordable big cities.

Figure 2: Housing starts in the UK and France

Source: Office for National Statistics (ONS) and National Institute of Statistics and Economic Studies (INSEE)

The Centre for Cities report blames post-war changes to UK housing policy for the lack of building. In particular, it points to the 1947 Town and Country Planning Act, which has left the UK with an unusually restrictive and discretionary planning regime.

Labour’s manifesto proposes to overhaul the current planning system, including updating the National Policy Planning Framework, ensuring planning authorities have up-to-date local plans, giving increased powers to combined authorities, and funding additional planning officers by increasing stamp duty charges paid by non-UK residents.

Keir Starmer has announced no increases to income tax, national insurance, VAT or corporation tax, but that he would raise £8 billion by reforming non-domiciled tax status, reducing tax avoidance, introducing a windfall tax for large energy firms and applying VAT to private school fees (discussed in more detail in last week’s newsletter).

Labour’s manifesto focuses on ‘kickstarting economic growth’. But as highlighted by the Institute for Fiscal Studies (IFS), it includes minimal increases in spending on public services, alongside a promise to avoid spending cuts and rising debt. This raises the question of ‘how they will square the circle in government’.

Arun Advani (University of Warwick) comments on Labour’s approach to taxes:

‘Income tax, national insurance contributions and VAT raise almost two-thirds of UK tax revenue. Ruling out change in the rates of these taxes therefore constrains some of the easiest ways a government has of raising revenue. But this usefully means that raising revenue from these taxes would in practice require broadening the base of the taxes.

Labour is already doing this by extending VAT to private schools. There is plenty of scope for further widening the scope of these taxes – for example, extending national insurance contributions to investment income, closing a gap between the taxation of wealth and work that the Conservatives have also highlighted as problematic (though with the rather different solution of cutting national insurance contributions).’

Arun is one of a number of economic experts available to talk to journalists and commentators about the research evidence on policy ideas during the election campaign. If you work in the media and would like access to our #GE2024Economists directory, please contact Ashley (ashley.lait@bristol.ac.uk).

Policies in brief

• Education: Fund 6,500 extra teachers in England (via the VAT levy on private schools), free breakfast clubs in every primary school and an additional 3,000 nurseries.
• Health: Add 40,000 more NHS appointments and operations a year, by increasing weekend services and using the private sector to bolster the system and recruit 8,500 additional mental health staff.
• Net zero: Allocate nearly £24 billion for green measures over the next parliament, including £1.7 billion per year for ‘GB Energy’ – a new public energy firm – and £1.1 billion a year for home energy efficiency improvements.
• Social care: Start work on a ‘national care service’ and deliver a fair pay agreement, focused on working conditions, wages and training.

‘Clear plan, bold action, secure future’ – the Conservatives

The Conservative manifesto promises several tax cuts and a boost to public spending. Among the proposals, there is a reduction in national insurance of two percentage points, with a long-term plan to abolish it completely. This follows cuts made in the first half of this year.

According to the Conservatives, the proposal aligns with their objective to make the tax system simpler and fairer. The main idea is to cut national insurance for employees to 6% by April 2027, which will be a total tax cut of £1,350 for the average worker (earning £35,000). In addition, by the end of the next parliament, national insurance would be permanently abolished for the self-employed – a move that would affect 29 million people. At the same time, the party has stated that they will not raise the rate of income tax or VAT.

Rishi Sunak also plans to reduce taxes on state pensions, by introducing the new triple lock plus (discussed in an earlier Economics Observatory election newsletter). This would continue to uprate the state pension in line with the highest measure of inflation, average earnings or 2.5%, to £11,970 (a £430 increase) in April next year and to £13,200 (a £1,685 rise) by the end of parliament. The tax-free personal allowance for pensioners would also increase by the same metric, guaranteeing that the new state pension is always below the tax-free threshold.

In the UK, tax revenue accounts for almost 35% of GDP, which has been increasing around three percentage points over the past decade.

Figure 3: Tax revenue as percentage of GDP, 1949-2022

Source: IFS

The Conservatives also propose to increase defence spending, to 2.5% of GDP by 2030. According to their manifesto, this measure will ensure that the UK remains the largest defence power in Europe, protecting the security of the country and creating more jobs.

The broader idea is to launch a campaign to set a baseline of 2.5% for all NATO allies by 2030, which would collectively increase defence spending by over £140 billion. The party’s strategic priorities on defence include boosting the industrial base by investing at least £10 billion in munitions productions, accelerating the modernisation of the armed forces by investing in technology and scaling research and development (R&D) funding to a minimum of 5% of the defence budget, and guaranteeing Ukraine support.

Alongside these fiscal proposals, the Conservatives propose welfare reform. They suggest raising the threshold at which families pay the child benefit tax charge from £60,000 to £120,000, costing £1.3 billion a year to deliver. Other changes would require people with mental health and mobility problems to look for work. The idea is to save taxpayers £12 billion a year, by moving more people into work and having fewer people on welfare. This is a response to the rise in benefit claims for people of working age, which cost £69 billion a year. They would also remove benefits entirely from those who refuse to accept a job offer after a year.

Total expenditure in the UK was falling during the decade before the pandemic. But the Covid-19 health crisis pushed spending up again. Defence spending has fallen in recent decades, while expenditure on social security and long-term care has increased. There has been an increase in public investment during the same period, although it is still around 2% of GDP.

Figure 4: Total expenditure as a percentage of GDP, 1956-2023

Source: IFS

Figure 5: Type of public expenditure as percentage of GDP, 1956-2023

Source: IFS

According to the IFS, the measures set out in the Conservative manifesto amount to around £17 billion of tax cuts a year. The party states that this will be funded by the projected £12 billion reduction in welfare spending, tackling tax avoidance and evasion, and cutting large numbers of civil servants and management consultants.

Yet the policies proposed do not seem to cover the challenges of saving £12 billion a year or deliver the savings in the time frame the Conservatives claim. The bigger tax cut of two percentage points to national insurance would come at a cost of £10 billion a year. Paul Johnson (director of the IFS) also points out that the abolition of national insurance for the self-employed might be seen as an unfair tax advantage for self-employment over employment.

Policies in brief

• Crime: Recruit 8,000 additional police officers over the next three years, costing around £2.5 billion.
• Education: Scrap so-called ‘rip-off degrees’ and create an additional 100,000 apprenticeships (discussed in last week’s newsletter).
• Housing: Build 1.6 million new homes over the next five years, launch a new £1 billion scheme to help first-time buyers and abolish stamp duty for first-time buyers for properties valued at up to £425,000.
• Health: Recruit 92,000 more nurses and 28,000 more doctors.
• Transport: Reverse the expansion of London’s ultra-low emissions zone (Ulez). Divert £36 billion originally budgeted for HS2 into local road, rail and bus schemes.

‘For a fair deal’ – the Liberal Democrats

The Lib Dem manifesto landed on Monday with a pledge to ‘save the NHS’. The headline proposals to improve England’s health service include an additional 8,000 general practitioners (GPs) and appointments within seven days, or 24 hours in more urgent cases; mental health support for children and young people in schools and walk-in community hubs; and a promise that cancer patients will be able to start treatment within 62 days of an urgent referral.

Ed Davey’s party argues that these changes would help to fix the ‘polycrisis’ of long waiting lists, poor staff retention, missed targets and declining wellbeing. So how does the NHS perform on some of these measures and would the Lib Dem promises make a difference?

The demands on GPs’ time are significant – with over 1.2 million appointments a day across the NHS in England, costing an estimated £42 per 9-minute face-to-face consultation.

GPs are also serving a larger proportion of the population than in many comparable countries, falling below the OECD average of 1.13 per 1,000 people, at 0.81 in 2021. This is similar to the proportion in Italy but much lower than in Ireland (2.33), the Netherlands (1.83), Australia (1.77) and France (1.38). The average full-time GP is now responsible for 2,294 patients, an increase of 356 since 2015.

Indeed, a rise in part-time working also means that the number of full-time equivalent fully-qualified permanent GPs has dropped from 28,590 in September 2015 to 26,884 in January 2024. This may be a mouthful, but the distinction is important as these GPs are, according to the Health Foundation, the best measure of workforce capacity.

Figure 6: Total number of GPs, 2015-24

Source: The Health Foundation, 2024

This difference matters for the Lib Dem pledge too. The party has had to clarify that ‘at least 7,000’ of the additional GPs will be fully trained – which takes a decade from start to finish. The remaining 1,000 trainees will require support and supervision from more senior GPs, affecting overall capacity.

The manifesto also focuses on cancer treatment, promising that all patients would receive their first treatment within 62 days of an urgent referral. At present, this target is being met in 68.7% of cases, below the operational standard of 85%.

The waiting list for hospital treatment reached a record of almost 7.8 million in September 2023. In March this year, it stood at 7.54 million cases, across 6.29 million individuals waiting for treatment, over half of whom have been waiting for over 18 weeks. (See our first election newsletter for more on NHS waiting lists.)

Figure 7: Waiting times for consultant-led elective care

Source: British Medical Association analysis of NHS data

The Lib Dems also focus on social care – an issue with personal resonance for Ed Davey, given his experiences caring for his mother and disabled son. The party’s proposal here is to provide free personal care at home, introducing a system similar to Scotland’s (discussed in more detail in last week’s election newsletter).

But the Scottish model may offer a warning. Evidence suggests that insufficient funding to meet demand for social care has led to rationing, with ‘formal and informal waiting lists for assessment and referral to personal care services’, along with some councils introducing charges for certain services – such as food preparation – that were previously free. According to the Nuffield Trust, clarity around what services, and who would be eligible for them, is important to avoid confusion, regional variation and inequalities.

Indeed, whether the policies proposed in the manifesto are affordable has been called into question. Overall, the party has said that it would increase spending by almost £27 billion a year by 2029 to pay for public services.

To balance the books, they suggest a levy on banks of £4 billion a year, a reform to capital gains tax to raise an additional £5 billion, and £7 billion (minus £1 billion invested in HM Revenue and Customs) found through cracking down on tax avoidance. Further taxes would be applied to technology and energy companies to fund the mental health and net-zero emissions policies.

Analysis by the IFS supports some of these proposals, particularly around reforms to capital gains tax. But it raises concerns around whether sufficient funds would be raised overall, and whether all of the tax choices are prudent. Indeed, the proposal to tax share buybacks could plausibly raise ‘almost nothing’, according to Dan Neidle, founder of Tax Policy Associates.

Paul Johnson at IFS also highlights that additional funding in the areas discussed above, along with increases to the social security budget, ‘would still leave unprotected departments – including prisons, courts and local government – attempting to deliver billions more in cuts to their already-shaky services’. Further, there is a risk that many of the ‘big challenges with funding core public services’ would be hard to address.

Policies in brief

• Education: Introduce a tutoring guarantee for children from low-income families and triple the early years pupil premium to £1,000. Increase school and college funding for each pupil above inflation every year and reintroduce university maintenance grants.
• Foreign policy: ‘Fix the UK’s broken relationship with Europe’, including seeking to rejoin the single market and eventually the European Union. Restore the target of spending 0.7% of GDP on international aid.
• Justice: Increase funding, reform and introduce targets to staff courts better and deal with cases more quickly.
• Net zero: Pledge to reach net zero carbon emissions by 2045, achieved by accelerating renewable energy production, funding and incentives for energy-efficient home improvements and creating a new Net Zero Delivery Authority.
• Welfare: Remove the two-child limit and benefit cap for child benefit payments and reduce waiting time for the first universal credit payment to five days from five weeks.

New reports

Here we highlight new election briefings from some leading UK research institutions:

• Growth and productivity: In the first of a series of election analyses from the Centre for Economic Performance (CEP), Anna Valero and John Van Reenen focus on what all the parties agree is essential: improved growth. They note that the last 14 years has been shockingly poor in terms of the growth of national income per person. Low productivity growth is at the heart of this problem and has led to stagnating wages and living standards. Anna and John call for a more radical approach to raise the quantity and quality of investment, especially through planning reforms to help build more infrastructure and housing. A strategic approach is also required to ensure that the UK builds on its longstanding strengths in services and advanced manufacturing, and is able to access new opportunities for sustainable and resilient growth as the world tackles the climate crisis.

• Climate and green transition policies: A briefing by Patricia Sanchez Juanino at the National Institute of Economic and Social Research (NIESR) look directly at proposed policies on the environment. She notes that among numerous green promises, parties have mostly omitted any mention of carbon pricing strategies and plans for using carbon revenues. Including a plan to widen the sectoral inclusion of carbon taxes and establish robust penalties for exceeding permissible emissions levels would have demonstrated a greater commitment to the net-zero target that the UK is legally bound to reach by 2050.

• Migration to the UK after Brexit: A new collection of articles from UK in a Changing Europe explores policy, politics and public opinion around immigration. It notes that numbers peaked at the end of 2022, with 1.15 million long-term international migrants (those planning to stay at least a year) arriving in over the previous 12 months, although net migration is likely to fall very sharply over the course of 2024. A new model for ‘humanitarian migration’ has emerged in the years since Brexit, with large inflows of migrants fleeing conflict in Ukraine and political oppression in Hong Kong.

Economics Observatory articles

• Housing: We have a wide range of articles on housing, including how we might tackle the current crisis and issues related to affordability, as well as how house prices can affect productivity and financial and economic stability. On our data hub, we also have an interactive map where you can see rates of house building across England.
  
• Tax and spending: Recent articles on UK fiscal policy have explored the country’s fiscal rules, how they work and whether they should be reformed. We have also looked at the role of taxes in boosting growth, including which are most effective at doing so.
  
• Health: There’s plenty to read on health, including pieces on privatisation and its effects on service quality, the NHS workforce plan, effects of the pandemic and the cost of living crisis on the NHS and public health, and overall performance of our health system.

Event

Devolution at 25: Productivity and Skills, 21 June, Queen’s University Belfast: Across two panels, speakers, including academic experts and economy representatives from each of the political parties in Northern Ireland, will discuss the role that skills can play in boosting productivity and how the Northern Irish economy can grow for the benefit of its citizens. Find out more and sign up here.

Authors: Andrea Correa-Jimenez, Ashley Lait, Finn McEvoy, Charlie Meyrick and Romesh Vaitilingam