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Labour’s general election manifesto
Labour’s general election manifesto. Photograph: Danny Lawson/PA
Labour’s general election manifesto. Photograph: Danny Lawson/PA

Labour manifesto 2017: the key points, pledges and analysis

This article is more than 6 years old

Unpicking the party’s 128-page document for the election, including tax plans and a pledge to renationalise the water industry

After last week’s leak of the Labour manifesto, the release of the final 128-page version adds details and costs to the policies already announced, as well as new commitments. There are specifics on the party’s tax plans, a pledge to renationalise the water industry, a promise of 30 hours’ free childcare, a new section on security and counter-terrorism, and tougher language on defence.

A separate short document balancing fresh spending commitments with tax-raising pledges is significant in not including the costs of the big pledges to renationalise the railways, Royal Mail, the energy companies or the water industry. Instead, a short note on a new £250bn “national transformation fund” implies that these costs will be funded through capital borrowing. The most significant new measures of the final version:

Income tax

Top 5% of earners, those on more than £80,000 a year, to face a 45p marginal rate of income tax and a new 50% rate on earnings above £123,000 to raise £6.4bn a year. Pledges to not increase VAT rates or personal national insurance contributions. Scotland sets own tax rate. “Fat cats” levy.

Analysis: The Institute for Fiscal Studies said lowering the threshold for the 45p rate from £150,000 to £80,000 would bring 1.3 million people into the higher rate and could raise £7bn rather than the £4.5bn estimated by Labour. But recent evidence from the imposition of a 50p rate in 2010 shows that the measure could spark mass avoidance by the individuals affected and raise no extra funds for the exchequer.

Critics say higher income tax will drive top earners offshore. The VAT and national insurance pledge does not rule out raising company NI contributions or extending the range of VAT, but says food, children’s clothes, books, newspapers and fares will remain exempt.

An excessive pay levy is Labour’s attempt to tackle stratospheric wages with an extra tax. It would affect everyone from company bosses to well-paid sportspeople. With a starting rate of “total compensation” of £330,000 a year, the total raised “would be over £1.3bn”.

A promised review of council tax and business rates and new options for local government funding, including a land value tax, are also likely to increase the tax burden.

Company taxes

Labour plans to raise £48.6bn to pay for extra spending. It says estimates of extra revenues are conservative and take into account that businesses and individuals will change their behaviour when confronted by higher taxes. It plans to raise an extra £19.4bn a year from corporation tax by raising the headline rate from 21% to 26%. This is two percentage points below the 2010 rate inherited by the coalition government.

Analysis: Labour plans to balance the books with a near-doubling of tax receipts from Britain’s businesses. The Treasury’s most recent analysis of corporation tax payments show it steadily rising in the years from 2012-13 to 2015-16 to £44.4bn, despite steep declines in revenues from North Sea oil. In each year, industrial and commercial firms have paid more. A bounce back in the profitability of banks and insurance companies across the City has also boosted tax receipts.

Low tax/free market advocates argue that higher tax receipts are a result of cuts in the headline corporation tax rate, which has encouraged firms to expand their activities and declare more of their profits in the UK.

Tax on the City

A tax on derivative dealing and other exotic trading areas will generate £5.6bn, according to Labour.

Analysis: This is seen as an invisible tax on an area of the City that few understand, but banks claim the costs will ultimately be passed on to shareholders in the form of lower dividends.

How will the average person's tax burden change under a Labour government?

Labour has pledged not to raise the tax burden of those on low and middle incomes. The standard income tax rate will remain unchanged as will VAT. That means someone on the average wage of £26,500 will pay the same. Labour plans to apply the 45p rate to the 500,000 who earn between £80,000 and £100,000. The Institute for Fiscal Studies said this group would pay on average £400 more a year. The 300,000 earning between £100,000 and £123,000 would lose up to £2,725 while the 50,000 earning over £500,000 would all lose at least £22,900 a year. Philip Inman

Water industry nationalisation

Labour say water bills have risen 40% since privatisation by Margaret Thatcher in 1989. Labour’s manifesto promises to “replace our dysfunctional water system with a network of regional publicly owned water companies”. The party claims this could reduce household bills by £100 a year.

Analysis: Ofwat says the regulatory capital value of the water companies in England and Wales stands at £66bn, excluding debt or pension liabilities. The cost of taking them back into public ownership is not included in the manifesto costings as it would be funded through capital borrowing. John McDonnell said on Tuesday that the process could either be through outright purchase or an exchange of shares in water companies for bonds. Senior Welsh Labour figures immediately suggested that Welsh Water’s not-for-profit structure might be a better model.

Funding public ownership

McDonnell said: “Every spending commitment is fully costed. Every source of funding is explained.” But the shadow chancellor is under pressure to explain why the renationalisation of the water industry at a cost of more than £60bn and moves to take the National Grid and Royal Mail into public ownership are not included in his costings.

Labour says the cost of buying out shareholders will be matched by the purchase of valuable, profitable businesses. The net effect on the government’s balance sheet will be zero.

Analysis: If the purchase is carried out via an equity for debt swap, the current shareholders become bondholders, and rather than expect a dividend each year, they are paid a fixed level of interest, say 5%.

To renationalise at zero cost presumes that the new state-run businesses can perform as the privatised ones, paying the interest coupon to the bondholders and financing the planned investments. This should be possible if shareholders were taking out 10% in dividends, creating 5% of headroom.

However, McDonnell also wants to cut bills, and that could turn profitable state-owned companies into loss-makers needing taxpayer subsidies. Voters may also fear that nationalised utilities become more concerned to raise the pay and pensions of employees than to increase investment, thereby reducing the value of the new state-owned asset.

Free childcare and early years support

Labour says it will introduce a £5.3bn package, including extending 30 free hours of childcare to all two-year-olds, and moving towards making some childcare available for one-year-olds and extending maternity pay to 12 months.

Analysis: To create sufficient childcare places to meet their pledge, Labour would replace parents’ vouchers with directly government-subsidised places. The party acknowledges that this will need substantial capital investment in the first two years to create the places.

Ending freeze on welfare benefits

Jeremy Corbyn said at the manifesto launch that Labour will end the freeze on welfare benefits. The current benefit cap means an extra £12bn is taken from low-income families this year. The Tories plan restrictions on housing benefit, disability benefits and universal credit, which replaces tax credits.

Analysis: There is no mention of this pledge in the manifesto or costings document. There are no spare funds in Labour’s calculations for extra welfare spending. To counteract the effects of planned cuts, under Labour’s current plans it would need to increase borrowing. A further policy paper is promised.

Pensions

Labour proposes to freeze the state pension age at 66 from 2020. This commitment means that the planned rise from 66 to 67 due between 2026 and 2028 will not happen and neither will the planned rise from 67 to 68 due between 2044 and 2046.

Analysis: Freezing the state pension age is a costly measure, though for the next parliament rather than this one. But a Labour win would alter people’s calculations over what they need to save, so the policy change is important. Early estimates of the impact have ranged between £90bn and £300bn over the next 30 years, significantly adding to government borrowing or the level of taxation.

Late amendments compared with leaked draft

Immigration: Explicit statement that Brexit will mean an end to freedom of movement for EU nationals. While rejecting “bogus immigration targets” for the first time, Labour says a new immigration system, which by implication includes EU nationals, “may include employer sponsorship, work permits, visa regulations or a tailored mix of all these”.

Public sector recruitment: An earlier pledge to recruit 1,000 extra border guards has been halved to 500 and a promise to recruit 3,000 firefighters has been added. The extra costs of 10,000 police officers are budgeted at £300m but the costs of 3,000 more prison officers, the extra firefighters and border staff are not separately identified.

Defence: Explicit commitment to Nato added, and a section promising that a Labour prime minister will be “extremely cautious” before ordering the launch of nuclear weapons has been dropped. A late section on cybersecurity appears to have been added after the cyber-attack that hit the NHS.

Security and counterterrorism: A new section has been added to the manifesto promising that the security agencies will get the resources they need, but Labour will also ensure that their powers do not weaken individual or civil liberties. Judicial oversight when the powers are used.

Other measures already announced

The final version confirmed the main commitments detailed in the earlier draft manifesto made public last Thursday and adds prices to the main pledges. Among the most significant measures are:

  • The abolition of tuition fees and reintroduction of maintenance grants, at a cost of £11.2bn
  • Health and social care reform at a cost of £7.7bn, as part of a package that includes a guarantee of A&E treatment within four hours and the end of the NHS pay cap
  • Free lunches for pupils as part of £6.3bn school package
  • The end of the bedroom tax and repeal of cuts in support to disabled people in a social security package worth £4bn
  • At least 100,000 council and housing association homes a year, as well as new help to buy funding, covered by the £250bn ‘national transformation fund’

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