On the money

How do the parties' election promises stack up? Phil McDuff crunches the numbers

11th December 2019

Labour are promising to “put money in your pocket” — to the tune of £6,716 — through a combination of savings and wage rises. Meanwhile the Tories are claiming the opposite, that a Labour government would cost everyone in the UK £2,400 a year. How credible are these claims?

It will surprise nobody who knows the Tories’ relationship to the truth that their claim is basically horseshit, and we can dispense with that pretty swiftly. It’s a standard tactic if you want to misrepresent numbers – take the average figure and say it applies equally to everyone. It’s true in the same way that if I’m in the same room as Wayne Rooney, we both have 60 caps for England and scored 26.5 international goals apiece. This is to say, it is absolutely not true.

The Tories do not even bother to say “on average” which is what moves it from misleading to outright lying. It may be true that “on average” tax increases under Labour will come to £2,400 per person, but just as most of us have never played for England, so the actual proportion of people paying any increased tax under Labour’s plans is fairly small. Moreover, while many of them will be paying more than this £2,400, progressive income taxes are targeted at those who have benefited the most from living in a developed society. Income and wealth are incredibly unevenly distributed in the UK, as we have a system that favours a “winner takes all” economy. The rich can easily get richer, those lower down the income scale often struggle to amass any wealth at all. Asking those people to pay more is simply a recognition of the benefits they’ve accrued from living in this country.

So the Tories claims: bollocks. What of Labour’s?

This is an interesting one because it occupies a space we see covered far less than tax – day to day wages and expenses. There tends to be a disparity in coverage and emphasis, with people talking more about tax than bills. But people on regular-sized wages are much more sensitive to changes in bills and other outgoings than they are to changes in the tax system.

Eg: If you’re on £26k a year (which is median-ish for individual income, depending on what exactly you’re measuring). We haven’t changed the tax rate for a long time, and the usual offer made by parties is to raise the personal allowance, which is the amount of money you earn before paying tax, and which affects how much of your income you’re taxed on. At the moment it’s £12,500, so our £26K earner is paying 20% tax on £13,500 of that income, or £2,700 a year.

Personal allowance

The normal route to “cutting income tax” is to raise the personal allowance. Nobody is offering that this year, although the Tories have hinted in that direction, but if the personal allowance went up by £1,000, our median earner would be paying tax on £1,000 less of their income, so would get a £200 annual tax cut.

Let’s compare that to expenses. If you’re paying £450 in monthly rent, and this goes up by 5% to £472, that’s £270 a year – you’re already £70 down even if your taxes have decreased. Lowering rental costs across the board equates to a bigger saving for a lot more people than lower taxes. Labour’s offer of free broadband is another small but cumulative saving – the average broadband bill in the UK is £30, which is £360 a year – a bigger saving to the average person than a £1,000 rise in the personal allowance.

Costs

Now, whether Labour’s fairly specific figure of £6,716 is accurate is definitely more dubious. They are still working on averages here, and while they are on much sounder ground than the Tories because rent, utility bills, broadband etc are pretty much universal costs, they are also adding in some things that aren’t strictly universal. For instance they estimate that those with children will be able to save £2,941 per child per year on childcare costs, which obviously doesn’t apply if you haven’t got kids or if they’re grown up. They quote £2,194 for a pair of rail season tickets, which matters more if you’re in the South East commuting to London but won’t really affect people in the North East where we don’t have any working trains.

So the averages here are still a bit sus. However, the overall point – that day-to-day expenses are real things that impact how much money people have left at the end of the month, and even small savings matter a lot more to “the average person” than mucking about with taxes – is a sound one, and something which we surprisingly don’t pay much attention to.

It’s worth looking at why this is. Why the money I pay on rent and heat and electricity and water so often counted as “money in my pocket” when discussing tax plans, when it very clearly and obviously is not in my pocket any more?

One answer can be found by looking across to the United States. Over there they are having a discussion about “medicare for all”, their attempt to catch up to the rest of the world on universal healthcare. Politicians like Liz Warren and Bernie Sanders are making a very simple point: Americans pay a lot to private health insurers at the moment, and so if the amount of tax you pay goes up by less than your insurance premium (plus all your deductibles and “co-pays” and other out of pocket expenses), then you’re saving overall.

This is a generally true fact about universal services. It’s just cheaper to pool resources and provide a universal system for a lot of things than it is to try to bill everyone individually, and universal provision can be paid for progressively rather than at flat rates. Think of trying to charge individually for roads or schools, for instance. 

The very rich, however, control the discourse and taxes really matter to those guys. If you’re on $500,000 a year as a name journalist in the USA, of course you care far more about changes in the tax system than you do about health insurance. For the top earners, the priorities flip around – tax matters much more to them than it does to us, because it’s a much bigger share of their expenses than things like housing and heat.

Back on this side of the pond this is still true. Someone on £140,000 will pay about £6,000 more in tax under Labour’s plans, so they might just about come out ahead if they have two kids and a really expensive rail season ticket, but probably will end up paying more overall. Someone on £250,000, the amount of money Boris Johnson was paid as a columnist for the Telegraph, would pay £17,000 more a year in tax. For comparison, if you were paying £600 a month in rent and your landlord doubled it next year to £1200, this would be an absolutely unmanageable expense rise of £7,200 for most people — but it is less than half of Boris’s tax rise on his second job would be under Labour. 

Money in your pocket

The overarching point here is that if you’re working out how much money people have left, you have to pay attention to both taxes and non-discretionary expenses when figuring out the “money in your pocket” when it all washes out. And in general, income taxes are progressive while everyday expenses are regressive. Even the rich can only eat so much food and drink so much water. Rent is a huge chunk of people’s incomes, while for many in the top brackets who have investment property, your expenses are part of their income. Cutting expenses and raising taxes is a better general strategy  in terms of “money in your pocket” for everyone except the super rich, but the super rich get far more attention because they own the newspapers and control the editorial decisions of the media.

So both Labour’s and the Tories’ headline figures are probably not the most accurate numbers to have ever been produced – relying on averages to give you a figure for individual changes in income will do that.

But Labour are right to point out that most people will see some improvement in their personal circumstances from bills being brought down, even if the headline figure only applies to a smaller number of people. They’re also correct to focus on everyday expenses as a policy rather than to offer to cut taxes – most people will benefit more from this, even if it’s only to the tune of a few hundred quid, than from playing about with income taxes.

The Tories, on the other hand, are wildly stretching the truth. Not only will Labour’s current plans not even remotely equate to “£2,400 per household”, tax rises in general matter far less to lower and middle-earners than expenses do. Even if Labour find they do have to raise taxes on people lower down the income scale in future budgets, their plans to lower month-to-month expenses for things everyone needs and uses will still mean most people end up saving overall, just the same as Medicare for All equates to a real drop in total monthly outgoings for the majority of people in America. 

There’s no such thing as an “average human”. Policies will affect us all differently because our circumstances are different. The question is, how close do average numbers give us an idea of how policies will affect us? On this question, Labour are clearly giving the right idea, and the Tories the wrong one.

11th December 2019