Justin Tomlinson has joined 146 parliamentary colleagues in writing to Shadow Chancellor, John McDonnell after new analysis showed Labour’s plans would increase the nation’s debt by more than £250 billion.
Following Jeremy Corbyn’s U-turn on his commitment to ‘deal with’ student debt, 147 Conservative MPs have written to Labour’s Shadow Chancellor demanding that he set out which other plans would face the axe as Labour attempt to deal with £5.8 billion in extra debt interest payments.
The letter is published alongside new analysis of Labour’s plans showing that, by the end of this Parliament, public sector net debt would be £253 billion higher under Labour than under the Conservatives.
Based on the independent Office for Budget Responsibility’s current projections of the cost of government borrowing, this means Labour would spend £5.8 billion more a year in debt interest payments – the equivalent to the pay of around 65,000 nurses, 56,000 teachers and 53,000 police officers, putting tens of thousands of jobs at risk.
In reality under Labour the cost of borrowing would be even higher as their unfunded spending commitments would push up borrowing costs, with even more money being spent on debt interest rather than on vital public services.
Justin Tomlinson MP said: “Once again, Jeremy Corbyn and the Labour Party has promised everything to everyone without a clear plan for how they are going to pay for it. This new analysis of Labour’s plans show that they haven’t learned the lessons of the past and are willing to bankrupt the country, saddle future generations with debt on an unprecedented scale and would mean families across Swindon would be left to pick up the pieces as Corbyn pursues the failed policies of the past. To put this into context, the £253 billion Labour’s plans would add to the national debt is more than we spend on the NHS, schools & defence combined.
Chancellor of the Exchequer, Philip Hammond, said: “As their £100 billion broken promise on student debt shows, Labour aren’t being straight with the British public. Labour would take out an enormous loan, but are pretending they wouldn’t have to make cuts elsewhere to pay for it. Families, and working people everywhere know that’s not how it works; when you take out a loan you have to pay interest on it, and that means making tough decisions on where to cut back elsewhere. Only the Conservatives have a plan to bring down debt so we can invest in vital public services that serve families and communities right across the country.”
Labour would add £253 billion more to the national debt than under Conservative plans
- The IFS says debt would be £106 billion higher under Labour’s manifesto plans – excluding the cost of nationalisations. IFS analysis of the Conservative and Labour Party manifestos found that debt under Labour would be £106 billion higher by the end of the Parliament than under the Conservatives. This excludes the cost of nationalisations (IFS, General Election Analysis, 25 May 2017, link, slides 18-19).
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Labour’s nationalisation programme will cost at least £134 billion – and in reality billions more. On a conservative estimate, the nationalisations committed to in the Labour manifesto of water, energy, Royal Mail and rail will add £134 billion to public sector net debt. In reality, this would cost much more because Labour would have to pay a market premium to buy up the shares of publicly listed companies on the stock exchange.
- Water: £69 billion
- ‘We will:…Replace our dysfunctional water system with a network of regional publicly-owned water companies’ (Labour Party Manifesto 2017, 16 May 2017, p.19, link).
- The regulatory capital value (RCV) of the water industry is the value of the capital base of each company for the purposes of Ofwat setting price limits. The RCV of the water industry at 31 March 2017 was £69 billion (Ofwat, Regulatory capital value updates, accessed 26 July 2017, link).
- Energy: £52 billion
- ‘Labour will…Regain control of energy supply networks through the alteration of operator licence conditions, and transition to a publicly owned, decentralised energy system’ (Labour Party Manifesto 2017, 16 May 2017, p.19, link).
- Jeremy Corbyn later clarified: ‘What we are saying is the National Grid should be publicly owned’ (BBC News, 16 May 2017).
- National Grid’s market capitalisation was listed on the London Stock Exchange as £32.502 billion at 10:20 on 27 July 2017. As any moves to begin a buyback of shares is likely to drive the price higher this is likely to be an underestimate. In addition, the taxpayer would also take on National Grid’s debts, adding another £19.274 billion to the national debt (London Stock Exchange website, link; National Grid, Annual Report and Accounts 2016/17, p.91, link).
- Royal Mail: £4.3 billion
- ‘We will:…Reverse the privatisation of Royal Mail at the earliest opportunity’ (Labour Party Manifesto 2017, 16 May 2017, p.19, link).
- Royal Mail’s market capitalisation was listed on the London Stock Exchange as £3.959 billion at 10:20 on 27 July 2017. As any moves to begin a buyback of shares is likely to drive the price higher this is likely to be an underestimate. In addition, the taxpayer would also take on Royal Mail’s debts, adding another £338 million to the national debt (London Stock Exchange website, link; Royal Mail, Annual Report and Financial Statements 2016/17, p.4, link).
- Rail: £8.8 billion
- ‘We will: Bring private rail companies back into public ownership as their franchises expire’ (Labour Party Manifesto 2017, 16 May 2017, p.19, link).
- The trains used on Britain’s railways are owned by private companies – with Angel Trains, Eversholt Rail and Porterbrook the three largest – and Labour would need to buy them back. In 2008, RBS sold Angel Trains for £3.6 billion. In 2015, Eversholt Rail was sold with an enterprise value of approximately £2.5 billion. In 2014, Porterbrook, was sold with analysts estimating a value of £2 billion. Bringing these figures up to current prices would cost £8.873 billion. This is likely to be an underestimate due to the presence of a number of smaller passenger and freight companies and the significant investment in new rolling stock that is currently taking place across the UK (Reuters, 14 June 2008; London Stock Exchange, 20 January 2015; Reuters, 11 October 2014; HMT, GDP deflators at market prices, and money GDP, March 2017, 3 April 2017).
- Following publication of Labour’s manifesto, Corbyn has committed to end the benefit freeze, costing £12.9 billion over the Parliament.
- ‘We’re not going to freeze benefits that is very clear’ (Jeremy Corbyn, Labour Manifesto Launch Q&A, 16 May 2017).
- Ending the freeze on working age benefits would cost £505 million in 2017/18, £1,755 million in 2018/19, £3,470 million in 2019/20 and £3,580 in 2020/21 and 2021/22 (HMT, Budget 2016, Table 2.2, link).
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Adding all this together, Labour would add £253 billion more to the national debt than the Conservatives by the end of this Parliament – or £14,328 of debt per working household. There are 17.6 million working (working and mixed) households in the UK (ONS, Working and workless households in the UK: Jan to Mar 2017, 31 May 2017, link).
That means Labour would have to spend at least £5.8 billion more on debt interest payments every year
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Labour would spend £5.8 billion more – every year – on debt interest payments. The below table shows the forecast from the Office for Budget Responsibility for public sector net debt and for the Government’s debt interest payments in 2021/22. These figures are then used to calculate the effective interest rate in that year, which has been applied to Labour’s additional debt. This calculation assumes that interest rates remain low. Of course in reality under Labour the cost of borrowing would likely be much higher and so even more money would be spent on debt interest rather than on vital public services.
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Current OBR forecast |
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|
21/22 (£billion) |
|
|
Public sector net debt |
1904 |
|
Net debt interest spending |
44.0 |
|
Implied interest rate (%) |
2.3 |
|
Under Labour |
|
|
Additional debt |
252.86 |
|
Interest on additional debt |
5.8 |
|
Total debt |
2156.9 |
(OBR, Economic and Fiscal Outlook, 8 March 2017, link).
- That is the equivalent of the pay of around 65,000 nurses, 56,000 teachers, and 53,000 police officers. This is based median gross annual earnings published in the Annual Survey of Hours and Earnings (ASHE) by employee category. Splitting the £5.8 billion extra debt interest equally between the three categories, the additional debt interest that Labour would have to spend is the equivalent to the pay of 65,991 nurses (using the wage in the ASHE health professionals category), 56,185 teachers (using the wage in the ASHE teaching and educational professionals category), and 53,411 police officers (using the wage in the ASHE protective service occupations category) (ONS, Annual Survey of Hours and Earnings, October 2016, link).
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These interest payments would be on top of what independent experts called ‘one of the biggest tax increases in the last 30 years or so’. Paul Johnson said: ‘Well, it would make it one of the biggest tax increase in the last 30 years or so. I mean you could introduce an increase of that level - it would return the main rate of corporation tax to where it was 6 or 7 years ago, but of course two important things about corporation tax first – it’s not a victimless tax – this would increase taxes by about 1 per cent of national income – so it would in the long run leave us all about 1 per cent worse off, and of course it is people in the end, it is people in the end who pay it and it would reduce incentives for companies to invest in the UK’ (Today Programme, 10 May 2017).
Text of the letter sent to the Shadow Chancellor regarding Labour’s spending plans:
Rt Hon John McDonnell MP
Shadow Chancellor of the Exchequer
House of Commons
SW1A 0AA
28 July 2017
Dear John
Following the U-turn on the clear commitment Jeremy Corbyn made to “deal with” student debt during the election and on which his team campaigned we are writing to ask you to set out Labour’s position on its other spending commitments.
The independent Institute for Fiscal Studies said that our national debt would be £106 billion higher under Labour’s manifesto. Jeremy Corbyn has made £12.9 billion of further promises since the manifesto was published and Labour’s nationalisation programme will cost £134 billion at the very least – in reality the figure could be much higher.
In total Labour would add at least £253 billion more to the national debt by end of the Parliament than the Conservatives.
Based on the OBR’s current projections of the cost of government borrowing, this extra debt means a Labour Government would have to waste at least £5.8 billion more on interest payments every year.
This position is clearly untenable. Either you will need to make reductions to public spending in areas which you are yet to identify, raise taxes in areas you have yet to identify or break the promises you made to the electorate.
The public will rightly want to know in order to fund your extra borrowing:
What areas of public spending you will reduce?
What new taxes you plan to raise or introduce?
What further election promises you will break?
We look forward to your response.
Yours sincerely
- Bim AFOLAMI MP
- Lucy ALLAN MP
- Heidi ALLEN MP
- Victoria ATKINS MP
- Ed ARGAR MP
- Kemi BADENOCH MP
- Paul BERESFORD MP
- Bob BLACKMAN MP
- Nicholas BOLES MP
- Peter BONE MP
- Peter BOTTOMLEY MP
- Andrew BOWIE MP
- Ben BRADLEY MP
- Andrew BRIDGEN MP
- Fiona BRUCE MP
- Conor BURNS MP
- James CARTLIDGE MP
- William CASH MP
- Maria CAULFIELD MP
- Alex CHALK MP
- Jo CHURCHILL MP
- Kenneth CLARKE MP
- Simon CLARKE MP
- James CLEVERLY MP
- Damian COLLINS MP
- Robert COURTS MP
- Stephen CRABB MP
- Chris DAVIES MP
- David DAVIES MP
- Philip DAVIES MP
- Julia DOCKERILL MP
- Nadine DORRIES MP
- Richard DRAX MP
- James DUDDRIDGE MP
- Iain DUNCAN-SMITH MP
- Charlie ELPHICKE MP
- Nigel EVANS MP
- Michael FABRICANT MP
- Suella FERNANDES MP
- Vicky FORD MP
- Mark FRANCOIS MP
- Lucy FRAZER MP
- Marcus FYSH MP
- Nusrat GHANI MP
- Cheryl GILLAN MP
- Luke GRAHAM MP
- Richard GRAHAM MP
- James GRAY MP
- Chris GREEN MP
- Dominic GRIEVE MP
- Kirstene HAIR MP
- Robert HALFON MP
- Luke HALL MP
- Mark HARPER MP
- Trudy HARRISON MP
- Kevin HOLLINRAKE MP
- Simon HOARE MP
- Adam HOLLOWAY MP
- Nigel HUDDLESTON MP
- Eddie HUGHES MP
- Alister JACK MP
- Bernard JENKIN MP
- Andrea JENKYNS MP
- Gareth JOHNSON MP
- Dr Caroline JOHNSON MP
- Gareth JOHNSON MP
- David JONES MP
- Stephen KERR MP
- Greg KNIGHT MP
- Julian KNIGHT MP
- Kwasi KWARTENG MP
- Pauline LATHAM MP
- Sir Oliver LETWIN MP
- Dr Julian LEWIS MP
- Jack LOPRESTI MP
- Tim LOUGHTON MP
- Rachel MACLEAN MP
- Anne MAIN MP
- Alan MAK MP
- Kit MALTHOUSE MP
- Paul MASTERTON MP
- Stephen MCPARTLAND MP
- Esther MCVEY MP
- Mark MENZIES MP
- Johnny MERCER MP
- Huw MERRIMAN MP
- Stephen METCALFE MP
- Maria MILLER MP
- Amanda MILLING MP
- Nigel MILLS MP
- Damien MOORE MP
- Nicky MORGAN MP
- David MORRIS MP
- James MORRIS MP
- Wendy MORTON MP
- Sheryll MURRAY MP
- Bob NEILL MP
- Neil O'BRIEN MP
- Owen PATERSON MP
- Mark PAWSEY MP
- John PENROSE MP
- Andrew PERCY MP
- Chris PHILP MP
- Rebecca POW MP
- Victoria PRENTIS MP
- Mark PRISK MP
- Tom PURSGLOVE MP
- Jeremy QUIN MP
- Will QUINCE MP
- Jacob REES-MOGG MP
- Laurence ROBERTSON MP
- Andrew ROSINDELL MP
- Douglas ROSS MP
- Lee ROWLEY MP
- Antoinette SANDBACH MP
- Paul SCULLY MP
- Andrew SELOUS MP
- Grant SHAPPS MP
- Alec SHELBROOKE MP
- Keith SIMPSON MP
- Henry SMITH MP
- Royston SMITH MP
- Anna SOUBRY MP
- Sir Nicholas SOAMES MP
- Dame Caroline SPELMAN MP
- John STEVENSON MP
- Iain STEWART MP
- Desmond SWAYNE MP
- Hugo SWIRE MP
- Derek THOMAS MP
- Ross THOMSON MP
- Maggie THROUP MP
- Kelly TOLHURST MP
- Justin TOMLINSON MP
- Michael TOMLINSON MP
- Craig TRACEY MP
- David TREDDINNICK MP
- Anne-Marie TREVELYAN MP
- Edward VAIZEY MP
- Shailesh VARA MP
- Theresa VILLIERS MP
- Matt WARMAN MP
- Helen WHATELY MP
- John WHITTINGDALE MP
- Bill WIGGIN MP
- Mike WOOD MP
- Nadhim ZAHAWI MP
