A report from Capital Economics indicates that a series of tax cuts and spending pledges proposed by Andy Burnham and John Healey could cost the government up to £63bn by 2030. These promises, which include defence, social care, and council housebuilding, could result in a bill of between £46bn and £63bn by the end of the decade, equivalent to 1.5 per cent to two per cent of GDP.
Ruth Gregory, chief UK economist at Capital Economics, stated that the cost burden could place the Chancellor in a difficult position, as bond traders are nearing the limit of what they can "tolerate" in extra borrowing. The research group also suggested that the size of the fiscal headroom, the government's buffer before breaking its own fiscal rules, has likely deteriorated since March.
Specific pledges highlighted in the analysis include making social care free at the point of use, estimated to cost £18bn in annual expenditure. Boosting council housebuilding to pre-war levels could require an additional £12bn to £23bn. John Healey's ambitions for defence spending could also necessitate an extra £11bn each year, though Burnham refused to commit to lifting defence spending to Healey's demand on Wednesday.
Further costs could arise from unfreezing the £12,571 personal allowance threshold, estimated at £9bn, a measure Burnham reportedly hinted at before retracting his comments. Smaller pledges, such as business rates cuts, stripping VAT from energy bills, and ending rough sleeping, could also add billions to government costs.
The Capital Economics report also questioned potential revenue-raising measures. Aligning capital gains taxes with income tax rates, a proposal endorsed by Wes Streeting and other Labour MPs, could lead to a £7bn fall in receipts, as investors might delay selling assets or withdraw cash from the UK. Andy Haldane, former Bank of England deputy governor and an advisor to Burnham, urged the government to avoid using capital gains tax hikes as a "cash cow" for increased spending.
While Burnham has claimed "flexibility" in fiscal rules for investment, Gregory suggested there is "some scope" for borrowing but warned the bond market is "already close to the limits of how much extra borrowing it will tolerate," estimating a ceiling of £15bn for extra investment borrowing.