Local MP Criticises Labour’s Plans As New Analysis Shows They Would Add £253 Billion To The National Debt

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).
  • 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 websitelink; 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 websitelink; 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).
  • 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

  • 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.
Current OBR forecast
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).
  • 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

  1. Bim AFOLAMI MP
  2. Lucy ALLAN MP
  3. Heidi ALLEN MP
  4. Victoria ATKINS MP
  5. Ed ARGAR MP
  1. Kemi BADENOCH MP
  2. Paul BERESFORD MP
  3. Bob BLACKMAN MP
  4. Nicholas BOLES MP
  5. Peter BONE MP
  6. Peter BOTTOMLEY MP
  7. Andrew BOWIE MP
  8. Ben BRADLEY MP
  9. Andrew BRIDGEN MP
  10. Fiona BRUCE MP
  11. Conor BURNS MP
  12. James CARTLIDGE MP
  13. William CASH MP
  14. Maria CAULFIELD MP
  15. Alex CHALK MP
  16. Jo CHURCHILL MP
  17. Kenneth CLARKE MP
  18. Simon CLARKE MP
  19. James CLEVERLY MP
  20. Damian COLLINS MP
  21. Robert COURTS MP
  22. Stephen CRABB MP
  23. Chris DAVIES MP
  24. David DAVIES MP
  25. Philip DAVIES MP
  26. Julia DOCKERILL MP
  27. Nadine DORRIES MP
  28. Richard DRAX MP
  29. James DUDDRIDGE MP
  30. Iain DUNCAN-SMITH MP
  31. Charlie ELPHICKE MP
  32. Nigel EVANS MP
  33. Michael FABRICANT MP
  34. Suella FERNANDES MP
  35. Vicky FORD MP
  36. Mark FRANCOIS MP
  37. Lucy FRAZER MP
  38. Marcus FYSH MP
  39. Nusrat GHANI MP
  40. Cheryl GILLAN MP
  41. Luke GRAHAM MP
  42. Richard GRAHAM MP
  43. James GRAY MP
  44. Chris GREEN MP
  45. Dominic GRIEVE MP
  46. Kirstene HAIR MP
  47. Robert HALFON MP
  48. Luke HALL MP
  49. Mark HARPER MP
  50. Trudy HARRISON MP
  51. Kevin HOLLINRAKE MP
  52. Simon HOARE MP
  53. Adam HOLLOWAY MP
  54. Nigel HUDDLESTON MP
  55. Eddie HUGHES MP
  56. Alister JACK MP
  57. Bernard JENKIN MP
  58. Andrea JENKYNS MP
  59. Gareth JOHNSON MP
  60. Dr Caroline JOHNSON MP
  61. Gareth JOHNSON MP
  62. David JONES MP
  63. Stephen KERR MP
  64. Greg KNIGHT MP
  65. Julian KNIGHT MP
  66. Kwasi KWARTENG MP
  67. Pauline LATHAM MP
  68. Sir Oliver LETWIN MP
  69. Dr Julian LEWIS MP
  70. Jack LOPRESTI MP
  71. Tim LOUGHTON MP
  72. Rachel MACLEAN MP
  73. Anne MAIN MP
  74. Alan MAK MP
  75. Kit MALTHOUSE MP
  76. Paul MASTERTON MP
  77. Stephen MCPARTLAND MP
  78. Esther MCVEY MP
  79. Mark MENZIES MP
  80. Johnny MERCER MP
  81. Huw MERRIMAN MP
  82. Stephen METCALFE MP
  83. Maria MILLER MP
  84. Amanda MILLING MP
  85. Nigel MILLS MP
  86. Damien MOORE MP
  87. Nicky MORGAN MP
  88. David MORRIS MP
  89. James MORRIS MP
  90. Wendy MORTON MP
  91. Sheryll MURRAY MP
  92. Bob NEILL MP
  93. Neil O’BRIEN MP
  94. Owen PATERSON MP
  95. Mark PAWSEY MP
  96. John PENROSE MP
  97. Andrew PERCY MP
  98. Chris PHILP MP
  99. Rebecca POW MP
  100. Victoria PRENTIS MP
  101. Mark PRISK MP
  102. Tom PURSGLOVE MP
  103. Jeremy QUIN MP
  104. Will QUINCE MP
  105. Jacob REES-MOGG MP
  106. Laurence ROBERTSON MP
  107. Andrew ROSINDELL MP
  108. Douglas ROSS MP
  109. Lee ROWLEY MP
  110. Antoinette SANDBACH MP
  111. Paul SCULLY MP
  112. Andrew SELOUS MP
  113. Grant SHAPPS MP
  114. Alec SHELBROOKE MP
  115. Keith SIMPSON MP
  116. Henry SMITH MP
  117. Royston SMITH MP
  118. Anna SOUBRY MP
  119. Sir Nicholas SOAMES MP
  120. Dame Caroline SPELMAN MP
  121. John STEVENSON MP
  122. Iain STEWART MP
  123. Desmond SWAYNE MP
  124. Hugo SWIRE MP
  125. Derek THOMAS MP
  126. Ross THOMSON MP
  127. Maggie THROUP MP
  128. Kelly TOLHURST MP
  129. Justin TOMLINSON MP
  130. Michael TOMLINSON MP
  131. Craig TRACEY MP
  132. David TREDDINNICK MP
  133. Anne-Marie TREVELYAN MP
  134. Edward VAIZEY MP
  135. Shailesh VARA MP
  136. Theresa VILLIERS MP
  137. Matt WARMAN MP
  138. Helen WHATELY MP
  139. John WHITTINGDALE MP
  140. Bill WIGGIN MP
  141. Mike WOOD MP
  142. Nadhim ZAHAWI MP