Key facts
- Proposed tax cuts and spending pledges by Andy Burnham and John Healey could cost the UK government up to £63 billion by 2030.
- Social care reform, including making it free at the point of use, could add £18 billion in annual expenditure.
- Boosting council housebuilding could require an additional £12 billion to £23 billion in spending.
- Aligning capital gains taxes with income tax rates could result in a £7 billion decrease in government receipts.
- The total cost load represents between 1.5% and 2% of UK GDP.
New analysis from Capital Economics suggests that a series of tax cuts and spending pledges proposed by Andy Burnham and John Healey could impose a significant financial burden on the UK government, potentially costing between £46 billion and £63 billion by 2030. This figure represents 1.5% to 2% of the UK's GDP and could strain the government's fiscal headroom.
The analysis highlights several key areas of expenditure. Making social care free at the point of use could add approximately £18 billion annually. Boosting council housebuilding to pre-war levels might require an additional £12 billion to £23 billion. Furthermore, fulfilling defence spending ambitions could necessitate an extra £11 billion each year.
Economists also cast doubt on the revenue-raising potential of some proposed measures. Aligning capital gains taxes with income tax rates, a proposal endorsed by several Labour MPs, could lead to a £7 billion reduction in receipts as investors adjust their strategies. Andy Haldane, a former Bank of England deputy governor who has advised Burnham, cautioned against relying heavily on capital gains tax hikes.
Burnham has indicated that there is flexibility within fiscal rules to allow for investment, but Capital Economics warns that the bond market is nearing its tolerance limit for additional government borrowing, estimating a ceiling of around £15 billion for investment-related borrowing. The fiscal headroom, previously estimated at £22.7 billion before recent market shocks, is now believed to be closer to £10 billion.