The costing and funding of manifesto pledges

May 03, 2017 3:07 PM

The tedious process of rival politicians telling each other that their spending plans are either “uncosted” or “unfunded” kicked into gear this morning. The Conservatives claimed Labour plans amount to a £45 billion “bombshell” only for Labour to hit back, saying the plans were “fully costed”.

It’s a similar tactic to that deployed by the editor of the Evening Standard two years ago when he unveiled a cost analysis of Labour’s spending plans, declaring many of them “unfunded”.

Almost all parties, even those running on patently absurd prospectuses, now claim that their plans are “fully costed” but what does this mean?

If something is “costed” it simply means that the price has been estimated or calculated. I can “fully cost” my proposed purchase of an Airbus A380; it doesn’t mean I can afford it. In the same way, a manifesto pledge being “costed” doesn’t mean that taxpayers can afford it. 

This brings us to the question of “funding” manifesto pledges.

All government spending is “funded” somehow, otherwise it wouldn’t happen. The two main sources of this funding are tax revenues and borrowing which is simply deferred tax.

It seems there are various ways in which pledges can be “funded”. The most obvious method is to earmark the revenues from a proposed tax increase. This approach invariably ends in farce with politicians pledging to spend the same money many times over.

During the 2015 election campaign, however, the Conservatives discovered a new array of funding sources for their pledge to increase NHS spending by £8 billion. Examples include “a strong economy”, a “track record” and a “long-term plan”.

Such dishonesty does a disservice to the electorate. This year the government will spend £58 billion more than it raises, £10 billion more than it will spend on defence. The reality is that with the national debt set to hit 234 per cent of GDP by 2067 no political party has the even the vaguest plan to make the public finances sustainable.