The PM has been called a "Red Tory" for saying she will step in when the state isn't working, but it's her silence on the UK's huge debt that is really worrying, says Merryn Somerset Webb.
Is it worth considering the contents of the main parties' manifestos? After all, the prime minister, Theresa May, still has a commanding 13-point lead in the polls, and there is a near-universal acceptance that Labour leader Jeremy Corbyn would be a hopeless PM.
He is, as The Daily Telegraph says, "inexperienced, far left" and stuck with an odd history of supporting extremist causes. If this election is about leadership (as everyone says it is), he is surely a guaranteed loser. Moreover, his manifesto is more a teenage hopes and dreams wish list than a plan. It seems unlikely voters will fall for it.But May hasn't covered herself in leadership glory this week either. The chaos over care costs (see below) reflected a communications disaster. May failed to explain that her policy was both very progressive, and a bit of a giveaway to those with low-ish levels of housing equity. Then when she capitulated (all too rapidly), she did so in a foolishly vague way.
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Worse still, the whole thing reminded us all about her other changes of mind (on national insurance rises for the self-employed, on workers on boards, and on having an election) and hence made her manifesto seem rather more temporary than it should be. The result? Last week, as Janan Ganesh notes in the Financial Times, we all wanted to know who May really is this week we just want to know if she is "any good".
Also, both manifestos are, as the BBC's Andrew Neil described May's, "half baked and uncosted". Both Labour and Conservative seem utterly unbothered by the UK's vast debt. Maybe that's OK. Last week, the UK issued £5bn-worth of 40-year debt at 1.7%: clearly the bond market which will buy a net £35bn in gilts this year isn't much bothered by the endless pushing out of the day when the UK finally stops spending more than it raises in taxes each year (May's target is now 2025). That makes some sense: as Scott Thiel of Blackrock told the FT, the UK political system is "very stable... I'd be very hard pressed to find a client or investor who would suggest that, unlike the Italian or Irish bonds, the UK had any kind of risk in it at all."
But that doesn't put the UK in the clear. We still have the (never-mentioned) problem of the £453bn the government lent to itself via quantitative easing. We still have total debt just shy of 90% of GDP (the highest since the 1960s, and up from 55% in 2007); we spend more on debt interest (8% of tax revenues) than we do on schools; and 30% of our debt is held by foreign investors, who, one day, might ask for more than 1.7%. What makes anyone think that the expensive promises made by modern politicians have any hope at all of seeing the light of day?
Still, the manifestos and May's in particular are useful for at least one thing: they tell us a huge amount about the direction of travel of UK politics. It is OK with debt. It is wary of markets and business. And most importantly of all, it is statist. Very. Corbyn wants to see a relentless round of "tax and spend", coupled with the renationalisation of everything from the railways (see page 32) to Royal Mail. The Lib Dems are mad to tax and spend as well. And May's own manifesto is full of plans for state intervention.
She is against "untrammelled markets" and too much in the way of individualism. She is prepared to step in wherever she perceives the market as not working (which is all over the place). She is, say most commentators, a "Red Tory". Is that fair? It has grains of truth in it her utility bill cap might work differently to former Labour leader Ed Miliband's, but it still comes from his song sheet.
However there is something a little different going on here. While May is as keen on raising more tax revenue as the rest (tax is mentioned 30 times in the manifesto), an awful lot of what she is doing is not promising more state spending, but instead promising to find ways to transfer wealth without making the state the "middle man". That's what raising the minimum wage is about it cuts the tax credit bill without cutting incomes.
The same theme runs through plans to regulate the gig economy, to have worker representatives on boards, and for pension trustees to be able to stall mergers and acquisitions. It is also there in the apprenticeship levy (one-time state costs become corporate costs), in her plan to "strengthen the hand" of regulators, and in the way the social care plan used the state to manage the financing but not to finance costs. It is intervention to have a go at dealing with "burning injustices" but without a chequebook. So Mayism is (I think!) about a more intrusive state, but not necessarily a bigger one.
We've been warning that this has been coming for a long time that if big companies don't raise their game on wages (up for workers, down for management) and on recognising the long term and social impacts of their behaviour, someone else will do it for them. If you assume that this manifesto is no more than a hint to the future (no one running for their first proper go as PM puts their most radical ideas in their first portfolio), it looks like that someone might be May. Below I run through some of the points in the main portfolios it is far from comprehensive, but it does focus on the ideas most likely to affect us all most over the next few years.
It doesn't matter who wins, one way or another, taxes are going up. No party has so much as hinted at a desire to reduce the overall tax burden. This is not a good thing, given that the state is almost always worse at distributing cash than those who earned it in the first place. So who is after what? Corbyn has made it clear that while you aren't rich if you have £100,000 of assets (he was against May's care policy) you are rich if you earn over £80,000 a year (go figure). That means that your personal income tax rate should go up to 45% and then to 50% (over £123,000). Earn £150,000, end up with Corbyn as your PM, and you'll pay £5,425 more in tax each year. He is definitely after your income.
May, on the other hand, could be after your assets. "Working families" aren't her target, she says: the personal allowance and the higher-rate tax threshold will keep rising, saving the top 10% of income earners around £165 a year, says the Resolution Foundation. The headline rate of corporation tax isn't her target either (Corbyn would put it up to 26%, May is sticking with the path to 17%). But we saw from social care policy that your house could be. She clearly does not consider as her predecessor David Cameron appeared to a family home to be a deity of some kind.
For her it is just an asset one she'd quite like to capture some value from. How? There could be changes to inheritance tax (IHT goodbye to the family home allowance?) or in capital gains tax (CGT) on primary homes, perhaps. We might also see some other types of wealth tax how about a shift in the bizarrely generous treatment of defined-contribution pensions on death (you pay no IHT at all on them)?
Or perhaps the mother of all wealth taxes a land value tax. George Bull at RSM points to the section of the manifesto where it says, "we will work with private and public sector house builders to capture the increase in land value created when they build". That could mean just taxing the uplift in value enjoyed by landowners when they sell sites for development. Or it could mean taxing existing property occupiers whose properties gain value because of improvements in local infrastructure. But either way, it's a land tax (and a new tax to boot).
May is well aware of the intergenerational inequalities and tensions in the UK. She clearly wants to start on dealing with them. So out goes the £300 fuel allowance for the well-off (it is to be means-tested and offered only to those in genuine fuel poverty). Out goes the triple lock: state pensions will now rise by the greater of wage growth or inflation, with the 2.5% third leg removed. Given that inflation will likely be rather higher than 2.5% for a while this is probably financially meaningless. But it's a good direction signifier nonetheless.
There is also a new (if vague) idea of linking the state retirement age to life expectancy. Again this is unlikely to mean anything life expectancy in the UK isn't rising anymore (for now). But again, it gives us direction. Where we have none, however, is on private pensions: there is no mention of reforms to relief. This is irritating. May is surely sensible enough to see that both the lifetime allowance and the absurd tapering rules must go and she's surely desperate enough for cash to know she probably has to have a go at higher rate relief.
No one is speaking for business in this election. So much so that the chapter in May's manifesto fails to mention our greatest success, the financial services industry. May has plans for executive pay (binding annual votes); for regulation of the gig economy; to examine the reasons for share buybacks (they are mostly bad we'll enjoy this one); to bump up workers' rights (even the Trade Unions Congress calls this "promising"); to restrain foreign takeovers; to raise the cost of employing foreign workers (the immigration skills charge is to rise to £2,000 a year); to give pension trustees more power over sponsor companies (possibly even to block merger deals that might threaten their schemes); and to introduce a new industrial policy.
Not all of this is popular with business owners. "It's easy to invent a policy where I pay for it," complained one business owner in The Daily Telegraph. He's right. It is. That's why she is doing it. Also of note here is immigration policy and May's plan to stick to her (so far useless) plan to bring it down to a net 100,000. This could mean a tough transition period for firms that are used to endless supplies of state-subsidised cheap labour. But it might also mean they raise their game on capital investment and productivity over the next decade. Lose followed by win?
Both manifestos assume that we leave the single market. Both parties want a close relationship with the European Union. May wants "fair and orderly negotiations, minimising disruption and giving as much certainty as possible so both sides benefit", alongside a "fair settlement of the UK's rights and obligtions" on withdrawal. Who doesn't? None of this tells us anything we didn't assume already which is really the only reason for mentioning it.
Everyone, predicatably, is pro-houses lots of them. Labour will cap rents and introduce three-year tenancies, but also build 100,000 "genuinely affordable" homes by the end of the next parliament. The Tories says they will give us 1.5 million new houses over the next seven years. No housing promises from any governments are ever met.
There are a few truths it is worth remembering every time a politician in the UK opens his or her mouth. One of the most important is that the NHS will never have enough money. Never. Now is not an exception: in the last financial year, NHS hospitals and ambulance trusts recorded a deficit of around £700m; 100 of 235 are in the red. That's £120m more than we were told would be the maximum acceptable last year, and only less than the £2.4bn the year before thanks to a £1.8bn injection of cash earlier this year. Labour is offering to deal with this with an extra £30bn over the next parliament. The Tories have offered real-terms spending increases over the next five years. Neither will be enough.
What you'll pay for social care
At the moment, if you need some form of care, your local council will assess you. It will start to contribute to your costs if you have assets of less than £23,250, and it will pay all of them once your assets fall below £14,250. If you need care at home, then your house does not count towards your assets for the purposes of this assessment. If you need residential care, it usually does although it won't be taken into account if it is lived in by a partner, a relative aged over 60 or under 18, or by a disabled relative.
There is no cap on the costs any individual must bear David Cameron's government had planned to bring in one at £72,000 in order to preserve the inheritances the better off are able to leave, and to help the City to create a more widely used insurance market (think about this in terms of house insurance a premium can only be worked out if the maximum value of replacing your possessions, or rebuilding your house, is knowable).
May's plan had been to raise the floor to £100,000 (good for everyone); to include houses in the calculation for home-based care (bad for homeowners staying at home); and to skip introducing the cap (bad for those who have a lot of money and need long-term care). She has now reneged on the latter, which suggests she will either have to set the cap very high, or move her floor down if she wants to claw much cash back.
Nurses and foodbanks the real story
When I was on the BBC's Question Time a few weeks ago there was a nurse in the front row. She wasn't happy with her pay. She turned up again at the Scottish leaders' debate. There she claimed that, even as a full-time worker, she sometimes has to use food banks. That nurses are regulars at food banksis now an established political fact.But is this really true?
The minimum a nurse can be paid is £22,000, not including overtime and extra pay for unsocial hours. The NHS puts average nursing pay at £31,000. That is a fall in real terms (after inflation) since 2010, but still higher than the UK average wage (£28,000), and again, it doesn't include unsocial hours or overtime. As for the numbers using food banks food bank provider Trussell Trust tells the BBC's More or Less programme that there have been "occasional cases" of nurses (mostly students) coming to them as a result of unexpected circumstances such as family breakdown. But that's it.
The Royal College of Nursing meanwhile says that 700 nurses (out of 315,000) applied for hardship grants in 2016. If we assume that those are also the ones that need help from food banks, it comes to 0.2% of the total. How does that compare to the wider population? The Trussell Trust, which operates about half of the UK's food banks, reckons it has around 500,000 unique visitors a year. So say a million UK residents a year use a food bank. That's 1.5%, which makes the number for nurses look pretty low.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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