Accountancy is not Economics

Author: Steve Griffiths

Dangerously underdone: the IFS critique of the Labour Manifesto

Steve Griffith questions some of the frequently cited criticisms of the affordability of the 2019 Labour Manifesto by the think tank the Institute for Fiscal Studies (IFS). Here he argues that these criticisms are based on a failure to link investment to changes in the real human economy.

Why does the IFS critique of the Labour 2019 Manifesto stop short at the cost of Labour’s spending promises without looking at what they mean? Its conclusions are largely based on an idea of public investment disappearing down a black hole without any beneficial result. John Weeks on Open Democracy has exposed the ideological reasons behind this. Here, I look at the resultant neglect of evidence by the IFS.

Crucially, it takes no account of the economic, social and health benefits of redistribution: particularly the International Monetary Fund’s belated realisation that putting money into the pockets of the poorest 20% stimulates the economy, because they spend it – and that increasing the income share of the richest slows the economy down.

Expanding the economy by investing in the less well-off, who then spend their money locally (with a knock-on positive effect then on local business, health, wellbeing, productivity, employability and tax receipts) has an obvious impact on the fiscal balance sheet.

Consider the impact of increased spending power as a result of employment from the Green New Deal, the creation of Regional Investment Banks to reduce regional inequality, increased spending power from an increase in affordable housing, in employment and construction, the medium and long-term benefits in child health and educational outcomes from a revival of Sure Start, improved work readiness from the investment in adult education, to mention just a few – and perhaps crucially, increases in the tax take from increased economic activity.

All of these outcomes would change the maths of the IFS assessment.

There is no consideration of the short- and long-term cost-effectiveness of social and health investment: and the eyewatering cost of the status quo. A report prepared for the Labour Government by Sir Michael Marmot’s team in 2010 puts the cost of health inequality in lost productivity, lost taxes, benefit payments and NHS healthcare costs at around £60 billion a year, an amount likely to be considerably exceeded as a result of the policies embraced since then. Marmot’s UCL Institute of Health Equity has identified a million premature and unnecessary deaths over the life of a parliament as a consequence. The Labour Manifesto commits at many points to addressing the social determinants of this health inequality, with major proposals related to income, housing and early years inequality and poor working conditions.

Is all this irrelevant to a cost assessment?

There are many examples of evidence for the benefits of specific Manifesto commitments. One very familiar to me is the promised restoration of the Supporting People budget, cut by £996 million between 2010-11 and 2016-17. The restoration is lumped in with cost by the IFS. But hang on: under the last Labour Government, housing related support to vulnerable people was redesigned and expanded massively from around £400 million to £1.7 billion. An evaluation by Capgemini found in 2008:

“the best overall estimate of net financial benefits from the Supporting People Programme is £2.77 billion per annum for the client groups considered (against an overall investment of £1.55 billion).”

It concerned sheltered housing, housing-related support for women’s refuges, people with mental health problems and learning disabilities, for homeless people, ex-offenders, vulnerable young people. It was shown to reduce dependency, promote wellbeing (and employability), and keep people out of hospital and institutional care. Its loss has ratcheted up pressure on the NHS – and its cost.

Is it OK for the IFS to ignore this?

Then there are the mistakes. For such an august institution, there is some sloppy journalism going on. For example, to claim that ‘dramatic increases in life expectancy’ justify the raising of pension age is simply wrong. The rise in life expectancy has stalled, as the Health Foundation reports, using research by the LSE. However, Disability-free life expectancy is a key figure here. For men in England, it was 63.1 years in 2015/17, a fall of two years since 2013/15. For women, it was 62.2 years, two years less than in 2010/12. This means that a high proportion of people below that age, and many above it, will be unable to work. With the rise in pension age, a lot more will depend on the ruins of the welfare state, particularly on Universal Credit. Struggling on in insecurity at work will affect their health adversely – more pressure for the NHS, the reality behind the stalled rise in life expectancy. So the imagined cost of reversing the policy is gross, not net. 

If the IFS don’t have the expertise to take account of this stuff, or to get their facts right, they should call on other disciplines. If they don’t believe that the results of investment affect fiscal outcomes, they should admit it: but it won’t, as they claim, be ‘objective’.

Steve Griffiths has also produced a longer analysis of the problems with the IFS here.

The publisher is the Centre for Welfare Reform.

Accountancy is not Economics © Steve Griffiths 2019.

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