Labour Adjusts Funding Plan for NHS and School Breakfasts
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Politics Reporter
Labour’s Funding Strategy
Labour now intends to pay for its NHS and school breakfast plans through future savings to public spending if it wins power, according to Labour’s Chancellor Rachel Reeves.
Background
The party had initially planned to fund these flagship policies by replacing the UK’s current “non-dom” tax regime. However, Chancellor Jeremy Hunt unexpectedly announced a similar move in Wednesday’s Budget to fund a cut to National Insurance.
Reeves’ Response
Labour’s Chancellor, Rachel Reeves, admitted this budget announcement will lead to a reevaluation of their plans. She stated that Labour will go through the government’s spending plans meticulously to find the necessary funding for these key policies.
Speaking to the BBC, Reeves said, “We will find that money because it is a national priority and a Labour priority.”
Previous Funding Plan
Initially, Labour had proposed generating an additional £2 billion compared to the government’s revenue by replacing the “non-dom” tax rules for UK residents based overseas for tax purposes. £365 million of this revenue was earmarked to fund free school breakfast clubs for all primary school pupils in England if Labour wins the next general election. Additionally, £1.5 billion was to be allocated for extra appointments in NHS hospitals, £171 million for new CT scanners, and £111 million for extra dentist appointments.
‘Orderly’ Savings Review
Following the Budget, Rachel Reeves ruled out implementing a new wealth tax to address the funding shortfall. Instead, Labour plans to examine future government spending in detail and identify areas for savings.
Reeves assured, “We will go through every pound spent, every tax raised, and make sure we can continue to fund these commitments.” She emphasized that Labour’s election manifesto will be fully costed and funded, although specifics will be determined after conducting an “orderly” review of government plans.
Debt and Economic Credibility
Labour maintains a self-imposed rule against borrowing for day-to-day spending, aiming to reduce public debt as a share of the economy. This approach is crucial for the party to establish and maintain its economic credibility with voters. However, it potentially constrains flexibility if Labour wins office amidst sluggish growth forecasts.
Analysis and Future Tensions
Paul Johnson, from the Institute for Fiscal Studies think tank, observes that Labour accepting the cut to National Insurance has created a challenge for their spending plans. The Chancellor’s decision costs the Treasury £10 billion annually. Johnson expressed skepticism about both parties’ commitment to the outlined plans and suggested potential cuts in public service spending from Labour.
Green Spending Pledge
Emulating Labour’s proposals, Chancellor Jeremy Hunt has also extended the windfall tax on energy and gas firms’ profits until 2029. Labour argues that their proposals would still raise more revenue compared to the government, as they plan to increase the tax alongside closing tax allowances for investment, which they consider “loopholes.”
Prime Minister Rishi Sunak criticized Labour for not being transparent about their funding sources, claiming that their borrowing would necessitate tax increases. However, Labour seized on Hunt’s suggestion that the Conservatives may seek to completely abolish National Insurance in the future, labeling it an “unfunded tax pledge” that would cost £46 billion annually.
