Labour and Conservatives ‘misleading’ voters on tax and spending plans, top economist warns

Labour and the Conservatives have been accused of misleading voters over their tax and spending plans, and of ignoring a potential £20bn hole in the public finances after the election.

Amid a war of words over the question of whether Sir Keir Starmer or Rishi Sunak would rule out a VAT hike, a top economist told The Independent that both parties are being dishonest with voters about the country’s finances.

Carl Emmerson, deputy director of the Institute for Fiscal Studies (IFS), said both parties have committed to reducing Britain’s debt in the next five years. “For better or worse, that is going to require some combination of tax rises or spending cuts,” he told The Independent.

Mr Emmerson also hit out at the row over which taxes each party has committed to freezing, noting that Sir Keir and Mr Sunak have both committed to maintaining frozen tax thresholds until 2028, which will mean higher taxes for millions of workers.

After Labour and the Conservatives vowed not to raise the headline rates of national insurance, income tax or VAT, Mr Emmerson said they had chosen “an easier sell”.

But he said frozen income tax and national insurance thresholds would cost taxpayers an additional £11bn a year by the end of the next parliament. By contrast, a 1p income tax hike would cost taxpayers just £9bn.

Tax thresholds were linked to inflation until Mr Sunak, who was chancellor at the time, froze them in 2022. The effect is that, as inflation rises, millions are dragged into paying tax for the first time, while others gradually enter into higher tax bands. A third set of taxpayers, who would have seen their taxable income decrease with higher thresholds, will also lose out.

Labour has repeatedly criticised the so-called stealth taxes, which shadow chancellor Rachel Reeves has previously compared to “pickpocketing”.

Mr Emmerson said: “It might feel different to people, because it does not mean that from one month to the next your tax bill shoots up. But what it means is you are paying more tax than you would have done.

“That might make it politically more of an easy sell, and I see why they are doing it, but it is still an increase in income tax.”

He added that, by making commitments on income tax, national insurance and VAT, each of the parties has “tied one hand behind their back”. They may still have to raise taxes, but would have to find a less effective way of doing so, he said.

It came after chancellor Jeremy Hunt accused Labour of plotting a secret 1p VAT hike, a claim shadow chancellor Ms Reeves immediately described as “nonsense”.

She added: “Labour will not be increasing income tax, national insurance or VAT. I want taxes on working people to be lower, not higher. That is why we opposed the increases to national insurance when Rishi Sunak put those forward as chancellor.”

But Mr Emmerson took aim at Ms Reeves specifically, saying Labour’s current strategy amounts to “planning on getting lucky”.

When asked how it would plug the £20bn black hole identified by the IFS, Labour has said it will grow the economy. But Mr Emmerson said that while there are lots of things Labour could do to boost growth, they would only lead to higher tax revenues in the long term.

“It is also possible you just get lucky; we have had lots of periods where growth has been disappointing, and, touch wood, things will change,” he said. But he added: “Of course, planning on getting lucky is not a strategy... and while we might get lucky, we might get unlucky.”

Adam Corlett, principal economist at the Resolution Foundation think tank, said that neither party had set out how it would plug the £20bn gap after the general election, and that this “reflects the tough state of the public finances for whoever wins”.

He told The Independent: “While it’s common for governments to announce tax rises after an election, somewhat unusually around £20bn of tax rises are already scheduled for the next parliament, including further freezes to personal tax thresholds.”

Labour and the Conservative Party were approached for comment.