McDonnell: IFS "wrong" to say Labour’s tax plans are "not credible"
Labour shadow chancellor John McDonnell has said that the Institute for Fiscal Studies “got it wrong” when its director Paul Johnson said that Labour’s tax plans to fund its spending pledges were not viable.
McDonnell rejected the notion that wider tax increases than what Labour is promising would be required to fund their spending plans, reiterating that 95 per cent of people would not be required to pay any more tax.
He also dismissed the idea that an increase in corporation tax could force higher prices and push wages down.
Speaking to BBC Radio Four, McDonnell said: "I've a great deal of respect for the IFS... I just think they've got it wrong on this one.
"What we're saying is in terms of income tax, yes the top five per cent will pay a bit more - and actually not a great deal more but they'll pay a bit more. The [other] 95 per cent of earners will not pay an increase in the income tax rates or in VAT or in National Insurance.”
Some of Labour’s spending plans include a £75 billion housing programme and bringing the railways, mail system, water and energy back into public ownership. Its manifesto says that all of this will be funded by higher taxes on the highest earners and abolishing corporation tax breaks.
However, IFS director Paul Johnson said it would be “extremely hard” to “deliver anything like this scale of increase in capital spending, at least in the near-term, certainly in an efficient and cost-effective way.”
Addressing Johnson’s concerns, McDonnell said: "With the structural changes we will make in the economy, we'll make sure that actually the corporations themselves do not take that easy option of cutting wages or rising prices, but actually because we're democratising the way these corporations work and are more accountable, they will actually invest in their companies.
"Instead of being driven by short-term profiteering and shareholder interest only, they will think for the long term, invest and grow the economy.”