Revealed: The Conservatives’ £71 billion worth of reckless spending will lead to interest rate rises

The Labour Party has today held an emergency press conference to expose the threat to economic stability posed by Rishi Sunak's reckless and unfunded general election promises.

Darren Jones, Labour's Shadow Chief Secretary to the Treasury, released new analysis of the £71 billion worth of pledges Rishi Sunak has already promised just seven days into the general election. It warns that the Conservatives' unfunded policy pledges risk an interest rate hike that would increase monthly mortgage repayments on a typical home by £350. All indications suggest there will be more unfunded pledges to come as the campaign progresses.

Labour's analysis includes a new scorecard which details how the combined pledges so far would equate to a £71 billion rise in borrowing, equivalent to around 2 per cent of GDP, meaning interest rates could rise by around 250 basis points. 

The analysis is based on Treasury documents that have been heavily pushed by Conservative ministers. Using this same analysis, a 2 per cent GDP spike in borrowing could increase interest rates by around 250 basis points, or 2.5 per cent. That means that the consequences of their spending – by their own analysis – would be an interest rate rise of 2.5 per cent.

Labour is promising to change the country by delivering economic stability with tough spending rules, to grow our economy and keep taxes, inflation and mortgages as low as possible. On this foundation of economic stability, Labour's plans for growth include building 1.5 million homes with the biggest boost to affordable, social and council housing for a generation, making work pay with a new deal for working people and creating 650,000 good jobs across the country through the National Wealth Fund.

Darren Jones, Labour's Shadow Chief Secretary to the Treasury, commenting on the Conservatives' reckless general election pledges, said:

“In just the first week of this campaign, Rishi Sunak and the Conservatives have promised £71 billion of unfunded spending. Some of the Tories' costings are nonsense. Some of them they are spending the same pot of money twice. Some of them they are simply refusing to say how they would pay for it.

“We know where this sort of kamikaze approach to the public finances leads: we've seen it before with Liz Truss. The Tories haven't learned the lesson, and now they're doing it again. It is economy-crashing, family finance-destroying madness. It cannot continue. They have been told this over and over again. Not just by Labour, but by independent experts.

“Using this Treasury document, we can estimate that a 2% of GDP spike in borrowing could increase interest rates by around 250 basis points, or 2.5%. That means that the consequences of their spending – by their own analysis – would be an interest rate rise of 2.5%.

“When that exit poll lands at 10pm on Thursday 4th July, the first thing people will look at is the number of seats each party is predicted to get. The next thing will be the financial markets. Because if the Tories carry on down this path, with unsustainable, unfunded promises it could cause a loss of market confidence. 

“This could not be more serious. It will mean our economy sliding back into recession, ordinary people around the country paying the price with their jobs and their mortgage bills. The truth is simple: Britain cannot afford five more years of the Tories. My message is simple: reckless Tory spending must stop.”

Ends.

Comments from experts and business leaders on the Conservatives' economic plans:

Jonathan Portes, Professor of Economics and Public Policy, King's College London, said:

“Since the pandemic, we have had three years of incoherent, irresponsible and damaging economic and tax policies.  The Conservative plan appears to be for more of the same. The UK badly needs stable and predictable policies aimed at boosting growth and productivity over the long term, including tax policies that will allow us to find public services properly.”

Iain Anderson, business leader and ex-Conservative advisor, said:

“We need the next Government to have fiscal credibility above all else. Look what happened in the mini budget when the Conservatives pushed every button on the computer at the same time and hoped for the best. The next chancellor must not play fast and loose with our economy again.” 

Tommy Stadlen, Tech Entrepreneur, said:

“Keir Starmer and Rachel Reeves have won the trust of business with carefully costed, smart policies - in stark contrast with the other side.”

Alex Depledge, Technology entrepreneur, Founder and CEO, Resi, said:

“There is a sense that both change and stability are round the corner and I think the markets are holding up well because of it.”

Tom Adeyoola, Co-Founder, Extend Ventures, said:

“This government feels wired, tired and expired. Business needs considered change to get us going again.”  

“It's time for considered long term thinking and not the kitchen sink politics of a government long past its sell by date.” 

Paul Corcoran, CEO, Agent, said:

“Long-term fiscal reassurance is certainly welcomed by our investment community and this sits at the very heart of Reeves' business growth strategy.” 

“We desperately need an ambitious, joined-up, long-term strategy for doing good business here in the UK. A dynamic plan co-created with business leaders to drive the policies, investment, and sustained growth the UK needs to thrive once more. Businesses, and indeed the people they employ, are ready for this change.” 

Ends

Notes:

The attached Red Book sets out the Conservatives' unfunded policy pledges which risk increasing interest rates by 250 basis points. This would increase monthly mortgage repayments on a typical home by £350.  

• In the Spring Budget, Jeremy Hunt committed to abolishing National Insurance Contributions (NICs), a £46 billion per year commitment which has been repeatedly recommitted to by Rishi Sunak, Jeremy Hunt and other prominent Cabinet ministers. Given the prominence of this pledge, we anticipate that abolishing NICs will be the cornerstone pledge of the Conservative manifesto. However, they still refuse to explain how they will fund this policy, whether by increasing the basic rate of income tax by eight percentage points; by raising the state pension age by as much as five years; or by further borrowing.  
• Since the general election was called, Jeremy Hunt, the Chancellor of the Exchequer, indicated his intention to abolish inheritance tax, stating it is “against Conservative values”. This would cost £10 billion per year.  
• Jeremy Hunt then confirmed his intention to cut income tax for those earning between £50,000 and £125,000, at an annual cost of £8 billion.  
• The Energy Secretary, Claire Coutinho, has announced a cut in green levies on energy bills in every year of the next Parliament after she previously backed removing them, but without any mention of how this £5 billion promise would be paid for. 
   
• The Conservatives have set out plans to raise revenue. In a press release, Rishi Sunak and Jeremy Hunt announced they would raise £6 billion by cracking down on tax avoidance, finally waking up to the tax gap which has swelled under their watch. We have taken this new sense of fairness at face value, despite not providing HMRC and other enforcement additional resource for increased compliance activity. We assume this is just an oversight and based on Labour's plan to Close the Tax Gap, we have costed this activity at £0.9 billion per annum. This means they intend to raise £5.1 billion net per year by the end of the next parliament.  
• They have also committed to scrap the UK Shared Prosperity Fund – a 2019 Conservative Manifesto pledge and Boris Johnson's flagship levelling-up policy – cutting £1.5 billion of annual investment intended for “tackling inequality and deprivation in each of our four nations” (2019 manifesto). 
• On 25 May, the Conservative campaign announced their plans for voluntary compulsory National Service for all eighteen-year-olds. The cost of 30,000 military commissions is £3.1 billion based on trainee payroll costs, training staff costs, equipment and expanding accommodation capacity. The placements for the remaining 745,000 18-year-olds will cost £1.8 billion, based on the unit cost for the National Citizen Service. The total cost of this policy will be £4.9 billion per year by the end of the parliament. 
• On 27 May, the Conservative campaign announced they would re-introduce a personal allowance for taxpayers over the State Pension age, which would partially reverse the income tax threshold freezes implemented by Rishi Sunak this parliament. This will cost £2.4 billion by the end of the next parliament.  
• Taken together, these latest pledges for a National Service and an age-related personal allowance will cost £7.3 billion, well in excess of the £6.6 billion of revenue the Conservatives have allocated to fund them. 
• Rishi Sunak has also promised to create 100,000 new apprenticeships. They say this £1 billion pledge will be funded from fewer students attending university, meaning fewer student loans are written-off, but have not capped university attendance and so they have no way to realise this saving. Yet again, the sums do not add up: it is just the latest example of the Tories' reckless approach to the country's finances. 
• So far in this campaign, the Tories have racked up £71 billion of unfunded pledges and all indications suggest they are only just getting started. This is a reckless act of desperation and it poses a danger to British families.  
• The Treasury has published analysis on the impact on interest rates of a reduction in spending funded by an increase in borrowing. The analysis has been referenced by Conservative Treasury Ministers publicly on several occasions, including Chief Secretary to the Treasury Laura Trott.  
• The analysis notes that a fiscal loosening funded by borrowing will “increase the level of demand in the economy, thereby increasing inflationary pressures, which may lead to an inflation-targeting central bank increasing interest rates.”  
• The Treasury calculated that every extra 1 percentage point of GDP of borrowing could increase interest rates by up to 125 basis points. In the final year of the scorecard, a £71 billion rise in borrowing is equivalent to around 2% of GDP, meaning interest rates could rise by around 250 basis points.  
• For someone with a mortgage on the average UK house worth £285,000 and a 20% deposit, a 2.5% rise in interest rates would increase monthly mortgage payments by £350.