On the Today show yesterday morning Shadow Chancellor John McDonnell tried to portray himself as a dull but reliable (potential) custodian of the national finances. His advisers have realised that people perceive him to be a raving ideologue when all the country really wants is a steady hand holding the public purse. Thus he billed his speech as “stultifyingly boring” and “like talking to your local bank manager in the old days”.
When questioned on his more radical policies he batted away concerns by saying everything would be subject to consultation and all policies will be rigorously tested. This was to assuage doubts about whether hard left policies will be imposed against the will of the parliamentary party, and to calm an uneasy public.
I don’t know if McDonnell has had some secret mindfulness sessions, but his new mellowed rhetoric and calm manner was a skillful political performance; it makes bad policy sounds simple and reasonable. The Labour approach to economic policy has changed markedly; they are now officially an “anti-austerity” party insisting that we need to spend more and cut less to grow the economy.
There was no mention of the government spending £90 billion over our income last year, projected to be approximately £67 billion this year, and running a vast budget deficit every year for six years. The figures clearly show a reluctance to cut spending with any serious rapidity for fear of the withdrawal effects on a country addicted to debt, spending and welfare. Yet these cold hard facts don’t feature in the brutal austerity narrative that Labour are now choosing to run with.
McDonnell insists that ‘austerity is not an economic necessity, it’s a political choice’. In the opening of his speech, he pronounced that ‘austerity is just a word almost meaningless to many people’. His alternative plan is quite clear; the implementation of huge tax hikes and squeezing business dry, underpinned by a heavy reliance on extremely optimistic growth projections fueled by massive infrastructure spending paid for with printed money.
McDonnell pledged to hike taxes “where money needs to be raised”, promising to halt the “Conservative tax cuts to the wealthy”. The cut of the top rate to 45p brought in more revenue, but he wants to ramp it up to 60p. Reducing corporation tax was a major contributory factor in the jobs boom that kick started our precarious recovery, he wants to jack back it up again. London is the number one financial centre in the world, and the competition is fierce, but he has proposed a “Robin Hood” tax on financial transactions.
The idea that we can eliminate the deficit simply by wringing every last bit of tax from business and emptying the pockets of the mobile rich, is just a socialist fantasy. Jeremy Corbyn’s wacky idea of paying for his spending plans by raising as much as £120 billion by clamping down on tax avoidance has already been widely discredited. Notably by Jolyon Maugham QC, former adviser on tax avoidance to Ed Miliband:
“So to believe that there is £20bn waiting to be collected is to believe that Osborne has considered whether to abolish inheritance tax and the 45p rate and the bank levy and gain an extra £10bn and decided to do none of these but rather, instead, leave that £20bn uncollected. Is there any plausible world in which Osborne might make that political call?”
The Shadow Chancellor pledged to “review” HM Revenue and Customs and plans to hire battalions of tax collectors “to ensure that HMRC is capable of addressing tax evasion and avoidance and modernising our tax collection system”. These extra tax collectors, given the mission to extract as much money as possible, will chase business, wealth creators and entrepreneurs away.
The relatively modest program of spending cuts the UK had undergone since 2010 will be replaced by a program of massive public spending. It is the Bank of England’s Policy Committee who decides the correct amount of stimulus to hit inflation targets, but McDonnell has criticised their performance and wants to “review the Bank’s mandate” and extend it to include investment in ‘large-scale housing, energy, transport and digital projects’.
The “people’s quantitative easing” plays well with those among us who believe that QE is basically “giving money to the banks”, when actually the money the money is used to buy financial assets in order to encourage private sector spending. Labour’s policy would be to make the Bank of England create more money to fund public investment through a ‘National Investment Bank’. As this contradicts directly the current judgement of the BoE, one can be forgiven for doubting his sincerity when he assured the nation yesterday morning that the institution would remain independent.
If the economy were in recession then public spending and inflation may be necessary, but I don’t trust a man who has called for the government to take back control of the BoE to invest wisely and selectively. Once the spending has started, I don’t believe it would stop; the temptation for the Labour Party to let the great money tap flow would be too much. Then what?
High inflation, reduced consumer spending, increased debt, a rising budget deficit, recession and the long, miserable road to ruin. At the end of the road is insolvency, followed by a severe and uncompromising program of austerity not seen since the Labour government appealed for an IMF bailout in 1976. Then they had no choice but to enact deep cuts in public expenditure, reducing it by 3.9% in one year, which is more than will be cut in ten years under the current austerity policy.
We don’t to experience such dark times again. So let us hope (and pray) that Jeremy Corbyn and John McDonnell never get their hands on the public purse or take control of the Bank of England.
Ben is the Conservatives for Liberty web editor. His political philosophy is an organic hybrid of classical liberalism and conservatism underpinned by a healthy instinctual scepticism. Follow him on Twitter: @