Labour’s Regressive Momentum

I have this theory that collective society has a working memory of about 20 years – sometimes longer depending on the severity of what has come to pass. The rise of popular Corbynism, and the Momentum campaign movement supporting it (together with a, fringe, distinctively militant social media presence) demonstrates to me that we have forgotten why we moved away from the policies of the 60’s and 70’s and this is being presented to our young voters as something radical, progressive and new. The truth is that the manifesto that Labour published for the 2017 General Election is regressive, vastly increasing the role and power of the State, and stifling economic growth. The fact that the Institute of Fiscal Studies was unable to cost it highlights how the manifesto has been kept intentionally vague, so as not to reveal the full implications of delivering it.

The manifesto sets out a grand proposal of sweeping reforms to capture the popular attention; protecting workers’ rights, safeguarding NHS, protecting pensions, voting at 16, tuition fees scrapped, taxing big business and rich people. It also sets out ambitions plans to radically increase the size and role of the State. With energy supply, Royal Mail, rail companies all set to be nationalised, increased infrastructure investment and a number of other costly proposals. At a best guess this would incur at least £100bn additional spending in the first year. This is made up from £25bn infrastructure investment (a tenth of their £250bn 10 year plan), £25bn for scrapping tuition fees, additional funding for NHS and social welfare, National grid privatisation of £40bn, Royal Mail of £4bn, and the rest coming from ancillary energy company nationalisations and rail nationalisations.

At the same time, the manifesto promises no tax rises on personal income under £80,000, no increases to VAT or national insurance contributions. The manifesto indicates that the difference will be made up mainly from corporation tax. However, while i’m no economist, this really doesn’t add up for me. Looking at the forecast receipts and expenditure for year 2016-17, the UK budget has a total of £716bn income, and £772bn expenditure, projecting a deficit of £56bn.

Of the £716bn income, only £42bn was corporation tax receipts, and approximately £70bn income tax on incomes above £80,000. It is difficult to get an exact figure on the income tax, as the bandings are not aligned. So let’s say we increase corporation tax to 25% from 20%, and this doesn’t result in reduced economic performance (which I will come on to) then that would raise approximately £10bn extra. Add to that, if we increase tax on £80k incomes to a drastic 60% then (again assuming no evasion) we can expect another £20bn. So we now have total additional receipts of £30bn. But, the Labour spending plans means that we need to find £872bn, which means we now have a deficit of £126bn – more than double the current deficit.

Raising the deficit so drastically, when total borrowing is close to 90% GDP, could be the Greek style disaster waiting to happen.

Labour also advocate withdrawing from the Customs Union and Single Market (although vague statements are made about somehow retaining the same benefits), the instability of which will undoubtedly shake investor confidence in UK plc. Raising the deficit so drastically, when total borrowing is close to 90% GDP, could be the Greek style disaster waiting to happen.

None of this takes in to account that by raising corporation tax and income tax, growth will be stifled. This has always been the contradiction of the economy – you can increase tax to generate more government revenue, but doing so can shrink your tax base as businesses restructure and individuals alter their income composition, and actually have a counterproductive outcome and reduce total tax receipts. In 2013, when the highest income tax band was dropped from 50% to 45%, tax receipts from this band actually increased by £8bn. Bearing in mind that by leaving the EU, as Labour propose, the UK is expected to have to lower corporation tax to ensure that it remains an attractive place for companies to do business, the double whammy of EU exit combined with corporate tax increases is likely to cause companies to cease investment, and potentially take flight. This has a further knock on impact as job losses occur – which in turn increase welfare state burden and reduce income tax receipts.

It doesn’t work.

I still can’t understand the vitriol that comes from the left, directed at the Liberal Democrats. If anything, it is more pronounced and targeted than at the Conservatives. Potentially, it is the fear that voters are more likely to switch to Liberal Democrats in the centre ground than to Conservatives off to the right; but if Labour were truly working to create a progressive society, then they would seek to work with other progressive MPs and not vilify them. This suggests to me, that only party self interest is at play, and not the greater good for the wider UK society.

It was the Labour government that introduced tuition fees, and that even if the Liberal Democrat’s 57 MPs had voted against the fee increase while in coalition, the measure would have still passed, as Labour MPs also voted in its favour.

Labour are quick, and keen to portray the Liberal Democrats as the stooges of the Conservatives, and point to the Liberal Democrat reversal on opposing tuition fee rises. Yet they overlook that it was the Labour government that introduced tuition fees, and that even if the Liberal Democrat’s 57 MPs had voted against the fee increase while in coalition, the measure would have still passed, as Labour MPs also voted in its favour.

In contrast with the Labour manifesto, Liberal Democrats have set out a clear position on EU membership, and were the only party to have their manifesto clearly costed. Liberal Democrats also believe in shifting power away from central government to regions and locally responsible structures. Their social policies are genuinely progressive, and set out an optimistic and pragmatic future for the UK, that genuinely would work for the many.


 

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