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Labour’s manifesto is so astonishingly ambitious, so dangerous and so expensive that you have to wonder whether the party’s so-called “tankies and Trots” have either been smoking too much ganja or don’t believe they have the remotest chance of winning the election.
You also have to wonder whether this manifesto is Jeremy Corbyn’s last gasp at attempting “California or Bust”, the famous American idiom describing the 1840’s Gold Rush period when everyone was dashing to “get to California for gold or go broke trying.”
Going broke is the more likely option than finding gold in the sunshine state. If Magic Grandpa were to get anywhere near No 10 with these rash and enormous election spending promises, the UK plc could well sink under mountains of debt not seen since the Second World War.
Forget talk of a magic money tree, or even a few. The level of spending which Corbyn is proposing to nationalise a huge chunk of the countries leading industries – and confiscating shares from thousands of other businesses – would require a forest the size of the Amazon to be chopped down to fund, and bankrupt the country in the process.
Even quoting the numbers makes for dizziness. Nor do they add up. Experts like Paul Johnson at the Institute of Fiscal Studies – an independent consultancy – says what Labour is proposing is “colossal” and not credible and can only be achieved with tax hikes hurting most of the population.
Labour wants to spend another £83 billion a year on public services, and is committed to spending more than £800 billion over the next five years while other as yet uncosted plans which could mount up to another £500bn.
By far the most outrageous plan is the one to push corporation tax up to 26% and force all businesses with more than 250 workers to hand over 10 per cent of their shares to staff over 10 years. There is huge merit in workers owning shares in their own companies – but this plan is not the way to do it as it neither puts control or direct money into the hands of workers. It’s not skin in the game for workers, just more flesh for the Treasury.
More pertinently – and to my mind more dangerously – the tax hikes that Labour is proposing across every strata of society might well make the environment in the UK so unattractive that people stop working so hard.
What’s more, the vengeful tone towards business and enterprise from the Labour apparatchiks has now become so disturbing that adopting these policies might have the effect of stamping out the extraordinary entrepreneurial spirit that we have seen over the last decade. In one throw of the dice, Keynes’ animal spirits would be crushed.
Many of the UK’s bigger firms will move their businesses overseas while overseas investors wanting – and waiting to invest here once Brexit is resolved – will find other homes for their money.
Many of those overseas investors in Britain’s industries such as the water or energy companies have already been consulting their lawyers to work out what would happen if Labour were to take power and buy out their investments at less than the market price. Put simply, Labour’s proposals amount to property confiscation – some would say theft – and the only beneficiaries of this plan are the lawyers.
Now we see why shadow chancellor, John McDonnell, has been in talks with the Treasury and advisers about exchange controls and other ways of looking at capital flight.
The most foolish of Labour’s proposals is the nasty treatment of the middle classes, ironically, many of whom are its new core voters. It plans to lower the threshold for paying the 45p additional rate from £150,000 to £80,000, a move which you could argue hits the belly of some of the country’s hardest workers, the GPs, plumbers, engineers and public service professionals.
What will happen, of course, is that companies will find ways around this, or there will be a top band of salary stopping at £79,000.
There is to be a new “super-rich rate” of 50p to be introduced for those earning more than £125,000. Together these two policies will raise £5.4bn.
Labour also promises that it would tax income from wealth more “equitably and efficiently” and wants to tax capital gains at the same rates as income tax. If you are an additional rate taxpayer you pay 28 per cent on gains from the sale of residential property, but under Labour that would increase to at least 40 %.
Even more foolishly, this would also apply to taxing dividends on small companies. The Conservatives have been equally foolish – the former chancellor, Philip Hammond, has already jacked up tax rates on dividends on small businesses
There are many more destructive policies towards the City and business community: Labour proposes a windfall tax on oil companies, a new Financial Transactions tax on derivatives, threatens to delist companies from the London Stock Exchange if they do not abide by new green policies and plans to cut R&D allowances. This would be particularly counter-productive and totally the wrong move as the country needs to build up its capital investment in new technologies.
So how has business reacted to Corbyn’s gold rush ? The head of the CBI, Carolyn Fairbairn, said Labour’s “default instinct for state control will drag our economy down”.
The toughest response was from the IFS’s Johnson who blew a hole in the plans by saying: “It will be extremely hard simply 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.”
There were some good ideas: the council housing plan for 100,000 new homes is excellent and should be stolen immediately by the Conservatives. It’s the missing link in the party’s electioneering but it’s what candidates say everyone talks about on the doorsteps. There is still time for a little policy piracy – the Tory manifesto is not out until Sunday.
But the question to ask is why the Labour party, which is in control of so many of our biggest local councils, has not been encouraging them to be building houses over the last few decades?
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Iain Martin and the team make sense of the news, providing commentary and analysis on the stories that matter in politics, geopolitics, economics and culture.