When the Labour Party’s draft manifesto was leaked last week, I hoped I was having a bad dream; but today’s publication of the real thing has has left me incredulous.
My concern is not about the policies. Depending on your point of view, they may or may not be very desirable. My despair is due to the Labour Party’s apparent lack of any real understanding of economics and finance.
Labour’s plan involves raising and extra £48 billions each year to fund £48 billions of extra spending.
Even with the help of the treasury, government spending forecasts invariably under state actual costs. Forecasts from opposition parties are even less realistic. So, Labour’s programme will almost certainly exceed it’s projected £48 billions, by a considerable margin.
On the income side, it will be impossible to raise the additional £48 billions of extra tax revenue. It doesn’t matter who Labour tax, what they tax or how they tax, nothing will raise that additional amount. There is a limit to how much tax can be taken out of any economy; and there is a threshold, beyond which higher taxation rates deliver less tax. The UK economy is on or around that threshold now.
Should Messrs Corbyn and McDonnell find themselves in numbers 10 and 11 Downing Street on the 9th June, the spending programme will no doubt begin. However, it will take a while before it becomes apparent that the additional tax revenue isn’t being generated and that the costs are escalating. By this time, our economy will be in very serious trouble and the austerity strategies of the last few years will pale into insignificance, compared with what will be needed, when the Corbyn bubble bursts.
None of this includes the uncosted plans for Labour’s nationalisation programme, which they plan to fund through extra borrowing. This would add significantly to the national debt, which is currently heading towards £2 trillions and incurring annual interest charges that already exceed the entire defence budget. This manifesto is economic madness.
Many people will, of course, see through it. But many others, and particularly more vulnerable people, won’t. They’ll believe it and believe that their lives will improve because of it. But when the bubble bursts, it’s these same people, who will pay the biggest price.