Corbyn’s Car Crash

The current state of British politics is on a knife edge. The smaller parties have crashed and we’re back to the Conservatives and Labour with virtually 85% of the popular vote between them. Despite all the spin and jockeying for position, both parties gained a substantial number of votes at the recent election; and both gained a significant share of the vote, on a significantly higher turnout. But the idiosyncrasies of our electoral system have lead to a hung parliament. Theresa May’s gamble failed, despite her gaining many more votes. So where does all this lead us?

The Conservatives prime focus has been on deficit reduction and Brexit. But despite the need to eliminate the deficit and to address the problem of the spiraling national debt, people have become tired of public sector pay freezes, cuts to many of our public services and the failure to increase funding for health, social care and education in line with demand.

Whether we like it or not, the hard facts of life are that the only way we can address these financial challenges is to expand our economy at a faster rate than the rate at which we wish to expand public spending. Higher tax rates and more borrowing won’t work and will ultimately make the situation worse. Unfortunately, the Conservatives have turned out to be administrators, who are simply juggling the resources they’ve got. They lack any real vision for how this country can develop and grow; how our industry and commerce can become stronger and more successful in world markets and how we can punch above our weight in world affairs. Without a vision, they have no strategy. Furthermore, they have no passion, with which they can enthuse the British public. In this situation, it’s very difficult to see how a minority Conservative government can survive for a full five year term and it’s difficult to see how the result of the next election, whenever it comes, will be anything other than a majority Labour government. So what can we expect from Labour?

Labour has a vision; or at least Jeremy Corbyn has a vision. And there’s no doubt that he has enthused younger voters. He’s promising to end austerity and pump huge additional sums into the economy to increase funding for a whole range of public services. He’s also promising to nationalise the railways and public utilities, with the objective of achieving better services at lower costs to the public. All this will be funded through extra taxes on the rich and increased borrowing. It all sounds good and, in the absence of any competing vision from the Conservatives, it will win votes and probably get him into No 10. But what will happen then?

History tells us that these policies will not only not work but will make matters considerably worse. Nationalisation, in the post war period was a disaster. There is not a single example of a nationalised industry that was a success. They became moribund by bureaucracy. Governments interfered because they constantly sought political outcomes rather than outcomes that benefited customers. The entire management process become completely dysfunctional. Huge losses built up. Governments struggled to fund those losses and consequently cut capital investment. As a result the businesses concerned went into a long term decline. Some like ship building and steel virtually disappeared. Others like the railways were brought back to life through privatisation.

The tax and spend policies of the Attlee Governments from 1945 to 1951 and the Wilson Governments from 1964 to 1970 were equally disastrous. Even then, high rates of tax failed to provide the tax revenue that they were designed to achieve because people and organisations changed their behavior patterns. Borrowing went out of control; the pound was devalued, interest rates went up, inflation went up and economic growth stalled. This all culminated in James Callaghan’s Labour Government (1976 to 1979), having to take loans from the IMF and being forced to make the most drastic cuts in public spending that there have been this side of the second world war. It was a national humiliation and created huge hardship for many people.

I can well understand why younger generations might be attracted by Corbyn’s vision. They don’t remember the carnage and chaos that these policies caused between 1945 and 1976; and, in the absence of any vision from the Conservatives, they offer a welcome change from the austerity of the last nine years. However, before Jeremy Corbyn is given the chance to repeat the mistakes of the past, we urgently need a meaningful debate.

The Conservatives need to challenge Corbyn’s policies, pointing out the likely consequences, if they are implemented. This shouldn’t be in the form of personal attacks on Jeremy Corbyn; it should be a robust rebuttal of his policies, evidence based and delivered with passion. They should also be offering a realistic alternative that can bring real prosperity to everyone.

Labour, on the other hand, must explain why they believe that the policies they are proposing will work today, when similar policies between 1945 and 1976 were such a disaster. At the moment, their head of steam is largely as a result of the Conservatives offering no meaningful challenge and younger people being unaware of the risks that these policies present.

Personally, I think it’s probably too late. The Conservative party contains too many people, who believe in some sort of divine right to rule. They probably need a period in opposition to get rid of the dead wood and to reinvent themselves as a vibrant political force with a strong and exciting vision for the future. In the meantime, Corbyn is set to take us back to the austerity of the post war period. It’s a car crash waiting to happen.

 

 

 

Labour’s Manifesto of Madness

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.