Corbynomics – Reality, Dream or Nightmare?

I don’t know about anyone else, but I’m really struggling with the Labour Party’s approach to public expenditure.

I can understand that many people on the left of politics want to nationalise the railways, the utilities and the Post Office; and perhaps other business sectors as well. I don’t personally agree with doing so; but I understand and respect their arguments.

I understand that the political left is passionate about providing significantly increased funding for education, the NHS and the police. I understand that they want many more homes built, particularly local authority owned homes. I understand that they want to provide free university education for all. I understand that they want to improve support for the unemployed, for people with disabilities, for the homeless, for working people on low incomes and for lots of other very worthy causes. Not only do I understand all these ambitions, in principle I agree with them. However, they all have to be paid for. Nothing comes free. And this is where I struggle.

Between 1992 and 2007, the UK experienced it’s longest period of sustained economic growth, since the end of the second world war. Despite this, the governments of John Major (Tory), Tony Blair (Labour) and Gordon Brown (Labour) failed to achieve any form of fiscal surplus; in other words, we had no savings for a rainy day. Instead, we accumulated around £500 billions of debt.

In 2008, like many other countries, the UK was hit by the banking crisis. Irrespective of who was to blame – and we can argue about that until eternity – this was by far the biggest economic blow our country has had to face since the end of the second world war; and arguably the biggest economic blow in peacetime, for at least a century.

Gordon Brown’s Labour Government pumped money into the economy, using a range of economic levers, just to keep us afloat. Given the circumstances that existed at the time, it took the right decisions, acting quickly, decisively and effectively. To his credit, Gordon Brown also played an important role on the world stage, to encourage the governments of other countries, to take similar actions within their own economies. Without Brown’s intervention the outcome would have been far worse. But there was, and still is, a price to pay.

By 2010, our debt had doubled to £1 trillion, due to the huge additional borrowing that became necessary to offset the worst effects of the banking crisis. The budget deficit, which is the amount of additional borrowing incurred each year, grew from £41 billions in 2007/08 to £155 billions in 2009/10. This level of borrowing was unprecedented in peacetime.

Since then, the Cameron and May Governments have steadily reduced the annual budget deficit, which in 2017/18 will be around £58 billions. But because there has still been a substantial budget deficit each year, the national debt has continued to increase and is currently standing at around £1.8 trillions. Furthermore, it is likely to rise to around £1.9 trillions by 2020 and will continue to grow until well into the 2020s, because we will be incurring annual budget deficits, albeit on a reducing scale, for years to come. It doesn’t matter, which government is in power, the consequences of the 2008 crash will be felt by the people of this country for decades.

The size of the UK economy is measured by it’s gross domestic product (GDP), which is the value of the goods and services produced by all sectors of the economy in a year. It is currently around £2.0 trillions, which is only marginally more than the national debt. If we think about this at a domestic level, it’s like owning a house with a 90% mortgage, having no savings to fall back on, seeing every penny you earn gone by the end of each month and still needing to borrow more in order to fund your lifestyle. It’s completely unsustainable; and it’s no different for the UK economy.

Interest payments on our debt will be £49 billions in 2017/18. This is more than the entire defence budget of £44 billions and more than a third of the NHS budget of £144 billions. Interest rates have been at an all time low for the last few years; but there are now signs that they are starting to rise. We are, therefore, likely to see interest payments increase significantly over the next few years; partly because we are still increasing our debt and partly due to higher interest rates. And this is money we won’t have available, to invest in education, the NHS and all the other public services we need to improve.

There are only two ways to get ourselves out of this mess.

The first is to reduce public expenditure so that we start to make a budget surplus each year. We would then be able to start paying off our debt. But this would mean making substantial cuts to all our public services, which would be very painful for all of us. There is a widespread belief that we have already been enduring public expenditure cuts since 2010. In reality public expenditure has increased every year since 2010. However, it has not increased in line with either costs or demand. The funding of many services has, therefore, been cut. Public expenditure this year (2017/18) will be around £814 billions. Next year it will increase by around 1.7% to £828 billions. However, this increase will be less than inflation, thereby maintaining a squeeze on public services. But imagine if public expenditure was actually cut by £58 billions to eliminate the budget deficit. The impact would be catastrophic for our entire way of life and the widely used term of “Austerity” would take on a whole new meaning.

The second way to get out of this mess is to grow the economy. If we could increase the size of our economy at a faster rate than we increase our borrowing, the national debt would start to become a smaller percentage of our GDP. At the moment national debt is around 90% of GDP, which is crippling us. But as that percentage starts to reduce, our ability to fund our public services better, will start to increase.

The main source of  government income, required to fund public services, is not borrowing but taxation. Public sector borrowing is the additional money required to fund public services, over and above that raised by taxation. So why not just increase taxation to plug the gap? Currently, additional taxation of the rich is a popular cry on the left of British politics. But without going into the argument about who should pay which taxes, the problem we face is that any form of additional taxation suppresses economic growth. That’s something we may not like but it’s a fact of life, with which we have to live. If the government was to substantially increase taxation, growth would be curtailed and, depending on how much additional taxation was called for, it could even result in the economy contracting and going into recession. Either way, it would increase the debt problem we already have rather than solve it.

Whichever government is in office, it has an incredibly difficult balancing act to perform. It has to grow the economy and maintain public services, without over taxing us and without incurring excessive debt. No government, since the second world war, has ever achieved a perfect balance. Labour governments have tended to over tax us and focus too much on public expenditure and not enough on controlling borrowing. Conservative governments have tended to do the opposite. But arguably, the relatively regular change of government between the two parties has maintained a reasonable balance, if viewed over the longer term. We are after all one of the wealthiest countries on the planet and, overall, the people of this country enjoy a higher standard of living than the overwhelming majority of people elsewhere in the world. Having made that last statement, I readily acknowledge that there is still an unacceptable level of people living in poverty and under privileged circumstances and, whilst their situations need to be tackled, they don’t represent the majority. Most UK citizens, alive today, enjoy a far higher standard of living than any previous generations.

The issue we face today with Labour under Jeremy Corbyn is altogether different from the political landscape that has dominated, since 1945. Corbyn has undoubtedly caught the imagination of a huge section of the electorate and, together with the Shadow Chancellor, John McDonnell, has led people to believe that the “Austerity Programme” since 2008, has been unnecessary and that massive increases in public expenditure are not only possible, but can be achieved, without increasing taxes on most people and in a way that will stimulate economic growth. They paint a hugely optimistic picture for their strategy; they condemn the current government as only interested in the rich; and they are positioning the rich as the scapegoats for all our problems.

Nothing could be further from the truth; and yet, within the foreseeable future, there is a real possibility of a Corbyn led government with John McDonnell as Chancellor of the Exchequer.  For the reasons, I’ve outlined, the promises they are making are impossible to deliver. Despite their assurances to the contrary, there would need to be massive increases in taxation and borrowing to fund the huge public expenditure increase that would be needed. This would inevitably push the economy into recession, leading to savage cuts to public expenditure that would make the so-called austerity of today look like a golden era. It would hit the overwhelming majority of us; although, ironically, not the very rich, who would almost certainly invoke plans to protect their wealth by transferring it overseas. And that would, of course, add to our problems, as other countries, rather than us, would benefit from both their taxes and their spending.

If we once get into this downward spiral, it will take generations to recover.

Neither Jeremy Corbyn nor John McDonnell is stupid. It is inconceivable that they don’t understand the consequences of their economic policies; so why do they continue to promote them? The only conclusion I can come to, is that they are driven by a political ideology that seeks to replace our western, capitalist, democracy with a non-democratic, Marxist/Leninist, socialist state. And to achieve this, they are prepared to crash the economy on the basis that the end justifies the means.

I’m a firm believer in the democratic process and, if the British people genuinely believe that our nation would be better off under this type of socialist regime, those of us who take a different view will have to accede to the wishes of the majority. However, I doubt very much, if that is the case. I suspect that much of the support for Jeremy Corbyn is based on frustration with the time it is taking to recover from the banking crisis, the impact this is having on our public services and the fact that the continuing increase in our standard of living has stalled and possibly gone backwards.

People are becoming discontented; and the present government is doing nothing substantive to explain the challenges we face or to manage our expectations. On the other hand, Labour is now led by a rather comforting, grandfatherly figure telling us how it could all be different; something so many of us desperately want to believe.  So, there is now a real risk that the United Kingdom will sleepwalk into a future that it will come to bitterly regret.


Hard Brexit or Soft Brexit; What’s the Difference?

The media seem to be fixating on the question of a hard Brexit or soft Brexit. But how real is this apparent conflict?

The Conservative and Labour Parties accounted for around 83% of the popular vote at the last election and the polls suggest that public opinion remains at similar levels today. Both parties contain a majority of MPs that were on the side of “Remain” during the 2016 referendum; both parties accepted the result of the referendum; and both parties are now committed to leaving the EU in April 2019. So, one way or another, it seems likely to happen.

The essential difference between a hard and soft Brexit is whether we leave both the “Single Market” and the “Customs Union”. The hard Brexit outcome would mean leaving both; the soft Brexit outcome would mean remaining in both.

The single market requires the free movement from one EU member country to another of goods, people, services and capital (the four freedoms). It removes barriers to trade and harmonises or unifies national rules at EU level.

For the UK to remain in the single market, it would require either the EU to agree that the UK could dispense with the requirement for the free movement of people; or for the UK to agree to retain the free movement of people. Realistically, neither of these is going to happen. The free movement of people is one of the prime founding principles of the EU, which is bound by those principles. For the UK the free movement of people was one of the main reasons for the Brexit vote winning the referendum. So there is a complete impasse.

The customs union states that all trade in goods between EU countries must be free of customs duties and that member states must apply a common customs tariff for goods imported from outside the EU. For the UK to remain in the customs union would require either the EU to agree that the UK could negotiate it’s own trade agreements with countries outside the EU; or for the UK to accept that is couldn’t. Again, neither is going to happen. The EU has no incentive whatsoever to agree that the UK should be free to negotiate its own trade arrangements with countries outside the customs union. On the other hand, for the UK, the ability to negotiate its own trade agreements outside the customs union is essential, if it is to develop its international trade throughout the world. So, once again there is a complete impasse.

Whether we like it or not, the simple facts of life are that the choice we have is to remain in the EU, as we are now or leave the EU and this means leaving the single market and the customs union. Leaving the EU and remaining in the single market and customs union isn’t a realistic option. However, that doesn’t mean we can’t negotiate a non tariff trade agreement with the EU; and it doesn’t mean we’ll need to establish customs controls at borders because we already have them, as we’re not part of the Schengen Agreement. Although we will need to find a solution for the border between Ireland and Northern Ireland.

Realistically, the argument over a hard or soft Brexit is meaningless. The real argument is between those who support Brexit and those who oppose it. We live in a democracy and those who oppose Brexit have every right to do so and every right to campaign for their views to prevail. However, by campaigning for a so called soft Brexit, they are campaigning for something that can’t happen and undermining the government’s position in the process. They should be honest and campaign for NO Brexit. We must remember that we are still in the EU; so no Brexit means no change and that seems much more realistic than campaigning for a change that can never happen.



By Europe Divided

I’m a Baby Boomer, born in 1948 and, in my nearly seventy years of life, as a British subject, I can’t remember a time when our nation was so divided. The issue of Europe and our membership of the EU has pitted young against old, cosmopolitan against rural and region against region. It’s fractured families, friendships and communities; and has created monumental splits within both of our two largest political parties.

Many people are critical of the Cameron government’s decision to hold a referendum in the first place, accusing it of pandering to it’s right wing and hard core Brexiteers. But this is too simplistic because it ignores the considerable anti EU views that have existed within the wider British population, since we joined, what was then, the Common Market in 1973; but particularly since the Maastricht treaty of 1992, which projected the EU towards ever closer political union.

The emergence of UKIP has also been extremely influential. Whilst it has failed to gain a significant parliamentary presence, it has gathered a groundswell of support as a single issue political party.

The problem for the government of the day was that this groundswell has been growing rapidly and, as we now know, it hasn’t been coming from just traditional Tory voters, it has as much, if not more, support from within the ranks of traditional Labour voters. You could argue that Cameron was the unlucky Prime Minister, who happened to be in office when it all came to a head. But in truth, if Cameron hadn’t called the referendum, when he did, it would only have delayed it; and a future government, of whatever political persuasion, would have had its hand forced, within a comparatively short time.

This anti EU feeling isn’t unique to the UK. Many other European countries have a growing level of discontent with the EU. The UK is merely the first to bring that discontent to a head.

The EU has worked extremely well for some people in most member countries but it has not worked at all well for others and this is at the route of the problem. The EU bureaucracy and individual country Governments have ignored those people, for whom the EU hasn’t worked. Throughout Europe and North America, we have seen the rise of an intellectual liberal elite that has permeated the upper echelons of politics, public services, financial services and business and commerce. Overwhelming, these are decent people working incredibly hard in very difficult and challenging roles. They do a huge amount of good work, from which we all benefit enormously. However, they have become too detached from the wider populous and imbued with a certain arrogance that says, “we know better than you what is best for you; therefore, we don’t need to listen to you”. As a result huge swathes of people feel ignored, disenfranchised and powerless to do anything to put matters right.

The rise of Donald Trump in The US and the success of Jeremy Corbyn in the UK have happened because they are talking to the people that the establishment has ignored. It’s interesting that Trump is from the far right and Corbyn the far left. There have been all sorts of complex and convoluted reasons put forward for their success; but actually it’s very simple and they both know it. They offer hope to those, who feel disenfranchised and have no hope.

Based on past experience, it seems unlikely that either the far right or the far left are capable of delivering the kind of society that most of us want. Most of us in the western democracies gravitate from centre right to centre left. In the UK that could be described as One Nation Tories to Social Democrats. But the detachment of the Liberal Elite is creating fertile conditions for more extreme politics.

Getting back to the EU issue, we’re not in a good place at the moment. The divisions between us are creating an almost impossible position for any Government to resolve. This is probably the most serious threat to our nation since the second world war and, unless we start to come together and unite, the UK will enter a period of very serious decline. In principle, the UK could almost certainly look forward to a great future either inside or outside the EU. We are an industrious and innovative nation that has been a world leader for centuries because of our ability to adapt. But if we keep fighting between ourselves, there is only one outcome possible, namely serious national decline.

Given where we are, it seems inevitable that we will leave the EU. But there needs to be compromise. No one will get everything they want but we’ll all get some of the things we want.

It’s time for the silent majority from One Nation Tories to Social Democrats to make its collective voice heard and to unite so that we can achieve an outcome that enables our country to thrive.

The treat this nation faces, is the greatest since the second world war. In those far off days, my parent’s generation put aside their differences and united. Their fortitude and determination won through and secured a future for those of us alive today. We owe it to them and we owe it to our children and grandchildren to do the same now.

The current government may not be everyone’s choice. It may have lost the confidence of many of our people through its botched general election. But it is the government and it faces a massive challenge. We must put aside our differences and support it rather than continually undermining everything it tries to do. When Brexit is complete and our country is secure, we can return to our tribal politics just as my parents’ generation did in 1945. If we don’t do that, our future will be bleak, whoever holds the key to number 10.



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.