I was asked last week by the Sunday Telegraph to rank the
economic policies of Labour and the Conservative parties as part of a larger survey group. The story duly appeared under the heading “Economists back the Tories - but remain underwhelmed” in which it was suggested that while Dixon’s “criticism of the Tories centres
around their fixation on austerity, he is more scathing about Labour’s plans.”
Whilst I am grateful for the press coverage, and my comments were reported
accurately, I do believe they were given a spin which was not warranted by the
totality of my remarks. In the interests of balance, therefore, I reproduce
below the full transcript of my answers to the Telegraph’s survey.
Tax & spending
CON 3; LAB 3 (Marks out of 10 where 10 is good and 1 is poor)
There are many good things about the Labour plans: (i) they are semi-costed so we have some indication of how much they want to spend; (ii) There is also something to be said for establishing a National Investment Bank even though it will not be able to generate the £250bn in infrastructure spending that Labour plans. Far better to use it as a conduit to fund SME lending as in Germany and the US, where the KfW and SBA operate. The bad news (and the reason I give the overall plan such low marks) is that too much emphasis is placed on taxing higher earners and corporates. In other words, the tax base is too narrow. For a party which seeks to promote equality, this is merely a “soak the rich strategy” which will change the behaviour of those caught in the tax net. It is thus unlikely to generate as much revenue as planned. In any case a penny on the basic income tax rate yields 4x as much revenue as a penny on higher earners. And whilst the idea of renationalising parts of the infrastructure sounds attractive, this will result in as many problems as it solves. The education pledge is too expensive given the current numbers going into education. Abolishing university tuition fees is a good thing, but it would have been more affordable 20-30 years ago. However, Labour deserves credit for sparking a debate on the role of the state in the economy.
This is more than can be said of the Conservatives, whose economic manifesto offered nothing new. The commitment to balance the budget only by the mid-2020s does raise a question of whether the austerity of the last 7 years has been worthwhile. The public sector is creaking at the seams and it is not in any position to withstand a further round of austerity. As the Institute for Government has pointed out “the Government is struggling to successfully implement the 2015 Spending review … [with] clear signs of mounting pressures in public services.” A policy of more austerity will be self-defeating and I would like to think that Philip Hammond will take a less draconian stance than George Osborne (the jury is out but his hands are tied by Brexit). I maintain that the commitment to reducing corporate tax to 17% is a mistake because it robs the Treasury of revenue and it is not as if HMRC is getting the corporate tax receipts it already believes it is owed.
Immigration
CON: 3; LAB 5
The idea that we can get net immigration back to the tens of thousands is economically illiterate and ultimately self-defeating although I understand why the Conservatives made the pledge for political reasons. However, targeting net immigration by focusing only on inflows, and continuing to classify students in the numbers makes little sense. It remains to be seen how a policy of “allowing us to attract the skilled workers our economy needs” is compatible with the targets. Labour is vague on immigration although they have sensibly resisted giving a pledge on numbers. The commitment to protecting the rights of EU workers already in the UK will play well in Brussels.
Jobs & pay
CON: 2 ; LAB: 2
In this day and age, governments don’t really deliver jobs – other than by setting overall conditions – and have little influence over pay, except by controlling the minimum wage. Labour’s planned figure of £10/hour is probably not unreasonable although it is a big stretch from where we are today which will squeeze smaller businesses. The Conservative strategy which does not give an outright figure, but plans 60% of the median wage, is probably less of a hostage to fortune. The Conservatives are probably more realistic in the sense that they did not talk about creating jobs but it is difficult to give marks to either side because I am not convinced that they said very much, However, both get credit for recognising worker rights though the Labour plans have a whiff of the 1970s about them (“empower workers and their trade unions”).
Industrial strategy
CON: 6; LAB: 4
Both parties sound good on paper but there is little new here. Both sides offer a tinkering at the margin approach – nobody would dispute Labour’s view that we need to improve the economy’s skill levels but this will take years to show any improvement and it was vague on how to achieve it. The Labour manifesto had nothing substantive to say on productivity, which is the UK’s Achilles Heel at present and the Conservatives score a little higher, having already announced their National Productivity Investment Fund. My concern, however, is that neither party will be able to do much in an environment where global forces will play a major role (e.g. automation).
Social care & pensions
CON: 3; LAB: 5
The Conservatives scored an absolute own goal with their initial plan on old age care provision, which was far less generous than that scheduled to come into operation in 2020. It ignored the Dilnot Commission proposal which advocated a cap on costs, thus mitigating against efforts to create a market for insurance in this area. Although they have backtracked, the damage is done. Sensible to remove the pension triple lock. Labour sound more convincing on this issue but the problem is how to pay for it. They are relying on squeezing higher earners and it is not clear whether they can afford all their commitments given the demands from other areas.
Totting up the marks, that amounts to 17/50 for the Conservatives and 19/50 for Labour (versus average marks of 23/50 for the Conservatives and 18/50 for Labour). Not exactly a ringing endorsement for either party, as the headline suggested, but not enough in my case to suggest a bias towards the Conservatives.
Tax & spending
CON 3; LAB 3 (Marks out of 10 where 10 is good and 1 is poor)
There are many good things about the Labour plans: (i) they are semi-costed so we have some indication of how much they want to spend; (ii) There is also something to be said for establishing a National Investment Bank even though it will not be able to generate the £250bn in infrastructure spending that Labour plans. Far better to use it as a conduit to fund SME lending as in Germany and the US, where the KfW and SBA operate. The bad news (and the reason I give the overall plan such low marks) is that too much emphasis is placed on taxing higher earners and corporates. In other words, the tax base is too narrow. For a party which seeks to promote equality, this is merely a “soak the rich strategy” which will change the behaviour of those caught in the tax net. It is thus unlikely to generate as much revenue as planned. In any case a penny on the basic income tax rate yields 4x as much revenue as a penny on higher earners. And whilst the idea of renationalising parts of the infrastructure sounds attractive, this will result in as many problems as it solves. The education pledge is too expensive given the current numbers going into education. Abolishing university tuition fees is a good thing, but it would have been more affordable 20-30 years ago. However, Labour deserves credit for sparking a debate on the role of the state in the economy.
This is more than can be said of the Conservatives, whose economic manifesto offered nothing new. The commitment to balance the budget only by the mid-2020s does raise a question of whether the austerity of the last 7 years has been worthwhile. The public sector is creaking at the seams and it is not in any position to withstand a further round of austerity. As the Institute for Government has pointed out “the Government is struggling to successfully implement the 2015 Spending review … [with] clear signs of mounting pressures in public services.” A policy of more austerity will be self-defeating and I would like to think that Philip Hammond will take a less draconian stance than George Osborne (the jury is out but his hands are tied by Brexit). I maintain that the commitment to reducing corporate tax to 17% is a mistake because it robs the Treasury of revenue and it is not as if HMRC is getting the corporate tax receipts it already believes it is owed.
Immigration
CON: 3; LAB 5
The idea that we can get net immigration back to the tens of thousands is economically illiterate and ultimately self-defeating although I understand why the Conservatives made the pledge for political reasons. However, targeting net immigration by focusing only on inflows, and continuing to classify students in the numbers makes little sense. It remains to be seen how a policy of “allowing us to attract the skilled workers our economy needs” is compatible with the targets. Labour is vague on immigration although they have sensibly resisted giving a pledge on numbers. The commitment to protecting the rights of EU workers already in the UK will play well in Brussels.
Jobs & pay
CON: 2 ; LAB: 2
In this day and age, governments don’t really deliver jobs – other than by setting overall conditions – and have little influence over pay, except by controlling the minimum wage. Labour’s planned figure of £10/hour is probably not unreasonable although it is a big stretch from where we are today which will squeeze smaller businesses. The Conservative strategy which does not give an outright figure, but plans 60% of the median wage, is probably less of a hostage to fortune. The Conservatives are probably more realistic in the sense that they did not talk about creating jobs but it is difficult to give marks to either side because I am not convinced that they said very much, However, both get credit for recognising worker rights though the Labour plans have a whiff of the 1970s about them (“empower workers and their trade unions”).
Industrial strategy
CON: 6; LAB: 4
Both parties sound good on paper but there is little new here. Both sides offer a tinkering at the margin approach – nobody would dispute Labour’s view that we need to improve the economy’s skill levels but this will take years to show any improvement and it was vague on how to achieve it. The Labour manifesto had nothing substantive to say on productivity, which is the UK’s Achilles Heel at present and the Conservatives score a little higher, having already announced their National Productivity Investment Fund. My concern, however, is that neither party will be able to do much in an environment where global forces will play a major role (e.g. automation).
Social care & pensions
CON: 3; LAB: 5
The Conservatives scored an absolute own goal with their initial plan on old age care provision, which was far less generous than that scheduled to come into operation in 2020. It ignored the Dilnot Commission proposal which advocated a cap on costs, thus mitigating against efforts to create a market for insurance in this area. Although they have backtracked, the damage is done. Sensible to remove the pension triple lock. Labour sound more convincing on this issue but the problem is how to pay for it. They are relying on squeezing higher earners and it is not clear whether they can afford all their commitments given the demands from other areas.
Totting up the marks, that amounts to 17/50 for the Conservatives and 19/50 for Labour (versus average marks of 23/50 for the Conservatives and 18/50 for Labour). Not exactly a ringing endorsement for either party, as the headline suggested, but not enough in my case to suggest a bias towards the Conservatives.
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