Showing posts with label Labour Party. Show all posts
Showing posts with label Labour Party. Show all posts

Monday 4 October 2021

The Labours of Keir Starmer

A few months ago I pondered on the fate of the centre left in Europe and suggested that it “will struggle to remain relevant unless there is a radical change of tack.” Last week’s strong showing by the SPD in the German election demonstrated the unerring (in)accuracy of my political predictions. Against that backdrop, the Labour Party in the UK held its annual conference last week, giving Keir Starmer his first opportunity as leader to speak to the party faithful in person. As with most political events these days it polarised opinion. Unfortunately for Starmer, the polarisation came from within his own party with a significant minority unable to forgive him for usurping the sainted Jeremy Corbyn who was always ever one last push away from delivering the socialist utopia that the British electorate has spent the last forty years rejecting.

It has indeed been a bleak couple of years for Labour. In December 2019 they suffered a historical election defeat, registering their lowest number of parliamentary seats since 1935. Following Corbyn’s resignation he was later suspended from the party on anti-Semitism grounds. Although he was subsequently readmitted, Corbyn remains suspended from the parliamentary party (he is not counted as a Labour MP, despite having won his seat in the 2019 election). This triggered an internecine conflict between the faction supporting Corbyn and the group of centrists backing Starmer who realise that he is Labour’s best chance of being re-elected to office. It has been an unedifying spectacle at a time when the UK has been convulsed by the pandemic and when the economic costs of Brexit are becoming more evident. This navel gazing has contributed to Starmer’s poor approval ratings, with only 20% believing him to be doing a good job compared with 59% who disapprove, whilst Labour trails by 5 points in the overall polls (chart).

Starmer inherited the leader’s mantle in April 2020 as the pandemic was taking hold, at which time the Tories had a poll lead in excess of 20 points. It is a well-worn political phenomenon that incumbents tend to enjoy a popularity surge during times of national emergency. But Labour did sufficiently well that by November 2020 it had reduced the Tories’ double digit poll lead to zero. Within six months, however, the Tories had widened their lead back out to 12 points. Obviously the vaccine bounce gave the government a boost but there was more to it than that. Starmer was open to the charge that Labour did not have clearly defined policies on a lot of issues and the internal splits within the party were playing badly with the electorate.

Holding office but wielding little authority

At one point, following the loss of a critical by-election,Starmer removed his deputy from the position of chair of the party only to have to appoint her to another high-profile position following unrest from the left-wing. During the conference, unions voted against a motion that would have committed the party to pushing for a change in the UK voting system towards proportional representation. This was widely seen as one of the few ways that Labour has a real shot at getting into government now that it can no longer rely on winning seats in Scotland.

All this has given rise to a perception of a leader who holds office but does not wield control. So it was that Starmer’s conference speech was widely recognised as vitally important if he was to generate any form of cut through with the wider public. In the event it was well received (although at 90 minutes, it was long by any standards). However it cannot gloss over the fact that a significant swathe of the Labour Party prefers slogans to election winning policies. The left-wing element which continues to follow the Corbynite policy stance so heavily rejected in 2019 has given no sign that it is prepared to make the necessary comprises required to defeat their political opponents. So long as this is the case, Labour will remain a party of opposition rather than government.

What can they do?

UK elections are usually lost by the incumbent rather than being won by a coherent opposition, and with three years until the next scheduled election it is too soon to write off Labour’s chances. However, it is clear that they need to offer a compelling vision for the future and for all the positive noises surrounding Starmer’s conference speech, there was little of any substance. Perhaps this is partly because in recent years the Conservatives have appropriated many of Labour’s policy ideas, but not before first denigrating them and then repackaging them as their own. In this context it is therefore understandable that Starmer does not want to give too much away. Moreover, the Conservatives, who for years sold the idea that Labour was the party of big government that would “bankrupt Britain”, have moved into Labour’s territory with their huge public support schemes and recently-announced tax rises. So what can Labour do to differentiate themselves in areas that will make a difference? I offer four simple prescriptions:

  1. Repair relations with the EU by committing either to rejoining the EU Single Market or establishing a customs union (assuming, of course, that the EU is willing to open negotiations). In doing so, Labour would have to be quite clear that this does not mean rejoining the EU – that idea would be a sure-fire vote loser. Tactically, such a policy would open up some clear water between them and their political opponents and highlight that the form of hard Brexit adopted by the current government is making life more difficult for the UK. 
  2. Fix the Universal Credit system. As I have outlined previously, there are two quick fixes that can be made: (a) reduce the waiting time between claiming state assistance and actually receiving any funds and (b) reducing the taper rate at which benefits are withdrawn when people transition back into work. Such a policy would be of most benefit to those at the lower end of the income scale – precisely those who Labour say they most want to help (I will come back to this in a future post). 
  3. Commit to not raising the rate of corporation tax following the hikes implemented by the current government. This would go some way to allay fears that Labour will take measures that weaken the UK’s international competitiveness and, in Starmer’s words, will help reset “the relationship between the government and business.” 
  4. Invest in the infrastructure necessary to meet the aim of transitioning towards electric cars. I have long been of the view that this needs to be done well ahead of the point at which the sale of vehicles powered by petrol or diesel is phased out. With the deadline for this having been brought forward from 2040 to 2030, we have only eight years left and arguably the network needs to be substantially completed within six.

Why this matters

You do not have to be a supporter of any particular party to realise that a credible opposition is required to keep the government on its toes. Without this moderating factor, governments become complacent and formulate policies to suit the interests of their supporters rather than the country as a whole. Keir Starmer may yet be the man who can drag Labour back to the centre of the political spectrum and make them a credible political force again. But if he is to be successful at the ballot box, his party members have to get behind him and start to sound like they want to govern rather than merely act as a protest movement.

Friday 7 May 2021

Left behind

Exactly eleven years ago, on 7 May 2010, we awoke to find that the Conservatives under David Cameron had emerged from the previous day’s general election with more seats than any other party. This proved to be sufficient for them to form a coalition government with the Liberal Democrats which lasted until 2015. The Tories have since won a further three elections under three different leaders and are unlikely to relinquish their grip on power any time soon. Although yesterday’s elections were less important than that of 2010, they were nonetheless an important litmus test of the state of domestic politics given that they represented the biggest plebiscite outside of a general election.

In England, 143 local councils (including London) were up for election; 129 members of the Scottish parliament were elected and 60 members were chosen for the Welsh Senedd. The full results are not yet in but the Conservatives have performed well in England and the SNP retains hopes of winning an outright majority in the Scottish parliament which will rekindle the issue of Scottish independence.

Labour’s decline and fall …

But the most significant result of the past 24 hours was the Conservatives’ victory at a by-election in the town of Hartlepool, called following the resignation of the sitting Labour MP.  This was a result of huge symbolism since Labour has held the seat since 1964 and indeed the Tories had previously only won the seat once since 1945. For those not familiar with the town, Hartlepool is traditionally one of the most solid Labour voting regions in the country, with roots in an industrial base extending back to Victorian times. Recent years have not been kind to Hartlepool as north east England’s industrial base has been steadily eroded (as a native of the region I have watched the steady process of deindustrialisation gather pace). As far back as 1971 the town recorded an unemployment rate of 12.3%, more than twice the national average, and in the early 1980s it was running at 33%. In 2016 the town voted 70-30 in favour of Brexit driven in part by the fact that successive governments had failed to deliver much prosperity to the area and its people were fed up. One can hardly blame them: In the words of Public Health England, “Hartlepool is one of the 20% most deprived districts/unitary authorities in England.”

We should be wary of reading too much into what most political commentators are calling a seismic shift in British politics and which the Labour Party itself described as a “shattering” blow. There have been numerous instances of by-election results over the years which have promised radical change only to find that business as usual was restored by the time of the next general election. But this time really does feel different.

One of the remarkable features of the 2019 election was the fact that huge numbers of voters in previously safe Labour seats voted Conservative (the so-called Red Wall effect). This was attributed to two factors in particular: (i) distrust of then-Labour leader Jeremy Corbyn and (ii) the promise by Boris Johnson to “get Brexit done.” In the subsequent 17 months Corbyn has vacated the leadership so in theory this should not have played a role (though there is a suspicion that he has poisoned the Labour brand). In addition, Johnson delivered Brexit and to the extent that a lot of Brexit Party votes in 2019 are likely to have transferred to the Tories in 2021, their Hartlepool triumph could be interpreted as a reward for getting Brexit done. There are also a number of other factors in play, notably the feelgood factor derived from the vaccine bounce and, perhaps more importantly, questions about what Labour stands for (see this article by political journalist Paul Waugh for more detail).

… despite the odds apparently being stacked against the Tories

What is even more striking is that the Tory win comes on the back of extensive media coverage of sleaze allegations against senior Conservative politicians. Former PM Cameron is alleged to have used his influence to secure aid for a company in which he had a significant financial stake. This was compounded by allegations that Johnson had improperly sourced funding to redecorate his flat in Downing Street; a spat with his former adviser Dominic Cummings on behind-the-scenes machinations in government and claims that Johnson was desperate to avoid a third lockdown at any cost (the “let the bodies pile high in their thousands” furore). In times past the torrent of bad news would have spelled doom for the Conservatives but it does not appear to have made a scrap of difference. In that sense there has been a seismic political shift.

What has changed? One possibility is simply that for all the frenzied speculation by journalists inside the Westminster bubble, the issue does not in any way impact on the lives of ordinary voters (there was no “cut through” to use the political jargon). After all, it seems that everybody accepts Johnson has a strained relationship with the truth and simply don’t care what he gets up to. Why should it matter to many voters that Johnson has engaged in “unethical, foolish, possibly illegal” actions if he has not personally inconvenienced them (not my view, by the way)?

A Europe-wide phenomenon

It is not only in the UK where the political centre-left has lost ground. The fortunes of the SPD in Germany have dwindled over the past decade to the point where the Greens are more likely than the SPD to form the next government if current polling results are repeated in the September election. Similar trends are evident across other European countries where centre-left parties have seen their vote shares collapse to varying degrees (chart below).

On the surface it would appear that there has been a reappraisal of the centre-left since the GFC (France being the partial exception where Francois Hollande won the presidency as recently as 2012). A one-size-fits-all explanation cannot be applied to all countries equally but there are some stylised facts which get us part of the way there. In many countries, what we once called traditional working class voters who worked in industry have become much more scarce and the retirees who once would have fitted that description are fewer in number. In addition to these demographic shifts, there is a sense that centre-left parties were left to carry the can for the fallout from the GFC. Many of them were in office in 2008-09 and chose to put in place austerity programmes which hurt their supporters the most, or they left power soon afterwards and were blamed for the austerity that followed. In reaction there was a surge in support across the continent for what could broadly be called right-wing (semi) nationalist parties as voters sought radical solutions to the economic woes that ensued. This was countered by a surge in radical left parties which overshadowed the more moderate centre-left.

Ironically, as Chris Giles pointed out in the FT last week, “the left is winning the economic battle of ideas.” As the pandemic has shown, government has a big role to play in stabilising the economy at a time of deficient private sector demand – a lesson which Keynes highlighted in the 1930s. As Giles put it, “the model of pre-coronavirus capitalism, with high levels of inequality, is losing popular support, suggesting the need for a post-Covid world with more support for the vulnerable and higher taxes, especially on extreme levels of income, wealth and profits.” If nothing else, this suggests that the policies of Joe Biden are in tune with a large part of his electorate.

Here in the UK, the Labour Party has tried to differentiate itself from its Conservative opponents in recent years by promising a bigger role for the state and increasing taxes on the more affluent. However, after having frightened voters by telling them that Labour planned to stymie efforts to reward enterprise, the Tories have since stolen many of their clothes by running huge budget deficits during the pandemic and committing to raise corporate taxes rather than lower them, as previously planned. Faced with this volte face, the centre-left are clearly going to have to find a different economic tune to play.

It is hard to know how to respond

For the British Labour Party, and indeed for their counterparts across Europe, it looks as though they will struggle to remain relevant unless there is a radical change of tack. Quite how that can be achieved right now is very difficult to imagine. They have nothing economically new to offer and in the UK there is no one who can compete with Johnson in the charisma stakes. Sometimes you just have to accept that it is not your day and the best you can do is hang in there and hope that the tide turns your way as the opposition makes mistakes. It is not a particularly palatable message for Labour leader Keir Starmer but it might be all he can do for now. If he cannot generate cut through sooner rather than later, the Labour Party’s spell on the sidelines looks set to continue for a long time yet.

Monday 22 June 2020

Labour pains (revisited)

I have been very critical of the UK Conservative government over the years – and with good reason – but just to show my even-handedness, I thought it worthwhile to reflect on the performance of the opposition Labour Party following the recent publication of its 2019 election review. According to the authors of the report, Labour suffered a heavy election defeat because Jeremy Corbyn was a deeply unpopular leader amongst the wider electorate and its policy on Brexit was confused. The authors also referenced deeper seated issues, as the party increasingly lost touch with its core support – a problem which was masked by the relative outperformance relative to expectations in 2017 – with the result that “Labour has a mountain to climb to get back into power in the next five years.” 

But cast your mind back five years, and three elections, ago and Labour had just lost a general election in which they were expected to run the Conservatives very close, running neck-and-neck in the opinion polls right up until election day. Although it was anticipated they would win the most seats, the Tories were expected to fall short of a majority and would be forced to form another coalition with the Lib Dems. In the event, they won a majority of 12 seats. Whilst the Tories then unleashed Brexit on an unsuspecting British public, Labour went into full introspective mode and decided that the key reasons for their defeat were: (i) the fact that they remained tarnished by the myth the previous Labour government was responsible for crashing the economy; (ii) an inability to deal with “issues of connection” like immigration and benefits and (iii) Ed Miliband was judged to be not as strong a leader as David Cameron. 

Quite how the election of Jeremy Corbyn as leader following Miliband’s resignation was meant to address any of those issues was lost on me – and indeed most voters. In the words of The EconomistMr Corbyn has been the party’s most disastrous leader ever – not just useless … but positively malign.” That he was unelectable as prime minister was obvious from day one. In a client note I put out in September 2015 just after he was elected leader, I wrote “Simply put, Mr Corbyn is an old-fashioned socialist and is a throwback (at least in British terms) to a political group which was believed to have become extinct in the 1980s … Mr Corbyn is unelectable. None of the analysis performed in the wake of the May general election suggests that Labour failed to win a majority because it was not sufficiently socialist – indeed, quite the opposite.” I take no pleasure in being right. 

Worse still, Corbyn was one of the facilitators of the breakdown in current British politics.  To quote The Economist again, “his failure to throw his party’s weight behind the Remain campaign contributed significantly to Britain’s decision to leave the EU, which most of the membership opposed. His refusal to meet Theresa May half-way during the dying days of her administration killed off any chance of a soft Brexit. His extreme politics and sanctimonious style drove traditional Labour voters into Boris Johnson’s arms.”

It is hard to disagree with any of this. Indeed, a lot of the blame for the fact that Boris Johnson’s inept government can theoretically continue in office for another four years can be laid at Corbyn’s door. But bygones are bygones and the big question for Labour is whether the party can recover. For my money, it can. For one thing, the election of Keir Starmer as party leader has put a centrist politician in charge. I have noted previously that Labour performs badly when it tacks too far to the left and Starmer will drag them way from some of the positions supported by Corbyn which were guaranteed vote losers. For the record, I am a university contemporary of Starmer and remember him standing as a student politician on a moderate Labour platform at a time when the party was run by left-wing zealots.

Whilst I maintain no party political affiliation it is important for the health of democracy that a strong opposition is able to put pressure on the government to act in the interests of all the people and not just its supporters. The abject performance of Johnson and his government is a reminder what happens when the opposition enables a poorly organised government and fails to hold it to account. But as bad a prime minister as Johnson is proving to be, few people believe that Corbyn would have been any better. Aside from having to deal with the Covid-19 crisis, which would try any leader, Labour’s position on Brexit was extremely muddled and it is far from clear how they would have handled it. Politicians on all sides are to blame for the disjointed position in which the UK finds itself. Naturally the government has to carry the can. But Jeremy Corbyn’s failure to provide leadership when it was most needed should neither be forgiven nor forgotten.

Saturday 14 December 2019

Johnson's jamboree

Wow! That was the election result the pollsters did not see coming. It was seismic for a number of reasons and it is hard to refute the view that Boris Johnson emerged as the most attractive candidate in a contest of the ugly. Even Johnson’s victory speech acknowledged that many voters who have not voted for them before may simply have loaned their votes to the Tories because: (a) they had no interest in backing Corbyn and (b) they really do want to “get Brexit done.” A big majority of 80 seats – the largest by any government since 2001 and the largest Tory majority since 1987 – gives Johnson a mandate to do more than deliver Brexit. If he plays it right, he could potentially cement the Tories in power for another decade, such is the catastrophic state of the opposition.
Labour lost it in more ways than one

Indeed, this was a result which requires Labour to reflect on where it wants to go next. This was its worst showing since 1935 in terms of seats (chart above), although its share of the vote was higher than in 1983, 1987, 2010 and 2015, But it nonetheless underscored the extent to which Labour has lost touch with its core voters and Thursday’s result was a damning indictment of the direction the party has taken under Jeremy Corbyn. I pointed out in 2016  that Corbyn was the wrong man at the wrong time and I was not taken in by the 2017 election result, attributing this to a  backlash against Brexit, particularly amongst younger voters who looked for Labour to oppose it. However, I was astonished by the extent to which his unpopularity amongst voters was even cited by his own MPs. Labour’s problems with anti-Semitism and the perception that Corbyn is a terrorist sympathiser do him no favours amongst ordinary voters. His inability to take a position on Brexit lost him the youth vote and he was roundly criticised for signing off on Labour’s tax-and-spend policy.

But Corbyn is merely one manifestation of Labour’s drift to the left. To hear some of his fellow travellers deny the reality of the party’s position in the wake of this resounding defeat is to realise that it will be a long way back for Labour before it can be considered electable. The party has traditionally performed well when it tacks towards the centre, as it did under Tony Blair. But when it drifts to the left as it did in the 1930s, 1980s and under Corbyn this tends to be a recipe for electoral disaster. Blair was a proven winner who tapped into the national Zeitgeist and it is a measure of how far Labour has moved that party activists would rather criticise Blair for his involvement in the Iraq War than recognise his election-winning genius. When Labour loses long-held seats in my native north-east England, you know the game is up.

Lib Dems demonstrate the ineptitude of the centrists

Whilst on the subject of opposition parties, the Liberal Democrats’ failure to capitalise on its centrist credentials was a spectacular indictment of its own failings. Slightly less than half of voters supported Remain but the Lib Dems managed to capture only 11.5% of votes and won just 11 seats – one less than in 2017, with leader Jo Swinson losing her seat. Let us not forget that the Lib Dems were the enablers of this election. However, their promise to revoke the Article 50 notification was a serious policy mistake as it reinforced the perception of a party that was prepared to ignore the wishes of those voters who favoured Brexit. Many people have asked me why they would do something so dumb. I think the answer is that they assumed Labour would back a referendum and they simply wanted to differentiate themselves. 

But by ruling out any cooperation with Corbyn, the Lib Dems are directly responsible for scuppering any chance of a Remain coalition that might have given them a fighting chance of achieving their goal of overturning Brexit. To put it bluntly, both the main opposition parties made too many strategic and tactical errors that were evident to anyone with more than a passing interest in politics. One does have to wonder who was in charge of the election strategy for both the main opposition parties, for they were spectacularly incompetent. Next time round, folks, I am available for hire - I certainly could not do any worse.

The Tories could not lose against this level of opposition

The Conservatives did not exactly fight a stellar campaign but they kept their message simple and did not tackle Labour head-on on their own ground. Johnson largely avoided making too many gaffes and his promise to move beyond Brexit clearly resonated with a large part of the electorate. My views on Johnson have been well documented on this blog over the years and they have not changed. But I have to admit that the Tories fought a well-disciplined campaign and they were canny enough to pick a fight they could win. The party knew that it had a good chance of beating a Corbyn-led Labour Party. It might have struggled against a more credible leader, although it would almost certainly not have pushed so hard for a winter election if they thought they might lose. As it is, their vote share of 43.6% has not been bettered since Margaret Thatcher’s 1979 victory (chart below).

I will deal with the outlook in future posts. But the key concern right now is whether we will see a party that tacks to the right, as many of its more prominent politicians appear to want, or whether a more centrist version of Johnson will emerge that permits a broader church.  Johnson has a big majority which means he will be far less reliant on a small number of MPs to ensure the passage of legislation. This raises the possibility that he may not need to push for a hard Brexit in order to keep his MPs onside – a luxury that Theresa May did not enjoy. He may also be more emollient on the question of extending the transition period than he sounds today.
 
Holding the union together will be a challenge

But there are some big issues on the horizon. The SNP won 48 of the 59 Scottish seats, implying that neither the Conservatives nor Labour will have much representation north of the border. It is clear that Scottish voters, who voted 62%-38% in favour of remaining in the EU in 2016, do not buy into the policies espoused by the main Westminster parties and the push for a second independence referendum will gather momentum.  Similarly, nationalist politicians now outnumber unionists in Northern Ireland for the first time, indicating a possibly more favourable view towards a united Ireland. Future Conservative governments will thus have to devote more attention to maintaining the union. It can no longer be taken for granted.

Can the Tories demonstrate they are about more than Brexit?

The mould has also been broken in another way. Whereas in the past Labour could rely on the votes of working class voters in the former industrial heartlands, that may no longer be true in future. A generation of Labour voters would not countenance voting for the Tories after their policies were deemed responsible for triggering a wave of deindustrialisation. That changed this week. This is a sign that the old tribal certainties are breaking down as younger voters are no longer influenced by the historical conflicts that shaped their parents’ generation. Maybe Boris Johnson still has the old magic; Heineken Man refreshing the parts that other politicians cannot reach, rather than Marmite Man who is loved and hated in equal measure. Maybe! Johnson has the potential to be the unifying candidate that the country needs. But he carries so much Brexit baggage that he will have to redouble his efforts to prove that the Tories are more than a single issue party. It is going to be an interesting ride.

Thursday 21 November 2019

Labouring under an illusion

The release of the Labour Party’s election manifesto today was a big deal. It has been described across much of the mainstream media as representing a swing to the left, proposing a significant increase in the role of the state including a big nationalisation programme and a major increase in government investment. It certainly represents a radical departure from the conventions of British politics over the last forty years by proposing fewer market solutions to economic management issues. As regular readers of this blog will know, I have long argued that the economic model of the past four decades, in which the market is predominant whilst the state plays a subordinate role, has run its course. But the plans presented by the Labour Party arguably represent a swing of the pendulum too far in the other direction.

Whatever one’s views, however, an impressive amount of work has been put into the economic plan. We can roughly divide it into two areas – redistribution and investment. Turning first to the redistributive element, the document outlining Labour’s funding plans is a serious piece of analysis, the likes of which I do not recall seeing in an election manifesto. It entails a significant medium-term increase in current outlays on areas such as education, health and social care and work and pensions. Total current outlays by fiscal year 2023-24 are projected to be £83bn higher than measures announced in all previous fiscal events – a 20% increase over current plans (on the narrow definition of spending outlined in the document - it represents an increase of around 10% in total spending).

In fairness, Labour has gone to great lengths to explain how this increase will be funded. Around a quarter is to be generated from raising the corporate tax rate from its current level of 19% to 26% by FY 2023-24 (bringing in £23.7bn). The next largest chunk comes from raising capital gains tax and dividend taxation in line with income taxation (yielding £14bn), followed by £8.8bn from a financial transactions tax. Of the other headline grabbing items, income taxes will be raised on those earning more than £80,000 per year (roughly three times the average wage) which is expected to yield about £5.4bn of revenue. It is notable too, that the plans attempt to allow for changes in behaviour in response to higher taxes so the figures quoted are net expected yield, rather than simply the gross yield. Like the underlying ethos or not, I thought that the funding plan was an impressive piece of economic analysis that people have put a lot of thought into.

The investment spending side of the plan confirmed the expected boost of £55bn per annum (2.5% of GDP). In effect, Labour intends to borrow only to fund investment with the redistributive element of the plan funded by higher taxes. Consequently, the simulation analysis I recently conducted on Labour’s plans still holds. Assuming that in the medium-term Labour injects £55bn per year into the economy, my analysis suggests this will raise the public deficit from 2.5% of GDP in the baseline to around 3.9% by FY 2023-24 (chart) and raise real GDP by 1.8 percentage points above the baseline. Incidentally, this implies a fiscal multiplier of around 0.75 (i.e. a fiscal boost of one percentage point of GDP increases output by 0.75%) which is not far out of line with estimates produced in an OECD paper in 2016 (and cited in Labour’s document).

In order to assuage market concerns regarding its plans, Labour has proposed a fiscal credibility rule which will (i) eliminate the current budget deficit within five years; (ii) maintain interest payments below 10% of tax revenue and (iii) improve the strength of the government’s balance sheet during the next parliament. Part (i) is, in my view, achievable but (ii) will depend very much on how markets decide to set interest rates. Part (iii) is economically very interesting. Labour recognises that there are significant costs associated with its nationalisation plans but in buying up companies the state also acquires an asset. It thus proposes targets that take into account the net balance sheet position of such transactions. The idea is based on work by the Resolution Foundation (here) and it is a genuine fiscal innovation. There are indeed good reasons for incorporating it into the fiscal framework since the public sector balance sheet is increasingly a tool of macroeconomic management (an approach pioneered by central banks in recent years). 

But just because the plan is interesting and innovative does not mean it is sensible. It is a good old-fashioned soak-the-rich strategy, allied with a plan to tax financial institutions and the corporate sector. Paul Johnson of the well respected Institute for Fiscal Studies said in a radio interview that the manifesto will produce “just about the most punitive corporate tax regime in the world”. It will crucify the City of London, where financial services generate 40% of the surplus on services trade and which in turn offsets a large part (though not all) of the deficit in goods trade. Simply put, the UK will be a far less attractive business location. A combination of this economic plan and Brexit would undo decades of work to improve the UK’s standing as a business-friendly location (although Labour does promise to put any Brexit deal it secures with the EU to a public vote and include an option to remain).

It appears from the latest opinion polls that Labour has little chance of getting sufficiently close to the levers of power to actually implement its plans. But it will move the dial. The electorate has had enough of the austerity forced on them over the last decade and the Conservatives will be forced to respond with a policy which also implies additional public spending. As even the FT’s economics correspondent Chris Giles pointed out in an article today  “taxes cannot be something that other people pay.” If the UK is serious about improving the quality of public services, notably the sacred cow which is the NHS, taxes will have to rise. But everyone has to make some contribution and it is dishonest to suppose that only big companies and the rich should pay the taxes that everyone else benefits from. 

It is right that we have a proper debate about the role of the state in the economy. The benefits of a low tax, light-touch regulation regime worked for a long time but in the wake of 2008 the limits of this system were shown up. It’s just that Labour’s 1970s-style socialism is not the way to go either.