Can John McDonnell beat the Tories on economic credibility?

By Benjamin Jenkins

At the Labour Party Conference this week John McDonnell is keen to demonstrate Labour’s economic credibility and the alternatives the opposition would offer in power.

The big headlines so far have been about his vow to renationalise rail, water, Royal Mail and energy industries with “market value determined by parliament”. – In opinion polls these are popular policies with the nation and would bring the UK back into line with many European countries, some of whose nationalised utilities make a healthy profit out of British consumers.

“Rail, water, energy, Royal Mail – we’re taking them back,” he told Labour delegates in Brighton.

But the Shadow Chancellor of the Exchequer has some other big tricks up his sleevve.

To a very warm response at the Brighton conference, McDonnell vowed to scrap one of New Labour’s most hated schemes – Private Finance Initiative, brought in by Gordon Brown and expanded by successive Tory governments. And he vowed to bring PFI schemes that rip off taxpayers “back in house.”

“The scandal of the Private Finance Initiative has resulted in huge long-term costs for taxpayers while providing enormous profits for some companies,” explained the Shadow Chancellor.

“Over the next few decades, nearly £200bn is scheduled to be paid out of public sector budgets in PFI deals. In the NHS alone, £831m in pre-tax profits have been made over the past six years.

And he added: “Never again will this waste of taxpayer money be used to subsidise the profits of shareholders, often based in offshore tax havens.”

John McDonnell has also been keen to outline what he regards to be a pragmatic strategy for Brexit, “putting jobs and the economy first.” Whether it is realistic that a more protective form of freedom of movement, which precludes undercutting of British wages can be negotiated to keep the UK having access to the single market and customs union remains to be seen.

Shadow Chancellor John Mcdonnell on Europe

Shadow Chancellor John Mcdonnell outlines Labour's position on Europe ahead of the Labour Party Conference in Brighton – what do you think of what he told Robert Preston today – and how do the main parties compare on Brexit?

Posted by The London Economic on Sunday, 24 September 2017

Most Labour Party members and MP’s such as Chuka Umunna would prefer a commitment to stay within the single market and customs union, even if that entails keeping freedom of movement. And many insist there is no proof that freedom of movement is responsible for wage deflation, with political policies such as austerity and weakening the unions being the real culprits.

And it’s on austerity – a policy that seems to be the only idea the Conservative party have left – that John McDonnell is more in tune both with the growing consensus of economists and a public that has now had enough of punishing cuts and the cost of living crisis they have led to.

In his first budget in 2010, Chancellor of the Exchequer George Osborne vowed to “set the course for a balanced budget and falling national debt by the end of this Parliament”. Yet within five years national debt was UP 80% and Osborne had borrowed more in five years than his predecessor had over a whole decade of building hospitals and schools and bailing the banks out after a global crash.

According to Simon Wren-Lewis, Professor of Economic Policy at Oxford University, the cost of austerity in delaying the UK economic recovery is about £100 billion. And he makes the important point: “if any other government department had wasted that amount, there would be a huge outcry from the media.”

The Conservatives opted for a strategy instead that forced four million children into poverty according to Oxfam, forced public sector workers to food banks and payday loans to make ends meet, stripped disabled people of vital support, and has led to an estimated 30,000 early deaths of elderly and infirm people due to social care and NHS cuts.

Yet our debt went up from 69% under Labour in 2010 – just after the global financial crisis -to 92% in 2016 under the Tories. And this while the Government has recovered all but 5%, £58 billion, of the £1.2 trillion bailout to keep the banks afloat during the credit crunch and recession.

So where is the outcry from the media that Professor Wren-Lewis calls for? Instead there is a gentle mocking of John McDonnell and Jeremy Corbyn’s “left wing” economic policies, even though they would bring the UK into line with centre right countries such as Germany.

So far John McDonnell has responded with his customary patient and good-humoured nature in interviews, outlying an alternative to austerity that involves the investment in education, people, infrastructure, the NHS, regions outside London, all of which have been dangerously neglected in the past seven years.

At the Labour Party Conference he told delegates that growing inequality would be readdressed with a “real living wage of £10 an hour” would be accompanied by “pay ratios at the top”.

And there is a feeling this week in Brighton that the public is beginning to see though the Tory lie that a nation’s economy operates just like a family budget and that the Labour Party would be “maxing out the credit card.”

When a government  invests in the economy, the money invested circulates, and recirculates again and again. So not only does it create jobs once: the investment creates jobs multiple times. – While educating a generation to compete on the global market – which will be very important post-Brexit.

Comparing how the British economy has fared compared to other comparable countries since the global banking crisis of 2008, it has become painfully clear that with investment into economies comes growth, fiscal revenues increase, and demands for the government to help the poor and needy go down.

Bellowing “magic money tree” won’t wash for Theresa May and her front bench next week if John McDonnell outlines carefully thought-out proposals for a national investment bank; rebalancing of the country’s infrastructure; fair taxes and ensuring that corporations pay what they should to help fund and strengthen a UK economy which is right now in serious danger of stagnation.

Ahead of us lies an increasing danger that the squeeze on our incomes of the past few years has led to a personal borrowing crisis that threatens to trigger another catastrophic debt-based recession, to which the Tories have provided no answer. And here McDonnell is offering a truly brilliant solution –  a new cap on excessive interest payments on credit card debt – a signature policy dubbed the  “McDonnell amendment”.

Three million Brits are in persistent debt, paying around £2.50 for every £1 borrowed. McDonnell wants this capped at £1 or 100% of the borrowed amount.

With Theresa May already having resorted to Labour- originated policies such as living wage, energy caps, crackdowns on executive pay, it will be interesting to see if the “McDonnell amendment” becomes a Theresa May one if she lasts long enough.

If we are on the brink of another debt crisis, it is now the Labour party attacking the Conservatives on economic mismanagement, rather than the other way round. And with the pound plunging nearly every time Theresa May delivers an important speech and the UK’s debt rating downgraded to its lowest level in history, Labour have plenty of ammunition right now.

And after three elections, the Conservative Party can no longer blame the Labour Party for the global banking crisis of 2008, for the state of the UK economy, and a globally discredited, bankrupt policy of austerity.

Tellingly, one detail TV interviewers neglect to mention is that John McDonnell is the only front bench MP on both sides of the house who has prior experience of balancing the budget in a major public organisation. He was responsible for controlling the purse strings at the predecessor of the London Assembly – the Greater London Council (GLC) brought in budgets on budget every year.

So McDonnell’s big solutions to some hefty problems may well prove stark contrast to a Conservative Government which appears out of ideas, obsessed with in-fighting over Brexit, and whose threadbare majority relies on a coalition with the DUP who despite a £1billion sweetener now refuse to vote with the government to punish nurses and medics any further.

And finally – a reminder to cut out and keep if anyone trots out the line about Gordon Brown crashing the global economy by building too many schools and hospitals, and hiring too many teachers and nurses; the line that Labour borrows, but the Tories “balance the books.”

In actual fact, Labour invariably borrows less than the Conservatives. The data always shows that. Not just that, Labour has always repaid debt more often than the Conservatives, and has always repaid more debt, on average. The trend does not vary however you do the data. See this comparison from Tax Research UK for instance:

(c) Tax Research UK

 

WATCH: John McDonnell’s full speech to the Labour Party Conference: 

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