Teresa May's Tory magic money tree
Mick Brooks writes:
The Institute of Fiscal Studies has set itself up as the oracle on economic policy. David Cameron (former failed Prime Minister) regarded its judgements as “the gold standard.”
In fact the IFS is made up of mainstream economists. Mainstream economics is a faithful reflection of establishment politics. Let us remind ourselves that none of the orthodox economists saw the Great Recession of 2008 coming – the biggest economic cataclysm since the Second World War. In the 2001 issue of the ‘International Journal of Forecasting’, an economist from the International Monetary Fund, Prakash Loungani, published a survey of the accuracy of economic forecasts up to that time. He concluded: “The record of failure to predict recessions is virtually unblemished.” More recently Robert Chote of the Office for Budget Responsibility confirmed to the ‘Financial Times’ that “forecasts are always wrong.” Mainstream economists are incapable of forecasting economic trends, and that includes the IFS! This is because they don’t really understand how the capitalist economy works.
The IFS has come out in support of the Tory programme to replace cooked school lunches with breakfast. In fact the proposal is arithmetically wildly astray. If there were a full take-up of the breakfast, the proposed budget would allow just 6.8p in ingredients for each child! How many Coco Pops is that? Nutritionists and educationalists are strongly against the Tory plan. The IFS is not an expert on these matters. It should listen to the experts, not lord it over them. It is half-witted to think that the Tory breakfast will be as nutritious as the cooked lunch provided to some school children now.
The IFS is correctly scathing about the Tory manifesto. Essentially it offers more of the same failed austerity policies we have had to put up with over the past seven years. Moreover it is completely uncosted. How many pensioners will lose their Winter Fuel Allowance – six million; ten million? The government won’t decide till after the election – if they win. How many will lose their homes on account of the ‘dementia tax’ on social care costs? They’re not saying. None of their proposals are costed. Are we really supposed to vote for this? The IFS indicts the Tories with proposals for, “big cuts in welfare spending” and “another parliament of austerity for the public services, including an incredibly challenging period for the NHS and cuts to per pupil funding in schools.”
Presumably in the interest of ‘balance’, after rubbishing the Tory manifesto, the IFS even-handedly slags off Labour’s manifesto ‘For the many, not the few’:
“The shame of the two big parties’ manifestos is that neither sets out an honest set of choices. Neither addresses the long term challenges we face. For Labour we can have pretty much everything – free higher education, free childcare, more spending on pay, health, infrastructure. And the pretence is that it can all be funded by faceless corporations and ‘the rich’.”
This comparison is outrageous. There is a fundamental difference between the parties. Labour’s manifesto is carefully costed; the Tories’ is pie in the sky. In addition to the 128 page document Labour has produced an annexe called ‘Funding Britain’s Future’ which weighs up the cost of the £48.6bn in promises and shows exactly how they will be paid for.
For instance the cost of childcare subsidies is £4.8bn. This is the figure Jeremy Corbyn was unable to remember when he was called out on ‘Women’ Hour’ on May 30th. OK, he hasn’t got an infallible memory, but the commitment to policy reform is there and is fully costed. What’s the problem?
Labour’s commitment is that £48.6bn will be raised on taxes on corporations and the rich to match the spending commitments, and 95% of us won’t pay a penny more. The IFS queries this:
“That is an overestimate. They certainly shouldn’t plan on their stated tax increases raising more than £40 billion in the short run, and more likely than not they would raise less than that. They would certainly raise considerably less in the longer term.”
Where does the IFS get the ‘only £40bn’ from? It doesn’t say. Unlike ‘Funding Britain’s Future’ which is painstakingly referenced, the IFS comes up with a pure assertion – a guess.
We have seen a huge increase in inequality in Britain since 1979, the year Thatcher was elected. She inherited a top rate of income tax of 83%. The following year she cut it to 60%. Successive Tory governments favouring the rich have edged the top rate down to 45%. Why should it be impossible for a Labour government to raise it to 50p, as Labour’s manifesto proposes?
Similarly with corporation tax: in 2010 it stood at 28%. The Tories have cut it to 19% and it is due to fall further to 17% by 2020. Why shouldn’t Labour put it back up to 26%?
The IFS presumably argues that higher tax rates will act as a disincentive, so rich people won’t work as hard and corporations won’t invest if they are taxed more. Hang on. Did anyone notice the investment surge when corporation tax was cut by the Tories? Did the economy get a boost as rich people worked harder when the top rate of income tax was cut? No, these were just gifts by the Tories to the rich and their big business backers.
The overall result on tax cuts for the rich and big business would be a race to the bottom. US corporation tax is at 35% (though there are loopholes). Donald Trump wants to cut it to 15%. Would Tory Britain go lower and load the whole burden of taxation on to the poor and the working class?
In the longer term, the IFS argues, rich people will move abroad to avoid paying tax. So, instead of getting £6.4bn, Labour might only get £4.5bn, or £2.5bn, or nothing. Where do they get these figures from? They made them up. They are Tory propaganda masquerading as economic analysis.
Shadow Chancellor John McDonnell admits there is uncertainty in the exact take from the programme, “which is why we have allowed headroom” (£3bn) “in our plans.” The IFS argues that the rich have a better chance to avoid tax. That is true. The difference is that a Corbyn-led Labour government would be on the side of ordinary working people, not servants of the tax-dodging rich and powerful like the Tories. As John McDonnell said of how we extract from the rich what they owe:
“We know it is harder than squeezing ordinary households. A substantial tax avoidance industry has grown up to help those mega-rich and corporations that want to duck their tax obligations to society, as the Panama Papers and other leaks have exposed. So it may be easier for the Tories to tax ordinary working people through stealth taxes, like the shocking rise in cremation and burial fees, and let their big business backers off the hook, but Labour won’t duck out of taking on the tax dodgers.”
We’ll take them on.
Then the IFS comes up with a very old anti-socialist argument from orthodox economics about taxation on companies. It’s really a tax on our pensions invested in the corporate sector, so we’d be cutting off our nose to spite our face. In other words really we’re all capitalists! This is rubbish. There is no clear link between company taxation and the level of share prices. Economists, including those at the IFS, can’t help themselves. Every phoney argument shows them to be lackeys of the rich and powerful.
The IFS critiques Labour’s plans to protect the income of pensioners by keeping the triple lock, not means testing the winter fuel allowance and maintaining the retirement age at 66. They complain that this could cost up to £50bn in 50 years’ time. Excuse me. If the Tories are still in power in 50 years’ time the National Health Service, social care and any trace of the welfare state will have gone up in smoke long ago. The urgent need is to stop them now – next week in the general election!
Then the IFS moves on to criticise Labour’s fantastic pledge to raise the minimum wage to £10 per hour by 2020, lifting millions out of in-work poverty in the process. It’ll cause a loss of jobs, the IFS asserts. We’ve been here before. When Labour originally proposed a national minimum wage the then Tory leader Michael Howard, speaking from the heights of economic orthodoxy, described it as “a piece of staggering economic illiteracy.” He predicted it would cause “between one and two million more unemployed.” It didn’t happen. He was only between one and two million out in his prediction!
Labour is accused of dishonesty. In fact the IFS is dishonest, rubbishing our programme with wild assertions and no evidence, from the discredited premises of orthodox economics while pretending to be impartial. Labour is campaigning for hope and a better future for Britain. Support them with all your might next week.
Labour versus the Tories: costing and credibility
Labour’s 2017 Election Manifesto has been widely welcomed. It can fairly be said that it contains something for pretty well everyone. The pledges in ‘For the Many, Not the Few’ are carefully costed. They come to £48.6bn. The 128 page Manifesto is accompanied by an 8-page document called ‘Funding Britain’s Future’ (link below), fully referenced. This document costs every single item in the Manifesto. The total cost is £48.6bn. The figures add up. Labour showed that 95% of the population would not pay an extra penny. Only the rich would contribute a little more.
Immediately the Tories and their press hirelings started banging the drum about Labour bankrupting Britain. Unnamed ‘experts’ were adduced in the Tory press to rubbish Labour’s arithmetic, saying the reforms will cost more money. The ‘Daily Mail’ contented itself with vague assertions that the programme will cost more than Labour claims – with no proof. The ‘Sun’ went further, declaring that it would lead to £30bn more borrowing. Not a shred of evidence was presented to prove this point.
What the Tories seem to have homed in on were the proposals for nationalisation and for investment in the Manifesto. We are told that Labour proposes to take over the railways, energy and water. All these proposals are very popular, including among Tory voters. It is widely recognised that the privatised utilities have run amok, ripping off consumers and garnering monopoly profits. Actually full nationalisation is not on the table.
Labour proposes to take over the franchises of the Train Operating Companies as they expire. What is the cost to the taxpayer? Zilch, nothing, not a sausage. This is what happened after private owners National Express walked away from the London to Edinburgh franchise. The publicly owned East Coast franchise then took over and delivered £1bn back to taxpayers. The Tories couldn’t abide this. They gave the franchise to Virgin and Stagecoach, so the rip-offs could resume.
As for the proposals on energy, the Manifesto is much more cautious in its proposals. Having made the points about millions living in fuel poverty thanks to privatisation of gas and electricity the Manifesto begins, Labour will:
“Regain control of energy supply networks through the alteration of operator license conditions, and transition to a publicly owned, decentralised energy system.”
Labour goes on to propose:
“Supporting the creation of publicly owned, locally accountable energy companies and co-operatives to rival existing private energy suppliers.”
Now, whatever you think of that, it’s not exactly a call to storm the Winter Palace. It’s a cautious, conditional approach to a real problem, in what even Theresa May has described as a ‘broken’ market.
Similarly with the supply of water, life’s prime want, and the postal service, publicly owned since 1516. Labour pledges to:
- “Replace our dysfunctional water system with a network of regional publicly-owned water companies.
- Reverse the privatisation of Royal Mail at the earliest opportunity.”
None of this is to happen on day one of a Labour government. Yet presumably these tentative proposals are what cause Tory reps to shriek about a £58bn tax black hole in Labour’s Manifesto. Where do they get the £58bn figure from? They don’t say. They made it up.
The figure first made the light of day in a car crash interview Chancellor Philip Hammond had on the ‘Today’ radio programme on May 17th. He was asked how much theHS2 rail programme would cost. His guess, for that is what it was, was 63% out. This is a bit of a worry, as Hammond is supposed to be running the economy and the HS2 project. Then he unleashed the £58bn scare story. Jon Humphreys reminded Hammond that he was confusing and mixing up current and capital spending. Again this is even more of a worry as this bloke is also supposed to be an accountant. His goofs would shame an Accounts Clerk in their first week of college.
Labour is committed to subsidise all current spending from current taxation. That is clearly set out in ‘Funding Britain’s Future’: “Labour will therefore set the target of eliminating the government’s deficit on day-to-day spending within five years.” So Labour will eventually pay down the deficit in government spending they will have inherited from the Tories.
Labour will borrow to invest. Even the International Monetary Fund thinks the present government is bonkers for not investing in capital items which will make Britain richer in the future now that interest rates are effectively negative. This is free money and that is exactly what Labour is proposing to do.
When the Tories launched their manifesto, there was no accompanying booklet like ‘Funding Britain’s Future’. Nothing has been costed. John McDonnell reckons there are 60 uncosted promises in their manifesto. This is pathetic, an insult to the electorate.he worst example of this is probably the Tory proposals for the ‘reform’ of social care. The National Pensioners’ Convention calls the proposals, a ‘Frankenstein's monster’ of bolted-together bad policies that will damage pensioners and place an unfair burden on their families. The NPF representative explained:
“Over 500,000 people receive care at home at the moment. Under the current system, the value of their property is not taken into account, just their income and savings, but under the new Tory plan the property value will count too... Now everyone who owns a property will pay in full. That's a huge change and it will affect a significant proportion of those 500,000 people - at least half, so a minimum of 250,000 older people.”
Most homes in the UK in 2017 cost far more than the £100,000 threshold, so homes will have to go to pay care bills. The NPF knows about these things, and it is worried. By contrast the Tory press is lying to pensioners about the effect the proposed changes will have on them.
The ‘Daily Express’ rushes to reassure pensioners about the Tory proposals, calling them ‘fairer’. This from a paper whose commitment to telling the truth has run to headlines like ‘Diana: MI6 had tunnel murder plan, says spy’. Likewise the ‘Daily Mail’ headlines ‘You Won’t Have to Sell Home to Pay for Care’, the direct opposite of the truth.
As part of their triple whammy against pensioners, along with abolishing the triple lock, the Tories propose to get rid of the universal winter fuel allowance. Who will still get it in a means tested system? They can’t say. One proposal is that only the poorest pensioners entitled to pension credit will receive the winter fuel allowance. The trouble with this is that one million pensioners on less than £160 for a single person don’t claim pension credit? Why not? Have you seen the length of the form they have to fill in? That shows in a nutshell why universal benefits work and means testing deprives people of what they’re entitled to.
The Tory proposals are dishonest and shot through with holes. Labour’s reforms are carefully costed and credible.
As John McDonnell commented, “She’s having a blank cheque. You would not let someone go off to the supermarket with a blank cheque, take things off the shelves and not tell you how much they’re going to pay for.”
Labour’s costings in full can be found here.