So far we have learnt that Corbyn approves of Hamas, Hezbollah, woman-beating, arson, riots and those who want to honour the IRA.
I am slightly stretching the facts here (although there is a story behind each of these) however I am not fabricating when I emphasise just how much of a danger this man and his cohort of bankruptcy would be to our economy.
Spuriously known as the Shadow Chancellor, McDonnell wants to turn the United Kingdom into a replica of Venezuela.
Allegedly he is going to wipe out the budget deficit like George Osborne, and you won’t have to pay for any of it. In fact, you’ll get more benefits if you fancy it. Only the rich will pay.
It sounds good doesn’t it?
Sadly the economic reality doesn’t add up.
Firstly he wants to put the top rate of tax up to 60%. But this doesn’t actually increase the total tax take. There is an economic factor called the Laffer Curve. I won’t explain it in detail however the fundamental principle is that to a level, the amount of tax you charge will increase the total tax take.
But this doesn’t apply if you tax people, say 100%. If you were taxed 100% would you work? No. Not in the country taxing you 100% you wouldn’t. How about at 90%? No. 80%? No. 70%? Unlikely – a few people probably would. You probably get my drift.
Those that earn the most also have the greatest economic freedom. They can have their tax-base elsewhere – Spain, Germany, America…Cayman Islands. They generally don’t have to pay tax here. Likewise, some of these individuals also employ many people. I’d far rather they pay a lower rate of tax and employ people in this country than risk them moving both their tax and jobs elsewhere.
A recent study I read the summary of, concluded that it was of the opinion that the tax-maximising rate is around 36% in this country. We should in fact be reducing the income tax rate for high earners – and capital gains tax too.
Next up is the so-called Robin Hood tax.
In a fairly similar way, if you add extra taxes to financial transactions, less of them will happen in the UK. Companies that pay tax and employ people that pay tax in this country (admittedly not all of their employees) will move to other countries – Hong Kong, Dubai, etc that are our competitors. Not all companies as there are competitive advantages of being based in the UK, but at least some will. And the more that do move away, the less advantage there is of the remaining companies staying in the cluster of financial firms.
It could also cause much lower volumes of trading, thereby reducing the attractiveness of listing on the FTSE and other UK-based stock exchanges, and the viability of any other financial products impacted by the proposed tax.
Another policy is to aggressively clamp down on tax avoidance and evasion. At least some of the corporate evasion will be tackled by the Google Tax introduced this April gone by the coalition government. We will need to wait to see how effective this is.
However, the £120b that Corbyn claimed in his manifesto to be collectable has been widely ridiculed. A more realistic estimate is thought to be around £20b – and that is according to the source that Corbyn quoted for his £120b (incidentally the guy that he quoted is an absolute penis – a really rude, unpleasant bloke).
And the only way you will collect most of this £20b is through international co-operation – Osborne and co have been trying but it will take years to grope our way along to such an agreement.
Rent controls would be brought in. Again, it all sounds very nice especially if you are poor but they have been proven not to work – including in the United Kingdom. The outcome of rent controls would be less housing available for rent, and also poorer quality housing. If landlords do not make a profit on their property for rent, then either they will not offer them for rent, or at best they will not upkeep them.
The outcome would be more expensive property, vulnerable people evicted and shit housing quality. Is that what you want for this country?
McDonnell also wants to increase corporation tax, red tape on business and trade union power. Again all proven to reduce employment levels. One of the main reasons why companies have employed more people in this country is the low corporation tax. The previously described Laffer curve is in effect here, as is the economic gains from more people being employed.
On the other hand, if you increase red tape and union power, employers will employ less people. Take a look at France for example with their unemployment rate twice of the UK.
If you enact these policies and others I haven’t covered, the result will either be higher borrowing, higher taxes for low and middle earners or some extra austerity (not that we really had any in the first place). Or a combination of all or two of those. All of which disproportionately impact the poor. Not to mention a risk of higher inflation and interest rates along with a likely outcome of higher unemployment.
Further to that, people’s QE is a fundamentally dumb idea that isn’t even backed that many of those who do back Corbynomics – and seems to have been shelved as quickly as a refusal to sign the national anthem, scrapping trident, removing the monarchy, leaving the EU, nationalising the energy companies…and you thought that David Cameron was the king of U-turns…
Anyway, it would undermine the confidence in the ability of the Bank Of England to control inflation, which would lead to higher interest rate along with likely higher inflation and the general economic damage that a lack of control over these aspects would have. See Zimbabwe for an extreme example – Venezuela for a closer comparison.
Though as I mention, it does seem to have been scrapped unless another economic crisis happens. Not that an economic crisis would even happen under a Labour government. Oh no.
All of the above said – not all currently proposed policies are as dangerous as those outlined above. Yes I do actually think there is some merit in some areas. Honestly I do!
There is a case in my view to be able to borrow at the current record-low interest rates to fund a programme of social house-building. I’m not entirely sure whether their proposal for more house-building is funded by more borrowing but I am assuming that is the case.
Not only would it help solve one of the largest problems the United Kingdom faces, but in the long-term it may actually be profitable both through rental yields, future buy-to-let income and the tax paid by the building companies/employees contracted. It would require more immigration to build them though (not that that bothers me) as we are not even vaguely close to creating enough builders to replace those retiring over the next 10 years.
OK that is the only policy item I agree on but at least it is a start.
The rest of the policy proposals are exceptionally dangerous and would risk the United Kingdom becoming a failed socialist economy like Venezuela – or worse – Zimbabwe.
Corbyn & McDonnell aim to bring about the end of capitalism – an imperfect system. But the only system proven to advance mankind.