The spending side of Corbynomics – set out in his manifesto The Economy in 2020 – with its promises of renationalisation of the railways, the energy companies and even the banking and financial services sectors, has received deserved scrutiny. Less so the question where the money to fund it has come from.
Such attention as there has been has focused on so-called ‘people’s quantitative easing’ which Robert Peston identified as carrying the possibility of ‘devastatingly inflationary consequences’ in a hardhitting blogpost of yesterday.
But Corbynomics also relies on two magic money trees – the ‘tax gap’ (the difference between the amount of tax HMRC calculates it should collect and the actual total) and so-called ‘corporate welfare’ (such as tax breaks and other favourable treatment of companies). And these are no saplings: the tax gap is said by his manifesto to generate £120bn per annum and corporate welfare a further £93bn. Add them together and you have generated revenues of over 31 per cent of all central government spending. Without needing to save a single penny.
Of course, those numbers cannot be right. But they are seductive – for those of a certain mindset – and their technical nature has rendered a rebuttal elusive.
Tax QC Jolyon Maugham, who advised the last Labour opposition on tax policy, has taken up the challenge in a series of pieces published on his blog, Waiting for Godot: Musings on Tax.
In a detailed takedown of the notion of corporate welfare, Maugham argues that it drags the left to a fairytale land of government in crippled obeisance to mendacious business’ and on analysis does little more than ‘fuel a prejudice searching for a justification.’
In his first piece on the tax gap he sets out the evidence that the size of the tax gap is not £120bn, but rather £34bn. This led Richard Murphy, Corbyn’s principal economic adviser, to admit to what the Telegraph described as a £100bn black hole in Corbyn’s tax plans. But even the £20bn residuum, Maugham points out in his second tax gap piece, is uncollectable.
While the debate on the leadership feels theoretical, Corbynomics is about to come under serious scrutiny. From one man’s blog, Fleet Street has pounced. Pieces in the broadsheets – in the Telegraph, Economist, Financial Times, Times – will soon break out into the redtops, with disastrous effects for Labour. David Aaronovitch has described them as a ‘crushing repudiation of Corbynite magical thinking on the economy.’
Progress, of course, has long argued that Labour must work to regain its reputation for economic competence. Corbynomics provides easy solutions, but if life were this easy then these solutions would already have been followed. Comrades, it is time to fell some towering magical money trees.
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Richard Angell is director of Progress. He tweets @RichardAngell
Blimey, even the ‘Left – Watch Conservative’ site wouldn’t cite Arronovitch, The Times, Economist and the Telegragh as such authorities as this article does. I have previously felt that the association of Progress with Tory policies was most unfair – but I can now see at least where the idea comes from. The case should surely be made without reference to such neoliberal oriented sources (and often quite commonly poorly sourced). Unless of course I am wrong and the critics are right. You do really believe in this stuff
Actually, in his crisply presented paper on economic policy (‘The
Economy in 2020’) Jeremy Corbyn comes tantalisingly close to a correct analysis
of the country’s situation and makes some sensible suggestions for addressing
its problems. Unfortunately, despite acknowledging that most people pay taxes linked to
their employment through PAYE (so that ‘income tax and national insurance’ are
removed before employees see them) Jeremy Corbyn fails to draw the logical
inference that these payments are more truly to be regarded as employment
transaction taxes, paid by employers as incidental to the provision of the
take-home pay required to attract workers. This is unfortunate because if he
did so it would create a more effective platform for the argument which he
rightly makes that such taxes ought to be increased as the most effective
measure to address the persistent UK budget deficit. You can find the argument made at http://stephensays.stparsons.co.uk/#post11
Any ginger group who uses rightwing Conservative tabloid phraseology to defend its rather feeble grasp of elementary economics (“magic money tree” and “lack of/poverty of aspiration”) needs to consider whether its natural home is actually within a modern social democratic setting.
IT’S TRUST. STUPID
As Dave has just said, Corbyn gets his support because he’s clear and honest. It’s not because he’s left wing. Although, I don’t agree with many of Corby’s policies, I will probably vote for him.
Perhaps we can then begin to put Blair’s Acadamies and Brown’s PFIs behind us.
On housing, our Labour government continued Thatcher’s transfetr of wealth to house owners and that meant from the poor.
On education our Labour government kept up the middle class dream that if we gave everyone degrees we would get all the best jobs in the world. (so it seems does Corbyn).
On the most dangerous of issues, climate change, our Labour government ejected Michael Meacher because he had some idea of what was happening. And what happend to Colin Challen?
Corbyn still believes in growth at a time when we must cut consumption but he is the only one that would place the burden in the right place… on the rich and affluent.
That means most of us reading this.
P.S.The fantasy green growth: http://ow.ly/QTCYE
The UK corporation tax is 19%! Compare that to Germany: 29.65%, France: 33.33%, USA: 40%, Italy: 27.5%. How is it a ‘magical money tree’ to point out 19% is very low in comparison to similar countries? Now I hear Yvette Cooper intends to support Tory plans to reduce it even further if she were made leader. How can we deal with the deficit without emulating Tory cuts without raising taxes? And, indeed, how is it in keeping with Labour values of internationalism and solidarity that we join the Tories in a race to the bottom and undercut our neighbours?
Currently, more than 97% of all the money in the economy
exists as bank deposits – and banks create these deposits simply by
making loans. Every time someone takes out a loan, new money is created and then lent to the borrower with interest as debt. If this isn’t a ‘magic money tree’ then I would like to know what is. If Corbyn is seeking to change this by “renationalising EVEN (my emphasis – as though this is such a preposterous idea) the banking and financial services sectors”, then in my view this can only be a good thing.
“Magic money trees?” This is rather a silly phrase that betrays a lack of lateral thinking. We can’t understand Govt economics on this basis. Mrs Thatcher was fond of comparing Govt to her father’s retail business. It leads to the wrong answers.
We all need to be thinking about the nature of economics from a government’s POV. It’s not the same as our POV! Once we accept that it’s all easy enough.
Say an government issues a new currency. Maybe the Greek government. They issue 100 million currency units into the economy to pay their workers and other expenses. Where does it come from? Nowhere. Its just created in a computer or printed on a press.
In the first year the govt receives back 60 million in taxes. .So the Government now have a debt of 40 million. Where has it gone? Well the people have 30 million in their wallets and piggy banks. They’ve bought some imports from Germany so the Germans have 10 million in their central bank.
So Govt Debts = Assets(Monetary) of Domestic Sector + Assets(Monetary) of Overseas Sector.
No Govt debts means no-one else has any assets! The Govt has to be in debt!
It really is that simple!