Tory retreats are welcome at a time when the British economy needs further austerity like a hole in the head, writes Ken Livingstone.
Tory Chancellor George Osborne has announced a “5-point plan” following the EU referendum, with the centrepiece being an intention to cut the corporation tax rate to 15 per cent.
Osborne justifies this decision by claiming it will attract extra investment and thereby help to offset the shock of the Brexit referendum outcome. In reality, it will do nothing of the sort.
Despite falling corporate tax rates UK investment has shrunk in both of the last two quarters even with record profits and British companies sitting on a £700bn cash pile.
The Office for Budget Responsibility has noted that previous cuts to corporation tax have not resulted in increasing investment and far from helping to address the problem of underinvestment in our economy — as noted by a range of experts and international institutions including the IMF and OECD — the effect of this proposed tax cut would be to further reduce the funds available for public sector investment. This is particularly concerning in that private-sector investment was already in recession (two quarters of contraction) before the vote.
As John McDonnell MP put it, “Instead of turning the whole country into a giant tax haven and playground for the ultra-rich, the Chancellor needs to get a grip on the real problems by reversing planned cuts to government investment and bringing forward shovel-ready projects for those areas worst affected by the investment slump and the shock of Brexit.”
Labour’s leadership is 100 per cent right to argue that, in fact, emergency measures to boost investment are what is needed in the wake of the Brexit vote.
If the corporation tax rate had been maintained at 30 per cent the revenues on the level of profits recorded in 2015 would have been £67.3 billion, or £22.4bn more than actually recorded.
These revenues could have been used to fund extensive public-sector investment programmes to modernise our economy, for example in the green jobs of the future or in a much needed high-speed broadband revolution. These would generate high-skilled and highly paid jobs, boosting the level of economic activity and productivity.
Indeed, some of the projects themselves could be taken from the government’s own National Infrastructure Plan of which one economist recently said there has been so much publicity and so little activity.
Indeed, a new report released on the government’s Major Projects Portfolio (GMPP) highlights how the progress on some of the Tory government’s key projects is slipping.
Almost a third of the projects in the GMPP (32 per cent) are rated “red” or “amber/red.” This compares with 18 per cent three years ago.
That means that for 44 major government projects successful delivery of the project either “appears to be unachievable” (red) or “is in doubt, with major risks or issues apparent in a number of key areas” (amber/red).
This is unforgiveable in the current climate, when the government should be bringing investment projects forward. All previous experience shows that those parts of the private sector benefiting from increased public-sector investment respond with increased investment of their own.
In this context, the only significant, national political force which understands the need for increased public sector investment in response to the Brexit vote is Labour’s front bench under Jeremy Corbyn and shadow chancellor McDonnell.
Since the referendum, despite the attempts of some MPs to undermine Corbyn and force him out of the leadership, the front bench has done a great job in exposing the Tories’ plans for further damaging cuts and in particular Osborne’s totally inadequate response at a time of enormous uncertainty.
As McDonnell has pointed out, “the shock of the Leave vote has been worsened by the shaky foundations of our economy.”
Under Osborne’s ideologically driven austerity, productivity growth has stalled since 2007 and wage growth remains low.
Despite Osborne’s targets and wave after wave of cuts that have devastated our communities, the current account deficit remains at near-record levels, while borrowing by government and households is also rising.
Labour was quite right within this context to argue that the fiscal rule introduced by George Osborne last autumn had no sound basis in economics.
Now, in the aftermath of the Brexit vote and the unforgiveable lack of an adequate plan to deal with the shocks to the economy, Osborne has now been forced to abandon this rule and his fiscal surplus target. Thankfully, he has also abandoned his proposals — articulated during the EU referendum campaign — for an emergency budget of further cuts and tax rises on ordinary people, although he has hinted this is the course of action his successor may take.
Labour pressure, due to the strong stance taken by Corbyn, McDonnell and others, has helped force both these retreats, which are welcome at a time when the British economy needs further austerity like a hole in the head.
But this is not enough, and there is a clear lack of clarity from the Tories which is making their lack of planning for the possibility of a Leave vote do even more damage to our economy.
Despite all the difficulties they have faced, the new shadow cabinet team has been doing a great job in consistently opposing — and exposing — the ongoing damage the Conservatives’ austerity policies are doing both to our economy and society.
Speaking at the Local Government Association this week, McDonnell argued that “Labour will continue to press for proper funding and resources for our local authorities,” which have been bearing much of the brunt of the cuts.
Diane Abbott MP, Labour’s new shadow health secretary, responding to the government’s decision to impose the new junior doctors’ contract, stood up for our NHS and its staff saying that “imposing the junior doctors contract is inherently unfair” and rightly demanded that “the government… reconsider their position and initiate meaningful talks.”
This is being linked to a new economic agenda which understands the importance of infrastructure in ways the electorate can understand. Andy McDonald MP, Labour’s new shadow transport secretary, for example, this week commented on the crisis facing Southern Trains by arguing that: “For the sake of passengers, the government needs to take immediate action, including considering stripping Govia Thameslink Railway of its franchise and running the services in the public sector.”
Not only is opposing austerity correct and popular but — if Corbyn is allowed to get on with the job of leading Labour — it is also an approach underpinned by a credible and coherent economic alternative that means we can win electorally.
Uniting behind Labour’s leadership to this end must be our priority now.
First published in the Morning Star