Many people across Britain will have felt buoyed and excited by the Labour manifesto.
For the first time in modern memory we have a positive, optimistic set of pledges that promise to solve the issues limiting our opportunities and stifling our potential. We are presented with a cadre of promises that will protect our public services while enabling all people, regardless of wealth or privilege, to achieve, get on in life, and be fairly rewarded for their hard work.
But do they make economic sense?
Labour is pledging billions of pounds for, among other things, schools, university tuition fees and a National Investment Bank to drive forward major infrastructure projects – something that is supported by eminent economists.
The Conservatives and the right-wing press will claim these policies will bankrupt the country. In fact, it is quite the opposite. By investing in productivity through skills and infrastructure a Labour Government will enable enterprise and innovation and increase productivity. The result? Far stronger economic growth.
One only needs to note the example of energy price caps to see through the duplicity of the right-wing press and understand that they cannot be trusted to assess policies fairly. When Ed Miliband proposed energy price caps they denounced it as Marxist chaos. Now that Theresa May has proposed the same policy they laud it as saving money for working families. When they try and undermine sensible arguments about investing in productivity and economic growth they must be ignored.
The thinking behind many of Labour’s spending plans can be explained using the example of a small business as an analogy for the economy. For the small business owner it would be unwise to borrow money and spend beyond their means for day-to-day costs – the cost of running a van, for example. If, however, the business owner decides that a brand new piece of high tech equipment would make their processes more efficient then they might feel inclined to borrow money to invest in that piece of equipment. Having it would allow them to be more efficient, more productive and ultimately grow the business. Borrowing to invest in this fashion would not be seen as reckless – rather, a sensible business decision bringing long-term benefits.
Labour is proposing something very similar for the country’s economy. By investing in education, skills and infrastructure the party would be investing in improved efficiency, productivity and ultimately growth.
Businesses choose to invest in, and locate to, places with excellent infrastructure and highly skilled workers. The Tories and their supporters in the media claim that increasing corporation tax – one of the important ways Labour is ensuring its pledges can be paid for – will deter investment and lead to companies abandoning Britain.
Again, this is a total red herring. Companies invest in places with the infrastructure and workers they need to be productive and grow. A couple of percentage points on the rate of corporation tax will not force a company to up sticks. Take the examples of Germany and Japan. Their corporation tax rates are 30% but they have no trouble attracting companies and investors. Labour’s proposals would gradually increase the corporation tax to just 26% while investing in the infrastructure and skills that attract and ultimately benefit companies.
In terms of productivity Britain is flat lining and being outperformed by rivals including Germany, France, Italy and the USA. This is, in large part, due to a lack of investment and the high proportion of newly created jobs being low-skill, low-wage level. Only ambitious plans for major investment in our economy, its infrastructure and its workers – the wealth creators – will allow Britain to compete with her rivals.
The manifesto proposals are not the result of uncosted idealism. Even from a purely hard-headed economic perspective – ignoring for a moment the benefits they would bring for social justice and equality of opportunity – they are common sense policies.
Its pledges, in particular regarding skills and infrastructure, make it an incredibly pro-business manifesto. Companies which complain about the quality of school leavers and graduates will pay a little more and benefit from the subsequent investments being made in education. Companies desiring improvements to road and rail connectivity and superfast broadband will benefit from the National Investment Bank’s interventions.
Only the Labour party wants to invest in stronger productivity, improved economic growth, and an economy where workers are remunerated fairly for their work.
Only the Labour party wants to build a modern economy that will withstand the impact of Brexit and be competitive for decades to come.