I wasn’t going to bother writing about the Labour Party’s rediscovery of the magic money tree, but it is such a document of deceit, that seems to be deceiving people – given the polls, that I do need to do my bit to debunk it.
You could summarise it by “you can have everything for free because we are going to make the rich pay for it”.
Except it simply won’t work. This is back of a cigarette packet economics, and that is probably offensive to cigarette packets.
Allegedly the manifesto is fully costed, but I could similarly say that my dream apartment in Ibiza is fully costed. Let’s break it down.
The Labour Party say that they are going to raise £19.4bn by increasing corporation tax to 26%. This might sound fine to you – you might think that a higher tax rate means more will be raised in tax.
However, economics does not work like that. After a point, the more you increase the tax rate, the less total tax will be raised.
The theory behind it is called the Laffer Curve, and anyone claiming that they can raise more revenue just because they are putting the tax rate up, is either stupid – or lying to you. It is sometimes hard to work out which one is which in the Labour Party.
Since corporation tax has been reduced in this country – total corporation tax take has increased. Of course, part of that is due to economic growth (in itself partly caused by lower corporation tax), but the Laffer Curve will be playing its part too.
Lower taxes raise more tax.
This is a fundamental understanding of economics that Labour simply doesn’t understand.
They also want to increase income tax on higher earners – you know, the people that open companies, the people that take risks – the people that employ many of you reading this.
Is it a co-incidence that during this period of tax-lowering, that employment is at a record high, or that unemployment is near a record low? And I assume you know that every Labour government in history has left with higher unemployment than it inherited?
There is also this mysterious £6.5bn that Labour are going to get back from tax avoidance. Don’t make me laugh. The idea that John McDonnell is going to magically stop companies from avoiding tax, a ha ha ha ha! In fact, higher corporation tax will likely increase tax avoidance.
This is a completely spurious, nonsensical figure, made up to make the numbers add up. Utter nonsense.
There is more to criticise, including the proposed increases in stamp duty, increasing capital gains tax and reducing corporation tax relief, to name three, that would likely have a negative impact on the economy.
Then there is the pointless renationalisation of railways, water companies etc – for which they haven’t even bothered to cost – seemingly trying to con me and you, that it won’t be paid for by debt, but bonds instead. Bonds are government debt!!!
However, I would support scrapping the married couple allowance which seems an utterly pointless Cameron-esque policy. See, you cannot say I disagree with everything Labour propose!
Then we have the giveaways.
Tuition fees is the big one. So we are going to go back to fully subsidising expensive university tuition for anybody that fancies going to university. Hugely expensive and not a productive use of resources, plus reductive to the quality in education.
Free car parking in hospitals may sound good, but who do you think is going to use that? Nurses and patients? Or the bloke who works in the office next door, the woman doing her shopping, etc? Not exactly well thought out policy.
There is a massive £4bn giveaway on benefits (which sounds on paper like it would cost a hell of a lot more – yet more money to Scotland, Wales and Northern Ireland.
In fact, there are bribes to pretty much anyone that might normally consider voting Labour – public sector workers, the regions, students, layabouts, the unemployed…
It is quite simply a manifesto to bribe people, pretend the rich will pay for it, and land the country in economic ruin.
Of course, many people are too selfish to care, or too short-sighted to understand. Some people will think “oooh more money for me” and not think about the consequences for the economy, and the subsequent consequences when economic ruin returns.
Some people actually blame the Conservative Party for having no choice but to reduce spending – when it was Labour that got us into this mess with their overspending – running significant budget deficits from 2001 to 2007 BEFORE the crash – and therefore being totally unprepared for the recession that they were partly responsible for causing.
Unlike previous elections, I am not campaigning for the Conservative Party. I understand if people don’t want to vote for them and am generally not going to argue against it, except for the enjoyment of an argument.
But I cannot understand why anyone that cares about the future of the economy, the future of their country and their own future in 5-10 years would consider voting Labour.
Shall we try to finish on a positive?
I agree with Labour not setting a pointless arbitrary figure on immigration numbers. I think their proposed Migrant Impact Fund is promising (though pretty sure we already have/had something similar).
I found one policy I agree with! Woohoo! Or is that two?
Overall this is a disastrous manifesto. Never in my life has their been a more appalling, dangerous manifesto produced for the United Kingdom.
This is one dodgy dossier – a dangerous, delusional document of deceit. It must be rejected.
Welp, there we have it ladies and gentlemen – the most egregious misuse of the Laffer curve anyone’s likely to see this year. For those persuaded (misled) by this piece, the Laffer Curve was invented by Art Laffer, the ‘Father of Supply Side Economics’ who came to prominence under Reagan.
As presented, as a symmetrical curve with 50% as its apex, it’s a thought experiment. A bit like Schrodinger’s Cat – there isn’t an actual cat and harrumphing ‘and how are we supposed to feed this so-called cat?’ makes you look a bit like Major Misunderstanding from Viz.
Whilst the Laffer Curve is widely used, different economists have different ideas where the apex is – usually estimates are between 60% and 80% before you start seeing a negative effect on Treasury receipts. Here’s a Laffer Curve from the Wikipedia explanation which gives a more realistic shape https://upload.wikimedia.org/wikipedia/commons/thumb/9/96/LafferCurve.svg/220px-LafferCurve.svg.png This is called Tax Income Elasticity and has a fair amount to do with confidence – i.e. how much effort people put into tax avoidance.
The last two Tory governments, for instance, have absolutely rinsed the top decile i.e. higher rate taxpayers, or how did you put it? Oh yes “higher earners – you know, the people that open companies, the people that take risks – the people that employ many of you reading this.” Here’s a screenshot one of those pesky Treasury documents that keep pissing on the Tory narrative http://imgur.com/JXU2XuD
You might notice while you’re there that the bottom 3 deciles were also shafted because Tories can’t get properly hard unless they’re taking a big, fat shit on the poorest in society. If you want it in more concrete terms, they took £250 off the sort of people who need to use Wonga and gave to people earning £35,000 a year.
Anyway, back to Tax Income Elasticity. Being a rather well-known concept, it is factored in to Labour’s calculations, but the truth is no one knows where the real apex of the curve is because no-one’s pushed it beyond 50%. What happened when it hit 50%? Well, the affected individuals did indeed attempt to squirrel away more of their money – about £5.5 billion. However, the tax increase still raised a further £1.1 billion that wouldn’t have otherwise been available to the Chancellor.
What’s absolutely false is the idea that, say, Google will pay more to the exchequer if you decrease its tax burden by 6%. Lower taxes do not raise more tax. Google will spend money on tax avoidance even if you lowered its tax to 5%. Of course it will. It will never not do that.
So is Labour’s manifesto actually affordable? To be honest its estimates are on the optimistic side but it really depends how the money is raised. Politicians have to announce policies, obviously, but the better way to get money is often what the Tories have been doing for the past seven years i.e. stealth taxes that rinse the rich whilst pretending not to.
So there might actually be more money coming from other sources. The other thing to consider is the timescales of some of these policies. Renationalising the railways, for instance, isn’t proposed to happen all at once, but will take the form of the state competing with private companies as contracts come up. Trying to lump the total cost together is like stating a car’s cost as its forecourt price, plus 20 years of petrol, replacements and repairs. If you want to aggregate costs like that, then also do it for the total costs of privatising the railways – about £11.7 billion over and above what we would have paid to have a more expensive, crapper service.
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