Sunday, September 23, 2018
Combine Labour and Brexit for the stuff of nightmares
Posted by David Smith at 09:00 AM


My regular column is available to subscribers on This is an excerpt.

The Labour party that gathers for its annual conference in Liverpool this weekend has a spring in its step. Across the aisle in the House of Commons Labour MPs see a Tory party tearing itself apart over Brexit. Oppositions are there to pick up the pieces when that happens and Labour is ready to do so.

It is not clear where Theresa May goes next, after the drubbing her Chequers proposals received at the EU summit in Salzburg, but when she says that it is a choice between her deal (bravely assuming it is not already a dead parrot) and no deal, Labour would beg to differ.

They would see a general election as the obvious course if the prime minister goes down to defeat either in Europe or in parliament, which is one reason, apart from Jeremy Corbyn’s longstanding Euroscepticism, Labour has not moved behind a second referendum.

Though under a different leader Labour could expect to be well ahead in the polls, probably with the kind of huge lead Tony Blair enjoyed over John Major in the run-up to the 1997 election, Corbyn will see the neck-and-neck position it enjoys, after a summer dominated by rows over antisemitism, as a good base camp from which to launch an assault on the summit.

Many things have been going Labour’s way. There is nothing better for the main opposition party than a government in a state of extreme disarray; the Tory government has lost seven cabinet ministers since November and there is open revolt among some of its backbenchers.

The report of the left-leaning Institute for Public Policy Research’s Commission on Economic Justice, which in many ways could be seen as a blueprint for a future Labour government, was put together not just by Justin Welby, the Archbishop of Canterbury, but among the other commissioners were Dame Helena Morrissey of Legal and General Investment Management, Dominic Barton, McKinsey’s global managing partner and Catherine McGuinness, a senior committee chairman on the City of London Corporation.

The 10th anniversary of the Lehman Brothers collapse has given Labour a chance to revisit the excesses that led to the financial crisis. As John McDonnell, the shadow chancellor, put it in his recent speech to the Trades Union Congress: “Let’s be clear. The financial crash was caused by the deregulation of the banking system, the finance sector and greed. It turned the City into a giant casino. “

The responses to the crisis, such as quantitative easing, he went on to say, meant that the “reckless speculators” who caused it ended up benefiting from it. Meanwhile, ordinary folk were made to suffer from the “grinding austerity” impose by the Tory-led government elected in 2010.

Labour is on a roll in another respect. If last year’s general election was a test of whether voters, fed up with austerity and a 10-year squeeze on real wages, would vote for a left-wing party, Labour passed with flying colours. Its share of the vote, 40%, was up by a third on 2015, when Ed Miliband was leader and the Tories won an overall majority. The number of votes cast for Labour, 12.9m, was only exceeded once by Blair in his three victories, way back in 1997.

So the prospect of a Corbyn-led Labour government should be taken seriously, possibly quite soon. The question is why people, particularly business people, are not more worried about it. In a piece in this section last Sunday, it was hard to detect much concern. Lord O’Neill, who as Jim O’Neill came up with the idea of the Bric economies, was a minister in George Osborne’s Treasury. But Labour, he said, had “captured the mood of the times”, and added: “I find myself struggling to be that scared by the prospect of a Corbyn government.”

It is not an unusual position. Business people I speak to have either not focused on the possibility of a Labour government, think it will never happen, or do not know what it might mean. I understand that. Brexit is taking up so much bandwidth, in business and in government, that it is unsurprising that attention is elsewhere. Most business people are good at chewing gum and walking at the same time but they will only focus on the prospect of a Labour government when it appears to be looming.

Brexit, however, means they should focus on it. Labour’s 2017 plan was for a 45% income tax rate to kick in at £80,000, with a 50% rate at £123,000. The Institute for Fiscal Studies pointed out that this, in combination with National Insurance contributions, would mean a marginal rate of tax of 53% for those earning between £80,000 and £100,000, 73% between £100,000 and £123,000 and 58% above that level.

It may seem as if these are very high levels of earnings, which in terms of average salaries they are, but they are exactly at the point at which international executives and many foreign workers in the City reside. If you want to attract them and their investment after Brexit, this is not the way to go about it.

Nor is putting up corporation tax, currently 19%, to 26%. You can have a debate about whether cutting corporation tax has brought the expected benefits in terms of business investment, which it probably has not. But the lowest rate of corporation tax in the G20 has been an important signal that Britain is a good place to do business. We will need such signals.

Labour’s plans for renationalisation, not necessarily with full compensation, will send shudders around the international business and investment community. Transforming Britain from the sick man of Europe involved taming the unions and curing a dreadful industrial relations record. McDonnell, talking to the TUC, promised: “When Labour returns to government the anti-trade union era will end, and if it is up to me it will end once and for all.”

As I say, with other things to focus on, not many in business have yet concentrated on the prospect of a Corbyn-led Labour government. A few months ago Morgan Stanley, the investment bank, warned clients that a Corbyn government would be more damaging than Brexit, to which Corbyn replied that the bank did indeed have a lot to fear from a Labour government.

Morgan Stanley got it half right. Brexit on its own is risky and dangerous enough. Combine it with a Corbyn government and you have the scariest of nightmares.