McDonnell unveils leftwing economic prospectus

Posted on September 26, 2016

Labour Party Conference in Liverpool. Shadow Chancellor, John McDonnell delivers his keynote address today.©Charlie Bibby

John McDonnell speaking at the Labour party conference in Liverpool on Monday

John McDonnell, shadow chancellor, has put Labour on alert for an early election, promising to go to the country with what would be the party’s most leftwing economic prospectus for a generation.

Mr McDonnell pledged £250bn of infrastructure spending, a new wealth tax, a £10 hourly minimum wage, an end to austerity, opposition to free-trade deals, a crackdown on corporate greed and the repeal of Tory trade union laws.

    “The winds of globalisation are blowing in a different direction,” he declared at the Labour conference in Liverpool. “They are blowing against the belief in the free market and in favour of intervention.”

    Mr McDonnell, who told supporters in 2013 that he was a Marxist, set out what he said was a programme for government. “In this party you no longer have to whisper it: it’s called socialism,” he said to rapturous applause.

    But his suggestion that Britain can spend its way to higher growth and a lower deficit was denounced by Chris Leslie, the former shadow chancellor, who said: “It’s the magic money tree that will make all our dreams come true.”

    Labour moderates are critical of Mr McDonnell’s plans to borrow or raise taxes to fund £250bn of infrastructure investment. The money would fund the equivalent of six HS2 high speed rail lines or 17 new runways at Heathrow.

    Jeremy Corbyn, Labour leader, has claimed that a further £100bn of public investment in a National Infrastructure Bank could leverage £150bn of private sector money to create a total infrastructure programme of £500bn.

    Mr Leslie said the plans would involve “an awful lot of either borrowing or extra taxation”. He added: “You’d have to double income tax, double National Insurance, double council tax and you’d have to double VAT as well.”

    Mr McDonnell, a close ally of Mr Corbyn, hopes that the prospect of Theresa May calling a snap election will help to bring the Labour party together behind his radical programme for government.

    “Theresa May has said that she will not be calling an early election but when could anyone trust a Tory leader?” he asked. Labour needed to have policies “on the shelf, in place for when we enter government”.

    His speech was packed with such policies, which would see an “entrepreneurial state” step in to boost the economy’s potential, raising productivity through investments in areas such as broadband and transport.

    Policy pledges include: £250bn of infrastructure spending, a £10 hourly minimum wage, a crackdown on corporate greed and a new wealth tax©FT Montage/Dreamstime

    Policy pledges include: £250bn of infrastructure spending, a £10 minimum wage, a crackdown on corporate greed and a new wealth tax

    Mr McDonnell criticised George Osborne’s failure to eliminate the deficit but insisted the answer was not to make further spending cuts, but to improve the country’s economic potential, raise productivity and to make sure the rich paid their taxes.

    HM Revenue & Customs would have “double the number of staff investigating wealthy tax avoiders”, while companies that took part in tax avoidance would be banned from winning public contracts. “Some of the largest firms in the City of London are up to their necks in it,” he said.

    Mr McDonnell said company law would be rewritten so that there would be “no more Philip Greens”, a reference to the BHS boss accused of taking money out of his ailing company, leaving behind a pensions crisis.

    The winds of globalisation are blowing in a different direction. They are blowing against the belief in the free market and in favour of intervention

    – John McDonnell, shadow chancellor

    “We’ll introduce legislation to ban companies taking on excessive debt to pay out dividends to shareholders,” he said. “And we’ll rewrite the takeover code to make sure every takeover proposal has a clear plan in place to pay workers and pensioners.”

    Labour would move towards a £10 hourly minimum wage — compared with the £9 rate promised by Mr Osborne by 2020 — and said the tax system would be redesigned to shift the burden from workers “on to those who hold wealth”.

    The party would oppose the so-called TTIP transatlantic trade deal between the EU and US, in another sign of the Labour left’s rejection of the free trade ideals espoused by New Labour figures like Tony Blair and Peter Mandelson.

    While many Labour moderates fear that Mr McDonnell’s prospectus lacks economic credibility, the shadow chancellor was in lyrical mode: “In the birthplace of John Lennon, it falls to us to inspire people to imagine,” he said.

    Business has been urging the government to exploit low interest rates to fund infrastructure projects; Philip Hammond, chancellor, will announce some new spending in his Autumn Statement, but not on the scale imagined by Mr McDonnell.

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    Adam Marshall, acting director-general of the British Chambers of Commerce, said: “Businesses would welcome a massively expanded infrastructure programme because it helps get the fundamentals right, but their confidence would be undermined by a wave of new regulation and compliance regimes.

    “As the Labour party develops its alternative economic proposals, it must remember that the state cannot control every aspect of economic or business life and stay competitive in a global economy.”

    Meanwhile Mark Littlewood, director-general at the Institute of Economic Affairs, said: “John McDonnell’s speech today was the epitome of fantasy economics. The very fact the shadow chancellor is proudly trumpeting Labour as a party of interventionism despite its catastrophic historical record should worry both business and voters.”

    Additional reporting Sebastian Payne

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