Has Labour crashed the economy ?

Meanwhile in the real world - redundancies are going on and the jobs market has shrunk. People are worried and not spending. You can see where this is going.

Their idea of growth is largely about crossing their fingers.

Labour haven't got a clue on the economy as we are all finding out. I think we are all just a bit stunned about how clueless they are. They actually make the last administration look competent!

Yes. Labour inherited a sound economy from the Conservatives but then manged to mess it up. As usual.

The economy of the late 90s / early 2000s until the global financial crisis begs to differ.

Labour always mess up the economy
The Conservatives sometimes mess up the economy

I knew people would start to 'forget' the (possibly irreversible) damage the previous government did to this country. But I am astonished and disappointed at how quickly the amnesia has set in. 14 years of wilful neglect can't be repaired in 6 months. I think Labour are being rightly bold and pointing the country in the right direction to grow long term. Anyone expecting a quick turnaround needs some basic lessons in history and economics. We haven't even begun to see the long term damage caused by Brexit. Similarly, the underfunding of schools, hospitals, social care and the justice system will have very long legs, stretching way beyond this term and the next few, even with Labour in charge. Blame Cameron, May, Johnson, Truss and Sunak. Not Starmer.

Not an "economic genius" (and nor does one need to be to see what needs doing) however, I had just been elected - per a post I made a month or two ago on another thread - my immediate policy priorities would have been to do the following

1. Rejoin the customs union and single market. The decision to leave these is catastrophic for the economy in the longer-term and already costing £40-45bn in lost tax revenue per year aside from the wider economic costs (more than raised by Reeve's additional taxes in this [the November] budget).

2. Rationalise and remove cliff edges from the tax system. Merge NI and income tax. Scrap the withdrawal of child benefit, the withdrawal of childcare funding, the withdrawal of the personal allowance, and lower the universal credit taper rate to 35%. This would result in a significant boost to productivity and growth within a matter of months because robust economic studies show that these cliff edges are creating peverse disincentives at various levels of earnings, discouraging work in skills shortage areas and holding back growth; there is robust evidence that doing what I've suggested would raise tax revenues significantly, not reduce them.

3. I would also have modernised our tax system in line with the models in pretty much every other developed country so that tax is levied on a "household unit" basis. This removes distortions and peverse incentives whereby two households with the same income often pay wildly different rates of tax because members of the "household unit" could choose to transfer tax allowances/ threshold amounts between them (but have the choice to not opt in to do so and keep finances separate if they wish, then being allocated 50% of the household allowances each by default to replicate current arrangements if they choose to). All tax thresholds would rise annually with inflation. The personal allowance would be significantly reduced but the basic income tax rate would be reduced to compensate; the UK's tax base is now too narrow and dangerously unstable. Like most developed countries capital gains would be taxed at the same rate as income tax but IHT would be abolished entirely (taxed as a capital gain by the recipient).

4. Replace unfunded public sector DB pension schemes with DC schemes, as Australia had the foresight to do, and did successfully, decades ago. Meanwhile, over the next decade employer and employee mandatory pension contribution would be gradually ratcheted up to double the percentages they are currently, and remove the opt out for auto enrollment. A commitment would be made not to retrospectively change pension rules again as this discourages saving.

5. I would implement a healthcare system following one of the successful European models that have far better health outcomes for patients for a very similar percentage of national income (and in many cases, much lower absolute cost on a nominal basis per person) than the NHS. This new system would include proper dentistry and also a genuinely hypothecated tax levied for insurance for social care costs.

6. I would make grants/ very low interest rate long-term loans available for SMEs and startups, administered by a panel of business experts (NOT politicians). This budget has hammered SMEs which are the backbone of our economy and our only real hope for furture growth. Instead, I would make financing available with Government backing to enable them to grow, large tax reliefs for R&D, a big focus on high productivity key growth sectors where the UK has existing skills/ knowledge clusters (tech, pharma, AI, engineering, the arts, defence, new farming/ energy technology etc). This would be far more effective than throwing billions at white elephants and huge corporations with minimal oversight. I'd also provide a centralised service to assist SMEs with tax/ legislative issues at low/ no cost to them to encourage them to export without worrying about the bureacracy: much cheaper than them all duplicating the effort invidividually.

7. I'd review the tax laws around transfer pricing to ensure that large corporations pay proper taxes on revenues generated in the UK.

8. I would implement a proper industrial strategy covering infrastructure, energy security and food security overseen by cross-party commissions of MPs AND experts from the relevant industries with long-term outlooks (time horizons of 10-20 yrs minimum).

9. I would double the education budget for primary and secondary schools (plenty of revenue spare to do this given the measures above: the cost every year of being outside the single market and customs unions dwarfs that this would cost) and cut class sizes by at least 1/3, aiming for no more than 15 children per class in time. Fix the absurd shambles of an SEN system by establishing sufficient schools for children with different needs. I would include far more choice in subjects to study from age 14 onwards (while maintaining core subjects) and set up proper technical colleges with genuine apprenticeships teaching valuable skills in partnership with links to businesses like in Germany, and cut the number of students going to university to 1/3 of current levels but abolish student loans. I would make available funding for adult learning and retraining.

10. Identity cards introduced that need to be produced to access state benefits/ rent housing/ register children in schools etc, linked to tax records. Welfare to be on a contributory basis like most countries so no access to unemployment payments etc unless you have 5 years of contributions to income tax except in cases of significant disability. PIP and carers allowance I would increase significantly, while removing access to unemployment benefits etc for people who have never worked but are not disabled. Identity cards would also prevent much of the "black economy" and tax evasion that goes on: when paying self-employed contractors identity card numbers would be required on their invoices. It would be an offence to pay for services without checking this therefore people couldn't commit tax evasion working for cash. These identity cards would also be linked to the electoral role as well as tax records.

11. I'd cut the number of MPs to 1/3 and triple their salaries so that we might get some competent people prepared to do the role who aren't either completely inexperienced and incapable, or only using it as a stepping stone to more lucrative careers once they leave Parliament. MPs would need to demonstrate skills, experience and qualifications relevant to a department before becoming the Minister for that department, as with any other job someone might wish to apply for.

12. I would put in place effective and powerful regulators for environment, education and other sectors so that illegal behaviour is appropriately dealt with and significant financial penalities levied against e.g. companies that behave like the water companies have done. Review the Companies Act rules regarding paying dividends that clearly exceed these companies having left sufficient money in their businesses to fund required levels of infrastructure investment to meet minimum required service levels which would be clearly specified by the regulator and enforced with sufficiently significant fines to bankrupt them if they don't comply.

Plenty more but this is what I'd have done immediately if I was the new Government.

The country needs to earn more rather than be taxed more. Raise the retirement age and make work pay by reforming the benefit system, getting people off benefits if they can work. Most people want to work but currently it's often better financially to be on benefits. And forget the Employers NI rise as that's really killing the golden goose as the economic engine of this country is mainly made up of small businesses.

And stop the quantitative easing, world, otherwise we are really stuffed.

@dubsie

"You won't turn up for cancer treatment unless you have cancer....I'm sorry charging at the point of use won't help your survival rates of key killers."

True for cancer treatment but you won't turn up for a GP appointment that might detect the first signs of cancer if there is a two week wait for an appointment or go to A&E for a broken finger or a torn knee ligament if there is a 6 hour wait. Meaning that when treatment does occur it is more complicated/ expensive to fix.

If a service or product is free then demand will be managed by the ability to queue or wait rather than an ability to pay. Whilst this is better for those who are financially poor it is clearly worse for those that are time poor.

By introducing a small fee to access A&E or your GP it hopefully strikes more of a balance between money and time.

You won't turn up for cancer treatment unless you have cancer....I'm sorry charging at the point of use won't help your survival rates of key killers.

Your GP is the gateway to all your care needs.. charging for it would simply harm early detection of things like diabetes, cancer, heart disease, Asthma.....late detection costs more money.

We are already the sickest country in Europe...this would make it worse

@User135644

"Importing millions of immigrants to try and create an illusion of a growing economy is no longer working."

Importing cheap labour whilst having 9 million economically inactive in the UK is insane.

Quite simply if Amazon couldn't find UK nationals to be their drivers at the salaries they are willing to offer then Amazon would have the choice of either not delivering them and going bust, getting the Royal Mail to do it or maybe increasing the salaries to a point where UK nationals are willing to do the job.

@dubsie

"How on earth do you cut the NHS when we have record waiting lists and cutting state pensions would kill millions of Brits and overwhelm the NHS.

The military has to be cut and there's no place for free hotels for people who cross on boats. If people want to claim asylum they should declare it at our border with immigration...We have to focus on the important issues here at home...

I'm not for more taxes but I struggle to find another way other than tax increases."

On the NHS the current solution is to increase supply of services by pumping more money into it but this does nothing to reduce demand. Whenever something is free at point of use or at least underpriced then demand will always outstrip supply leading to demand being managed by the ability to queue whether that be concert tickets or former Soviet Union queues at shops. The solution is to introduce some form of low charge to access your GP or A&E - high enough to discourage unnecessary visits but low enough that the low incomes can still access it - a bit like the 10p charge on carrier bags that massively reduced demand.

On the state pension, it's difficult to cut the pensions of those who are already retired as they have limited ability to re access the job market. However it is possible to push back the retirement age by say 3 months every year.

You have a valid point on defence spending and the cost of asylum seekers but to be honest the amounts involved here are small and will not make much difference.

I also agree that there will have to be some tax rises as well. Personally I would recommend CGT on primary residence as well and a general shift to increase tax on wealth rather than income. Lastly I would propose a big increase in taxes on alcohol sold at supermarkets- although this would at best only raise say £5 billion.

@HermoineFairfax

"Hold on tight, it will be painful, but won't last long. Reform/Conservatives will take over. One term party."

I don't doubt that it could quite well be a one party term.

I also don't disagree that there is a strong chance of some kind of Reform/ Conservative grouping being elected (if they stay split then Labour will be re elected).

As always the voters will think "well Reform / Conservatives can't do a worse job than Labour "

However I just don't see how a future Reform/ Conservative Government could do any better than Labour given the current state of public finances and remember Reform's policies at the GE were massively underfunded and would have seen national debt soar even higher that would have crashed the economy on a bigger scale than even Liz Truss could manage.

Any politician proposing the type of policies that would fix this managed decline would simply never get elected.

Country is in managed decline, not sure there's any reversing it now. Importing millions of immigrants to try and create an illusion of a growing economy is no longer working.

They are on track to crash the economy. However, I'm astonished at the speed of the chaos, corruption and decline.

Hold on tight, it will be painful, but won't last long. Reform/Conservatives will take over. One term party.

How on earth do you cut the NHS when we have record waiting lists and cutting state pensions would kill millions of Brits and overwhelm the NHS.

The military has to be cut and there's no place for free hotels for people who cross on boats. If people want to claim asylum they should declare it at our border with immigration...We have to focus on the important issues here at home...

I'm not for more taxes but I struggle to find another way other than tax increases.

The level of in-work benefits, transferring huge amounts of tax payers money to the private sector, is something that Labour should never have introduced. But they did it to try and hide the level of employment - the same reason they massively expanded university places without investing anything in sectors that would create jobs to absorb the influx of graduates to the employment market.

Which is why those of us who have seen it all before chuckled at the naivety of all those lauding “the grown-ups being in charge”. As this set of grown ups are just as inept, but in different way, as the last.

6 months in and the pledges are falling by the wayside. Remember that we were going to become the fastest growing economy in the G7? That’s now been dropped, and replaced by an aspiration that our standards of living increase over the term of the parliament. But, it’s hard to find a time in the last 50 years when that hasn’t been the case 🤣. It’s just a shame we don’t have an opposition capable of calling it out. So I have to say, I’m glad I’m not dependent on the UK anymore. I mean, I don’t think France or Italy, where I spend most of my time now, have any brighter outlook. In fact, maybe worse. But they are part of the EU, the tax regime (for me at least) is more agreeable and the weather and food are better ☺️

@1dayatatime ah the good old 'global redistribution of the social relations of capital'. I'm afraid this is built in to the model due to businesses wanting to maintain or increase profits for selfish reasons.

Businesses don't want to employ local labour if it is more expensive unless they have to. Not because they are really philanthropists and want to pay living wages or fund the public sector.

This policy has led to people not receiving a living wage (where government tops up employers) and a fucked public sector.

We need to organise things differently.

The global pandemic was the biggest transfer of wealth from the public to the private sector. The fantastic increases of business profit did not increase the amount of tax paid but profit paid to shareholders. There is no trickle down.

www.marketplace.org/2023/01/16/how-the-worlds-richest-people-became-much-richer-during-the-pandemic/. The link on what companies choose to do with profits is insightful.

The above is US based but capitalism is a global system.

Labour chose to increase employer NI but companies chose to pass this cost onto workers not so they could pay more tax but to protect inflated profits they had become used to. It was not inevitable but a conscious choice.

Workers rights have become seriously eroded with zero hour contracts etc. Take the social care sector where agency staff are paid minimum wage and home care staff are not remunerated for travel between 'clients' but profits and dividends can be more than generous.

The massive increase in HB and in work benefits does nothing but increase the income of private landlords and businesses that pay their employees low wages who as a result of high rent and cost of living increases (supermarkets and energy companies who make huge profits for shareholders) can't afford to live on earned income.

It is naive to think that pandering to business interest will increase public spending. It won't.

@dubsie

Whether a flat rate tax benefits the poor or the wealthy most depends on how it is structured and most importantly what the tax free threshold is. For example it could be designed with a tax free threshold of £30k and then 40% on everything over that. This would benefit the less well off the most.

But I think you are probably right that the Conservatives would be more likely to design it so that it benefits the wealthy more. Anyway even Badenoch admits that with the current state of government finances there is no way it could be implemented.

Very little is spent on defence - c£50 billion. Any meaningful savings would need to come from the two biggest expenses - the NHS and State pensions.

Well the Tories want a flat rate tax, basically a increase for ordinary earners and a reduction in the top rate. That's hardly a solution either.

I'm not what's else we can cut to be honest, roads, NHS and education are bare bones as it is. I think it's time to consider scrapping the military altogether apart from a very small defence force ...no nukes, subs or aircraft carriers and slimmed down air force..but even all that won't save us that much

UK taxation is currently at a 70 year high so there is limited scope for further increases and I agree with you that public services are already suffering. Plus Government debt is also at a record high since 1962 and the interest payments alone are equivalent to the entire education budget.

Rachel Reeves solution was to increase taxation and debt in the hope of increased economic growth- unfortunately the reverse has happened with shrinking growth:

www.ft.com/content/f46d32e0-0865-4d90-be74-0cb0a4a35478

So I think the unfortunate reality is that to get out of this mess and grow the economy any tax rises need to be limited and fall more on individuals and not businesses. Public spending will need to at best be static or at worst cut further. National debt cannot be increased any more as Liz Truss dramatically found out the hard way and Rachel Reeves is finding out the slow way.

So higher taxes and lower Government spending on services- which is not exactly a vote winning combination.

Unfortunately reality is stuff needs to be paid for, we've had 20 years of cuts and austerity and now we have to pay up or face another 5 years of tax cuts for the rich and falling public services

@TheGrinchIsComingToTown

"Who would you like to tax more?"

I am conscious that I never answered your question and it does frustrate me that posters on all topics often criticise a particular view, choice or policy without then bothering or having the ability to propose an alternative option. So apologies for the delay in responding but I would answer as follows:

1. introduces capital gains tax on all house sales (less costs to renovate / improve) including primary residence
2. Scrap the inheritance tax threshold in its entirety. Both these measures seek to tax windfall unearned gains.
3. Increase both the state and public sector pension retirement ages by 3 months every year up to the age of 68 from now in order to produce immediate savings rather than having a cliff edge policy where it jumps radically from one year to the next.
4. introduce say a £5 or 10 fee to access your local GP or A&E in order to reduce missed appointments or unnecessary visits.
5. Tariffs on manufactured goods imports particularly from China where cheap polluting energy and poor working conditions/ rights gives an unfair competition.
6. significantly increase the tax on alcohol sold in supermarkets but not pubs - currently alcohol costs the NHS £26 billion pa but alcohol taxes only raise £13 billion.
7. a more balanced shift from taxation principally on income to taxation more equally on both income and wealth.

That said I recognise that there is absolutely no politician or party that would ever get elected on such an unpopular list of policies as these.