Has Labour crashed the economy ?

[Dbank]

With recent news on GDP and job vacancies, do you think Labour's actions are about to trigger a recession?

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.

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.

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

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

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

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!

Their idea of growth is largely about crossing their fingers.

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.

There's a reason Labour have been in power significantly less than the Conservatives over the years. People don't want their lives messed about with. Plans disrupted for retirement, plans for investment in jobs for the next year for a business, plans to pass on your (taxed) wealth to your kids, plans to pass on a business or a farm as an ongoing concern. Rachel from customer services is messing about with people's lives and should not expect the vote of anyone affected. Which is everyone eventually. (Unless you work in the public sector and don't have kids that might want a job in future. And you will still be affected if farms go under and we have no food. Oh or if Putin invades and we have reduced the defence budget again. Although those highly paid train drivers will be essential during the invasion)

@TheWildRobot

Thank you for putting together what I think is the best post on this thread - logical and well structured post.

If I could add a small criticism, I think it is a tad underfunded so I would add CGT on principal residence, I would give local authorities the right to receive an uplift in value clause on any planning permission they grant, I would significantly increase the tax on alcohol sold in supermarkets and raise the state pension age by say 3 months every year rather than cliff edge increases.

But thank you for a great post and so much more constructive than the usual posts of "well the Tories did worse" or "look at Liz Truss or Brexit " or "let's tax the rich (with rich being anyone earning more than me)" etc etc.

@mambojambodothetango

"I think Labour are being rightly bold and pointing the country in the right direction to grow long term. "

Increasing employers NI contributions is not consistent with growing the economy or the number of jobs:

www.bbc.co.uk/news/articles/c4g7x6p865zo.amp

I agree with @TheWildRobot but I'd also emphasise building up our manufacturing industry again, of useful, sustainable things not junk food/gadgets/fast fashion. Decent jobs and skills. There are pockets of this but not enough.

@Nordione1
@mambojambodothetango

The Conservatives managed the economy well up to 1997, Labour initially managed it well for 1997 to 2002 then messed it up from then until 2008 and the Conservatives messed it up after that (not helped by Brexit own goal and spaffing £500 billion on Covid).:

@TheWildRobot Says, "Rejoin the customs union and single market. The decision to leave these is catastrophic for the economy in the longer-term "

As I understand it, This the EU refuses to do. Today I read that we have to accept that we comply with all EU regulations on Food including future ones. We will not be part of that decision making for these new rules.
To show 'good faith' before negotiations can continue the EU requires us to abandon the fish in the sea around our shores and cancel the marine ecological rules and safeguards that we have imposed. Spain and France will then rewrite them so they can plough plunder at there will.
This is partly why there have been headlines about a surrender team of 100 working on this for 2 Tier Keir. Another reason is that we are expected to comply with their Court again!
Sorry Robot. but many of us find those conditions too onerous. But I agree with much of the rest that you have written on benefits and ID..

@DoIhavegreeneyes

"Rejoin the customs union and single market"

Rejoining the customs union and single market or the Norwegian model is certainly possible but as you point out the UK would then become a "rule taker" having little influence on shaping future rules.

As for access to UK waters for fisheries then up to 6 miles it is only access to UK vessels, from 6 to 12 miles then EU vessels can still access UK waters - so exactly the same as before Brexit.

The UK does have the right to implement maritime or seabed protection / conservation zones that would apply to all fishing. Indeed kelp and sea grass are way more efficient at capturing co2 than trees are.

No, the EU does not "refuse to do this".

Yes, if we want to have smoother trade and stop the compounding damage resulting from Brexit of course we'd have to have common standards, to be part of the trading block. And of course if you decide not to be in the EU it means you have no seat at the table in determin

Sorry, posted too soon!

... no seat at the table in determining those standards. That's why Brexit was such lunacy because the other options were a) huge economic damage from decreased trade and tax revenues and enormously elevated costs for importing and exporting (for a country reliant on imports of basics like food and fuel!); or b) being a rule taker, but avoiding a).

b) is better than a). But obviously, to anybody with a functioning brain cell, it would have been better not to give up our very preferential deal and vetos and seat at the table in the first place.

Thank you. I wish these threads resulting in more debates on policy, ideas, what should actually be done to improve things, rather than pointless mud slinging and "oh, the other lot are worse". We need to raise the bar. Not being quite as awful as another idiot should not be the standard we expect from our leaders.

CGT on main residence would further worsen housing problems and social mobility. Very families could ever afford to upsize so there would be even fewer starter homes available. It would make it much harder for people to move for jobs, even to a house the same size, and would further discourage older people from downsizing therefore clogging up the whole housing chain even further, so I wouldn't be in favour of that for purely pragmatic reasons, which is why the exemption was put in place.

I agree, but this is covered by point 6) and point 8) regarding a long-term industrial strategy (this needs to be led by business leaders and those who understand global economics and international trade so that ot actually works and the money isn't poured into producing products upon which the UK could never compete on price internationally due to labour, fuel and premises costs. We must provide the funding for high-tech or creative industries where we have competitive advantage and can add value. This will also raise productivity and therefore provides the only sustainable way to raise real-terms salaries without generating inflation that negates it) and properly supporting small businesses to grow so that they can export more easily and access funding to grow without having to be sold off to foreign investors.

And points 6) and 8) are why point 9) is vital (education reforms). The UK will never compete with the likes of China on price so we must invest in our "human capital". If education remains so dysfunctional and underfunded then we will reap the "benefits" of that for another generation at least and it will make 6) and 8) unviable, even more so than we are seeing now with skills shortages having to be plugged with immigration. It is all interlinked so needs a holistic policy approach like I've set out. Individually some measures would be unaffordable, but as a package they would not because they would cross-support each other with some generating the immediate boost to growth that we desperately need, and others using the money generated from that to improve things further for the future (while still leaving people better off than they are now because there would be growth so salary increases that weren't purely inflationary would be possible for the first time in the best part of two decades).

As always, however, nobody will listen and we'll carry on as we are in terminal decline, swinging from one political extreme to the other with no long-term or evidence-based policy making and people content to fight like rats in a sack over the crumbs and blame each other or whatever today's scapegoat group of people is (I can't keep up) rather than demand our politicians actually run the country competently.

https://edition.pagesuite.com/popovers/dynamic_article_popover.aspx?artguid=760746ed-c6a3-4e06-a1c6-a7df69f3b3dd

It doesn't go far enough to mitigate the enormous economic damage Brexit continues to cause to the UK but all sounds perfectly reasonable, although obviously those are opening negotiating positions so there will be room for manoeuvre provided we don't approach it totally unprepared and with a hostile attitude this time.

The poll is now closed, so thanks for your vote and comments.
Personally, I think Labour's actions have or are about to trigger a recession.

Labour identified growth was paramount, but delivered a budget that has done the completed opposite. Every metric shows confidence for consumers and business has collapsed.

I hope I'm wrong, but I guess we'll know in time for the local elections in May...

It's a change in attitude, a recession was a done deal 9 months ago....if you look at the global metrics you'll see that a global crisis is well underway....the bubble was going to burst and it started in the states....

Nothing, repeat, nothing Labour does to the economy can ever be as bad as Brexit delivered by the Tories.