Both main parties set out their post election spending plans yesterday and what a spendfest it promises to be. Sajid Javid, the Chancellor, for the Conservatives has vowed to tear up their fiscal rules and spend an extra £25 billion a year on infrastructure - a figure they described in 2017 as 'reckless'. What changed? Well, in 2017 Labour was suggesting that figure, now it's a Conservative pitch so it's OK. John McDonnel then outlined his plan to invest about double that - £55 billion a year for five years, then a more modest £25 billion a year for another five.
There are even doubts being raised that we have the capacity to spend at such a rate, don't worry about raising it. Can we actually spend so much? There is a worry that we simply do not have the capacity in construction to do it?
And no doubt Jeremy Corbyn and Labour will once more come under heavy fire for being profligate.
According to The Guardian:
"McDonnell is planning a five-year, £150bn “social transformation fund” on top of a £250bn “green transformation fund” to be spent over 10 years. Worth a combined £400bn, the funds will be controlled from a new Treasury office based in the north of England.
"The social fund would be for schools, hospitals, care homes and council houses, while the longer-term fund would be used for infrastructure spending on transport and energy, as part of the party’s plans for a 'green industrial revolution'. The money would be used to retrofit homes across the country, fund offshore wind projects and create a 'Crossrail for the north'.
We are planning to spend like the Victorians but without the empire or income they had to support it.
However, Labour might want to think about defending themselves by pointing to the damage that Johnson's hard Brexit will do. We are not going to get any forecasts from the OBR this side of an election (courtesy of the Cabinet Secretary Mark Sedwill who has ruled it out) but we do know from the government's Long Term Economic Assessment published last November that the public finances are going to take a hit if we aim for a Canada style FTA - as Johnson is proposing. That document forecast a 6.7% drop in GDP. If we assume the government will raise 35-40% of that figure in taxation, we are looking at around 2.5% of GDP or £50 billion a year in lost tax revenue by 2030.
Thus, the 'spin' should be that Labour will be able to invest more because tax revenues will be higher since they are going for a softish Brexit and even perhaps, if the people so decide, no Brexit at all.
It would make excellent use of all the official and credible forecasts that have been made by all and sundry over the last three years to support Labour's plans. The Conservatives would look reckless and Labour more fiscally responsible. Couple this with the notion that infrastructure spending will increase our shockingly low productivity level and there is a credible narrative I think. Labour can spend more because they aren't damaging the economy in the way the Conservatives are intending through Brexit.
On the topic of a Canadian style trade deal I noticed this little gem published in 2015 by Global Justice on why Canada had become the world's most sued country. It turns out that joining NAFTA in 1994 opened the doors for investors in each other countries to sue one another’s governments if earnings or profits are unreasonably damaged by adopted policies. As expected, big American corporations have taken the opportunity with 35 lodging claims through investor-state legal actions.
Some of them are amazing. This one for instance:
"Lone Pine, a Canadian energy company, is suing the Canadian government through its American affiliate for $250 million (approximately €152 million) because the province of Quebec introduced a temporary moratorium on all fracking activities under the St. Lawrence River until further studies are completed. This challenge is concerning because it involves a domestic company using a foreign subsidiary to sue its own government."
Or this:
"Chemical giant Dow AgroSciences used NAFTA to force the province of Quebec, after it banned 2,4-D, a pesticide that the Natural Resources Defence Council says has been linked in many studies to cancer and cell damage, to publicly acknowledge that the chemical does not pose an “unacceptable risk” to human health, a position the government had previously held."
I assume a trade deal between the UK and the USA would also likely include some sort of investor/state dispute mechanism giving extraordinary powers to American multi-nationals to sue our government for loss or potential loss, of profits. I have some knowledge of large American multi-national companies having worked for their subsidiaries in Europe. All I can say is beware. In pursuit of profit they are utterly ruthless. There is no social or environmental dimension to their thinking. Everything is geared to money.
If we really want to throw in our lot with the USA we will need a total reversal of the post-war social settlement if our companies are to survive the onslaught. We already know about US drug companies being in talks with the Department of Health about drug pricing for the NHS in the future and just this morning on Radio 4, talking about Labour's plan to extend maternity rights, I learn in the USA there is no statutory maternity pay at all.
Is this what 52% voted for? I really do no think so.
