Jeremy Corbyn’s rise from backbench rebel to Labour leader is a fairytale story in itself. But many of his critics argue that his headline policies – scrapping tuition fees, renationalising railways and a massive investment programme in large-scale housing, energy, transport and digital projects – offer the true definition of ‘fairytale’.
In a world still recovering from the 2008 crash and a UK mentality fixated by austerity and belt-tightening, Corbyn offers a radical alternative. On the face of it, Corbyn’s policies are popular, but many voters still smarting from ‘Labour’s crash’ will be sceptical of a politician offering them so many goodies.
In response to Corbyn’s policies, the terrified squawks of the centre ground are populating Westminster’s chambers, newspaper columns and TV discussions, all cat-calling an ageing populist prince.
But Corbyn is not unattuned to the business of winning elections. He knows that if he is going to stand any chance of winning in 2020 his fairytale policies have to be backed up by sound economic arguments and, most importantly of all, financed.
So, is that possible?
People’s Quantitative Easing
Corbyn’s most controversial proposal for raising the cash to fund his major spending push is ‘people’s quantitative easing’.
This is just like regular QE, where the Bank of England prints money to buy government bonds from financial institutions. But rather than pumping money into banks, people’s QE proposes printing money to invest in socially useful projects, like the railways, housing and roads.
Critics say that printing money while the economy is healthy risks inciting inflation. But we’re already printing money, with a large scale QE programme underway right now, and inflation has shown no sign of rearing its ugly head.
And while the Corbyn camp says that their PQE would not only be used in a crisis, they also claim that it wouldn’t be needed when the economy is running well. As interest rates are still at a record low, they claim it makes sense to take advantage and get a better deal on borrowing by investing now.
Declare war on corporate subsidies
The UK stumps up £93 billion every year in tax relief and subsidies for big business. If Corbyn wants to find a way to fund his hugely expensive National Investment Bank, there’s plenty of money here he can easily wrestle control of.
While these subsidies look like corporate handouts at first glance, they are actually intended to encourage and support investment themselves – just investment from the private sector, rather than the state. Removing these subsidies entirely would make many business ventures unviable, stifling investment and ultimately proving counterproductive to growth and a healthy economy.
Corbyn agrees and is planning to target only a portion of the subsidies. Still, distinguishing between helpful tax relief and corporate handouts is never easy, and it remains to be seen whether Corbyn will be able to correctly identify which of the subsidies deserves to be seconded for state-sponsored investment.
Put an end to tax dodging, once and for all
Many of Corbyn’s economic policies are cherry picked from Richard Murphy, a tax advisor who has been pressurising governments to make reducing the tax gap a priority for decades.
The UK government currently ‘leaks’ £120 billion a year – all money that was supposed to be collected as tax but, for one reason or the other, hasn’t been.
Murphy’s figures break that big number down into £20 billion uncollected by HMRC, £20 billion lost in tax avoidance and £80 billion lost in tax evasion.
‘Corbynmics’ proposes clawing back large swathes of that money by introducing an anti-avoidance rule into UK tax law, country-by-country reporting for multinational corporations and the reform of SME taxation. Reversing staff cuts at HMRC (i.e. hiring more tax collectors) and Companies House is also very much on the table.
One problem with the plans is that tax avoidance is legal, which may sound weird, but it’s true.
So, change the law then? It’s not as easy as that, unfortunately.
Successive governments have attempted to close the tax gap by outlawing the loopholes that make tax avoidance possible. But they often do little more than simply create new loopholes for big businesses and accountants to exploit. One potential silver bullet would be reform of the accountancy sector, but seeing as most big business tax avoiders (Starbucks, Amazon, Apple et.al) are global corporations, they can hire accountants from wherever they want and operate within the UK with relative tax impunity.
It’s a complex subject, but that doesn’t mean it should be shirked. And it seems like Corbyn, fairytale as he may seem to many is the only politician willing to tackle it with the full force it deserves.
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