Party promises post-Brexit are dumb and much dumber

The Tories have a big-spending vision and ­Labour is suggesting spending even more.

British Prime Minister Boris Johnson (left) and Labour Party leader Jeremy Corbyn (right) join host Julie Etchingham for "Johnson v Corbyn: The ITV Debate" in Salford. Picture: AFP

Brexit is a topic of considerable ­interest to economists but I have refrained from writing about it on the basis that it has always been too early to tell.

Will it be Brexit based on a deal with the EU, and what are the features of that deal? Will it be a no-deal Brexit? Will there be no Brexit? Given the ­impossibility of providing satisfactory answers to these questions, I have decided to leave the topic well enough alone.

By contrast, the issues that are being raised in the current British election campaign can be analysed and are of economic interest. But, before I do so, let me make one ­important point about the Brexit debate.

The lack of professionalism — I’m being kind here — by some of the key public institutions in Britain has been quite astonishing during the past several years. The two key ones are the Bank of ­England and HM Treasury. ­Rather than provide sober, well-researched advice, these organisations have become players in opposing Brexit.

The senior executives who run these organisations have made fools of themselves to the point of permanently damaging the reputations of the organisations they lead. Mark Carney, the Canadian governor of the BoE, has ­effectively destroyed his standing during the past several years.

Leading up to the 2016 Brexit referendum, HM Treasury predicted that Britain’s withdrawal from the EU would reduce the country’s gross domestic product by between 3.8 per cent and 7.5 per cent, depending on the Brexit model adopted. In a similar vein, the BoE warned that a vote for Brexit would send Britain into recession, push unemployment higher and stoke inflation.

Note that the current unemployment rate in Britain is 3.8 per cent, the lowest it has been in ­decades, there is no inflation to speak of and real wages are rising.

Late last year, the BoE doubled down on its gloomy projections, claiming that a no-deal Brexit would cause Britain’s GDP to fall by 8 per cent, unemployment to rise to 7.5 per cent and inflation to surge to 6.5 per cent.

In addition, house prices would fall by 30 per cent and commercial property ­prices would fall by nearly one half.

It was laughable stuff and even anti-Brexit, Nobel prize-winning economist Paul Krugman thought so. “I don’t understand how you can get that kind of cost without making big ad hoc assumptions about productivity. And I am worried in all this about motivated reasoning on the part of people who oppose Brexit,” he said.

So let’s take a look at what the key parties are offering the voters in the British election campaign. The short summary is dumb versus dumber — actually, dumb and much dumber.

The Conservatives are offering a big-spending vision but with a pledge that Brexit will occur. ­Labour is offering an even bigger-spending vision, much higher taxes, a more extreme climate change policy and an uncertain stance on Brexit.

Consider first the Conservatives under Boris Johnson. In the Prime Minister’s bid to win over ­traditional Labour voters, various pledges have been made to ­increase spending on the National Health Service, education and the police. In fact, higher spending has already been rolled out.

A Towns Fund has been established to provide government grants to new owners to rejuvenate post offices and pubs in towns. And discontinued rail connections are being brought back. According to Johnson, “for too long, too many towns and villages across Britain have been overlooked and left behind … We will invest in these communities and help people put the heart back into places they call home.”

Just this week Johnson pledged to cancel the last round of company tax cuts — Britain is targeting a rate of 17 per cent — to release £6bn ($11.4bn) to be spent on “public services”.

You may have noticed that the Tory government is extremely green. All the talk is about a climate emergency and achieving net zero emissions by 2050. ­Labour has gone one step further and is promising — sort of — to get to net zero emissions by 2030.

One explanation for this state of affairs is that, given the extraordinary political diversion of all things Brexit during the past three years, the woke bureaucracy has been given a free rein to pursue policies across a broad range of areas.

In the case of climate policy and the government’s ongoing promotion of renewable energy, one factor that is overlooked is the critical role that cheap North Sea gas plays in keeping a lid on the cost of the electricity system as well as maintaining reliability. When that gas supply runs out, something that is not too far away, the game will change dramatically.

Unsurprisingly, Labour has a big-spending plan of its own, including the essentially uncosted plan to provide free internet connections to all Britons from 2030. A figure of £20bn is the estimated cost to achieve this outcome. BT, which will be partly nationalised under Labour, says the figure is much closer to £40bn.

When it comes to renationalisation, Labour has plans to take the railways, water, energy and the Royal Mail back into public hands. A national investment bank also is being proposed with a capital of £250bn. Big companies will be required to divert 10 per cent of their shares into an “inclusive ownership fund”. Under this arrangement, workers will receive a minimum of £500 in dividends, with any residual amounts being paid as tax. This will involve a transfer of at least £300bn from shareholders across a decade.

Labour also plans to impose a four-day working week with no loss of pay. Issues related to the staffing of the NHS have not been clarified at this stage but it is estimated that the shorter working week will cost between an extra £17bn and £45bn in the annual public sector pay bill. University tuition fees also will be scrapped under Labour and there is talk of all outstanding student debt being written off, at a cost of £20bn.

With all these spending plans, it is hardly surprising that Labour is proposing some very substantial tax increases. Instead of allowing the company tax rate to go to 17 per cent, Labour will raise the rate to 26 per cent.

A financial transactions tax and a sugar tax also will be imple­mented. Higher tax rates will be ­imposed on higher income earners, with a marginal tax rate of 45 per cent for those earning more than £80,000 a year and 50 per cent for those earning more than £125,000.

There are several other ­extra­ordinary features of Labour’s election platform, including signifi­cant cost impositions on private schools, the provision of free insulation and double glazing (Britain’s answer to our pink batts scheme) and a ban on the sale of non-electric cars from 2030.

The totality of Labour’s ruinous election policy proposals under the stewardship of Jeremy Corbyn, it has to be said, makes our own Labor’s recent policy proposals looks positively modest.

So Johnson or Corbyn, a majority victory or a minority victory, Brexit or no Brexit — these are ­issues that will be clarified in due course. Were Labour to be elected, it would be a disaster economically, an ugly case of back to the future for Britain. But the Conservatives are a pale shadow of the party of Margaret Thatcher.