The young need to know a hard left state will choke prosperity
First published in the Sunday Times on 18th June 2017.
For anyone in business, the election result was a disaster. About 40% of voters supported a hard left leadership, which is instinctively opposed to the private sector. Labour voters believed a set of policies based on fantasy which, if enacted, would lead to immiseration and diminished opportunities for all.
Trade organisations such as the CBI, the IoD and the British Chambers of Commerce are fretting ad nauseam about Brexit. They should be much more concerned about the real wolf at the door: socialism. They ought to vigorously promote the merits of free markets, entrepreneurship, small government, limited regulation, low tax and private property rights.
There is now a genuine danger that a Labour government could be installed on a programme of nationalisation, high taxes, unaffordable borrowings and bloated public spending. It would lead to waste, capital misallocation, lower productivity and inefficient, unionised monopolies. History shows that in every case, this set of beliefs delivers lower living standards together with untold human suffering. From East Germany to North Korea, from Venezuela to Cuba, such political experiments always end in desperate failure.
Labour perpetuates a myth that “the Rich” and “Big Business” would pay all the costs for its madcap schemes. But the top 1% of taxpayers already fork out more than 28% of total income tax — almost twice as much as was the case 30 years ago. Meanwhile, upping corporation tax by almost half would surely lead to an exodus of companies to eager new homes such as Dublin.
Wealthy individuals and large firms are both much more international and mobile than ever. As the Laffer Curve (the relationship between tax rates and the amount of tax revenue collected by governments) shows, materially higher tax rates will produce lower tax receipts — as well as reduce investment.
Britain cannot afford a government intent on expansion of the welfare state and public sector largesse. Our national debt is £1.9 trillion, we run a £50bn current account deficit, and have a vulnerable credit rating.
The Labour leadership has negligible understanding of how the system works. Jeremy Corbyn and John McDonnell each recently gave TV interviews where they showed neither understood that bonds were debt. Sterling and our credit rating would fall precipitously if they were in power, and the cost of mortgages and imports would rise sharply.
It is depressing to hear that an estimated two-thirds of 18 to 24-year-olds voted for a socialist agenda. They think Labour believes in the young. Yet their hero, Corbyn, is a staunch defender of defined benefit pensions for public sector workers. He also wants to spend much more on the NHS, and has confirmed the state pension triple lock. Essentially, these are all transfers from young taxpayers to the old and to the 15% of the workforce in the public sector. Millennials will pay the bills, while the 50-plus generation reap the benefits.
The growth in higher education has fuelled this suicidal belief in discredited “progressive” principles. Surveys suggest that 78% of university staff voted Labour or Lib Dem. As about 37% of young people attend universities, the malign influence of left-wing academics on the Millennial generation is widespread. Moreover, the proposed scrapping of tuition fees by Labour was a direct bribe by Corbyn to students.
Investment would evaporate with Labour in command. The private sector provides 85% of jobs; these would quickly disappear under a government that despises wealth and job creators. Because Labour’s leaders are economically illiterate, they do not realise that industry is global and vastly more competitive than it was during the last hard-left Labour government. Their anti-business measures would erode our tax and job base with alarming speed; suggestions such as a financial transaction tax would lethally undermine the City and the financial services sector, which are huge net contributors to tax. Tragically, socialists are obsessed with redistribution — they see capitalism as a zero-sum exercise, and so inhibit the incentives that actually grow the cake and make everyone relatively better off.
I have spoken to a number of entrepreneurs and bosses in the past week; many are privately in despair and shock. Business leaders need to actively help win hearts and minds, especially among the young; educational campaigns should be conducted to explain free enterprise and the profit motive. Entrepreneurs and chief executives must stand up and make the case for markets. Without a thriving private sector that creates jobs, generates taxes and innovates, then everything falls apart.
State intervention on the scale proposed by Labour would make us much poorer. Labour would rapidly undo decades of hard-won improvements in our economy, and make any short term setbacks from Brexit look like rounding errors.