In Depth

Labour's vision: what the commentators made of Corbynomics

McDonnell's first speech as shadow chancellor was less radical than some had expected

"I warn you, this is not my usual rant," said Labour's new shadow chancellor John McDonnell, a veteran and often firebrand left-winger, at the start of his conference speech on Monday.

Setting out Labour's economic vision under its new leader, Jeremy Corbyn, McDonnell promised among other things to stick to his counterpart George Osborne's fiscal charter and eliminate the budget deficit, while reversing austerity. But he did so without resorting to the sort of all-out attack on capitalism for which he has been famed.

That does not mean his ideas are not "grandiose", says Oliver Kamm in The Times. There is an economic "sleight of hand" in the pledge to cut the deficit and yet increase borrowing to fund growth-enhancing spending, which means McDonnell's definitions "need interpretation". 

When all the sums are done, one think-tank suggests the difference between what Labour is proposing and what the Conservatives have committed to could be as much as £40bn by 2020. And when you factor in that Corbyn's team intends to achieve its spending increase by “unusual means” that will require the Bank of England "to support the spending plans of central government", it marks a "radical departure".

But academics in more mainstream circles are already discussing the role of the Bank of England, says the Financial Times, and do not see so-called "people’s QE" as a million miles from conventional quantitative easing. This involves buying bonds from financial institutions that are artificially replaced, creating liquidity that can be filtered into the economy. They argue this process also has "an impact on the government's tax and spending decisions".

In any case, McDonnell did not actually mention unconventional policies such as people's QE or the "robin hood tax" on financial transactions, notes Larry Elliot in The Guardian. In fact the speech was "straightforwardly Keynesian", with pledges to fill the deficit "through growth rather than austerity, and through higher taxes on the better off rather than spending cuts that affect the poor".

Of course, there is "nothing original about this". His proposals are "redolent of George Brown's National Plan 50 years’ ago" which "ended in failure". It all rests on being able to sufficiently raise a growth rate that has already been steadily rising since 2013.

Impossible, says Robert Colvile in the Daily Telegraph, who argues Labour's "new economics" is flawed and riddled with some "very old mistakes". Based on vague figures set out previously by Corbyn that another £20bn in corporate tax 'avoidance' can be collected and that £93bn in grants and other incentives – branded "corporate welfare" – can be heavily cut, Labour intends to "at least" double the rate of tax paid by businesses.

This will hit jobs and reduce substantially the taxes paid by the rich, who despite McDonnell's claims are now paying a much greater share. "The top 1 per cent of earners in 2013/14 paid 27.4 per cent of the tax… the top 10 per cent paid 58.7 per cent of it," Colvile notes. 

"You might be able to get some extra cash from the rich while the going was good… But if they're paying for the rest of us, what happens when they stop making money? The answer is that Chancellor McDonnell would be forced into austerity measures to make George Osborne's eyes water."

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