Economics of Jeremy Corbyn

An economic evaluation of the Labour Manifesto?

Most significant element of Jeremey Corbyn’s Labour Party manifesto include

  • Higher income tax on top 10% of earners
  • Rail renationalisation
  • Freezing pension retirement age
  • Abolition of tuition fees
  • promise of 30 hours’ free childcare,
  • 10,000 more police officers

What I think:

Higher taxes on the rich. As a high income earner, I support the idea of higher marginal income taxes. There is diminishing marginal utility of money over £70,000, I would rather contribute to better public services.

Abolition of tuition fees. I don’t support this. It is very expensive (cost of £11.2bn) and it is not particularly progressive. It is essentially a tax cut for middle class students who go to university. I would prefer a graduate tax to pay for tuition and any available money to be targeted at primary/secondary education and vocational training – where there is a bigger social return. Tuition fees probably have more political appeal than spending on vocational training – which always has low status in UK. But, the UK needs more vocational training.

Triple lock guarantee for pensions and freezing pension age at 66. I don’t support the triple lock guarantee and am glad the Conservative party were brave enough to end it. To be honest I don’t really support the double-lock. Why should pensioners get generous benefit rises when real wages are stagnant and falling? The most important thing about pensions is the sheer cost. Freezing the pension age at 66 could cost between £90bn and £300bn over the next 30 years. Pensions is by far the biggest single cost to government spending. For example, state pensions will cost an estimated £158.6bn in 2018 compared to £3.0bn for unemployment benefits. The cost of pensions is set to rise, even without freezing the pension age.

“The ONS’s projections for the future costs suggest that figure will rise to £170bn by 2032/33 and to £438bn by 2062/63. When other benefits paid to some pensioners, such as housing benefit and disability living allowance, are factored in, the cost in 2012/13 rises to £110bn (7.1% of GDP) and the forecast for 2062/63 to £491bn (9.4% of GDP).” (Guardian)

At least 100,000 council and housing association homes a year. Good if they can do it. Housing is a real problem for young people and the current situation is not good.

Borrowing for investment. A good idea. The UK needs investment in transport and housing. Borrowing costs are very low so it makes economic sense to do it.  Also, given relatively weak economic growth (GDP per capita) increased spending will help improve economic growth. I would like to see the Conservatives pay a price for the misplaced austerity of the past seven years. See: Growth will be lower if the Conservatives win

Healthcare – extra £8bn. I’m dissappointed it wasn’t more. Labour should have been highlighting the decline in health care spending as a % of GDP over the past 7 years. The amount Labour have promised doesn’t go far enough to fill in the ‘relative funding cuts’ and deal with the expected growth in demand. (from ageing population)

Rail Nationalisation – I support this. Railways are a public service with positive externalities. I would feel better about paying high fares if there was a sense of public ownership. Private ownership has been mixed. Chiltern Railways have been excellent, but too often the taxpayer has bailed out private failures.

Fully costed spending. To Labour’s credit they have attempted to cost spending and prove taxes will pay for it. However, I worry both parties are ignoring the potentially devastating impact on public finances of Brexit and leaving the Single Market. Whilst philosophically I support higher taxes on city financers, I do worry the impact on tax revenues from Brexit and higher tax rates will cause this source of tax revenue to dry up.

Brexit. Labour’s stance on Brexit seems to be leave the EU, leave the Single Market and introduce an immigration policy which will result in a little less immigration. But, it does raise the quesion – wouldn’t we be better off just staying in the single market?

Overall

The Labour manifesto is politically appealing, but from an economic analysis I’m dissappointed. After doing all the hard work of raising taxes, the spending commitments are less progressive than a first glance may suggest.

From a personal point of view, I would love Labour to pull off the greatest political upset since 1945, but if they did get into power some of their spending commitments may prove a millstone around their neck. I feel this election may prove difficult for whichever party wins.

Personal view

A disclaimer. I have already voted Labour (by post).

The main motivation for voting Labour is that I think Jeremey Corybn would be a good leader. I support his stance on foreign policy and feel he has a lot of sincerity. I also admire the fact he has restrained from attacking the personalities of other politicians.

I’m supportive of his general stance on creating fairer society, even if I disagree with many of the individual policies.

12 thoughts on “Economics of Jeremy Corbyn

  1. I think the additional £8bn is from the Tory manifesto – Labour says £30 bn:

    “Labour will commit to over £30 billion in extra funding over the next Parliament through increasing income tax for the highest 5 per cent of earners and by increasing tax on private medical insurance, and we will free up resources by halving the fees paid to management consultants.

    “Labour will boost capital funding for the NHS, to ensure that patients are cared for in buildings and using equipment that are fit for the 21st century. And we will introduce a new Office for Budget Responsibility for Health to oversee health spending and scrutinise how it is spent.”

  2. Thanks for your post. I am in NZ, campaigning for Labour. We are hoping for a Labour victory for you guys, as that may influence our voters too. Love your blog.

  3. Jeremy corbyn has 2 E grades at a level

    It would be better of he retired came to this website and improved his economic knowledge first

  4. May i ask your opinion on the potential minimum wage hike? I study business and will continue to in the future, however i am currently struggling to see how it really benefits anyone. The potential of unemployment and inflation; coupled with the low impact it would have on the bottom 10%, considering how they aren’t working, makes the entire premise seem like a popularity bribe to gain votes off of the lowest in society.

    1. Minimum wage has been good for UK, but Rapid rise to £10 an hour strikes me as a rather large increase which could cause genuine problems for small businessowners, especially in low-wage regions like the north. I would prefer a more conservative approach to raising min wage – taking into account economic conditions.

  5. I’m surprised you haven’t mentioned the proposed rise in corporation tax by 8%. I believe that is by far the most dangerous tax policy announced in Labour’s manifesto. Cuts to the tax over the last 7 years have attracted strong levels of investment and the tax paid by companies has actually risen over that period. With the risks posed by Brexit this sudden tax increase could frighten off foreign firms, who a key provider of well-paid manufacturing and service sector jobs in the UK. It is one of the key reasons i can’t vote Labour; their policies may sound appealing but have little economic justification. Bashing the rich rarely works.

  6. Normally an informative blog, but really, an economist supporting Jeremy Corbyn? – though I suspect a clever but under 40 economist who can’t remember where this ends up – and no doubt argues ‘this time its different’. I’n no economist but I know what will happen if Corbyn and his fellow travellers get in: spending will be massively increased, taxes are raised initially on ‘the rich’, the stock market dips as markets start to fret, the ‘rich’ feel less ‘rich’, the NHS call for few more billion to stave off another crisis, the ‘unproductive’ side of the economy expands steadily, the unions anxious to make up lost ground start pushing for ever greater pay increases and some nationalisations, the UK’s credit rating gets downgraded, the chancellor has to start expanding his or her definition of ‘rich’ to increase the tax take, borrowing and inflation start to climb, stock market drops further, big companies start moving HQs and factories, unemployment starts to increase, mutterings about further borrowing being denied, political mayhem and instability until some later day Mrs Thatcher arrives who takes 10 years of pain and conflict to get back to where we started.

  7. If you were really a ‘high income earner’ – then you would not be favouring high income taxation. Clearly you are a low-income lefty pretending to be otherwise.

  8. I understand that the total tax take in the Uk has never been higher than it is now (c 36% of GDP ) even during the 70’s when the top rate of income tax was 98% ( on investment income) because people adjust activity in line with incentives.
    This is also the problem with nationalisation. Management in private companies have an incentive to take risks. All change and innovation carries risk. Public sector managers are not prepared to risk their index linked pensions. Short of criminal activity they will never be sacked if they keep their heads down and they have no incentive to push through changes against reactionary unions whose only real motivation is to maximise their membership.
    British rail was a shambles and BT was worse. I ‘worked’ in nationialised industries for two years in the 70’s which is a misuse of the word worked.
    As for the health service if politicians of all parties had any real concern for the population at large they would get together and take it out of party politics.
    Given increasing numbers of old people , increasing numbers of obese people and exponential increases in the range and depth of treatment available plus the geographical fragmentation of family support, an NHS providing everything free at the point of treatment to all comers is simply unsustainable.
    That is the private opinion of everyone I know at senior level in the NHS both clinical and managerial.
    All of whom believe there should be a nominal fee for non emergency treatment. (Those on benefits would be exempt. )
    Barring radical change to the funding model survival rates in the UK will continue to fall further behind the best elsewhere.
    Bear in mind that UK total debt to GDP is currently 82% (second only to Japan amongst major economies globally) and that does not include liabilities for public sector pensions and the state pension (all of which are unfunded) or off balance sheet PFI liabilities for Hospitals and Schools built during the Blair/Brown years.
    Annual Interest on UK Gov debt already exceeds the total Budget of the department of education.
    Unlike Japan UK debt is owned in large part by foreigners. The idea that they will continue to lend at current rates regardless of the amount issued is pie in the sky.Rising interest rates will bring a self feeding spiral of reduced consumer spending, recession , falling tax revenues, higher tax rates, lower net income. Alternatively we could print money which would depress Sterling further, push up inflation, reduce disposable income as above.
    There is no happy way to split a shrinking cake. The only good way to respond to this situation is to stimulate enterprise to grow the cake faster.
    That means lower marginal rates of tax particularly on small businesses since the vast majority of net new jobs come from new businesses which also need flexible labour markets.
    Most of the EU have the opposite conditions which is why we have so many smart highly qualified young professionals working in the UK.
    Corbyn learnt nothing from the 70’s and relies on the fact that most of his voters weren’t around to experience it. The decade ended with the UK being bailed out by the IMF. Greece without the sunshine.
    Be careful what you wish for.

  9. One more thing.
    On what basis do you conclude that Jeremy Corbyn is a good leader?
    I spent a career interviewing people for senior positions in both commercial and non profit organisations.
    I can tell you that the world is full of people who talk a good game but have absolutely nothing in their career history to back it up.
    In a lifetime in Politics Jeremy Corbyn had not taken any responsibility whatsoever within Labour in government or in opposition.until Momentum asked him to stand for the leadership. Decent and credible ex government ministers such as Alan Johnson who know him much better than Joe Public describe him as incompetent and untrustworthy.
    Then of course we have his track record of befriending terrorist groups and his policy of neutering our nuclear deterrent by telling potential enemies that he will never use it.
    This is a man who would not get security clearance for jobs involving even low level state secrets.
    In the words of Stevie Wonder if Corbyn becomes Prime Minister. ” Heaven help us all “

  10. It would be much more cost efficient to just improve the efficiency of the NHS, which suffers from huge diseconomies of scale. As essential as the NHS is, at the moment it is a bottomless pit of money. Also please explain to us why you believe we would be better off out of the single market? Perhaps it is better to make to ‘role with the punches’, I believe T. May is the only person who can negotiate a strong Brexit, that will benefit the UK. As a student I am in a very labour intensive society, however I just can not look past the fact that most of their economics is not correct, mainly because of the large debt accumulation, which will bring the debt interest repayment even higher than the current £47 billion (think about what else we could spend on). I also believe the sincerity of Jeremy to be questionable as well.

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