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Earlier this month the FT warmed to the shadow chancellor. Following Jim Pickard’s first respectful report on any aspect of Labour policy, an article, by Jim O’Neill, chair of the Chatham House think-tank and former Treasury minister, had the headline, “The UK opposition steps into an economic void left by a government grappling with Brexit”.
Following a couple of caveats, O’Neill writes: “In at least six policy areas, which Mr Corbyn and his shadow chancellor John McDonnell are treating as priorities, businesses and the government need to catch up (detail here)”.
- The first area on which Labour sees clearly is Britain’s productivity crisis.
- Second is the orthodox belief that lower corporation tax will magically boost investment spending.
- Third, risking large amounts of money on fixed investment no longer appears attractive.
- Fourth, businesses need to rediscover profit with purpose.
- Finally, there is the housing crisis.
But today there was a decided change of direction – had the editorial board been leant on?
THE EDITORIAL BOARD: Labour’s economic plans have serious flaws: shadow chancellor John McDonnell is ignoring the realities of modern business. The following – mainly speculative – points fail to convince:
- Mr McDonnell’s most eye-catching announcement was a compulsory share ownership scheme. Employee ownership and other profit-sharing schemes are by no means outlandish. Many businesses already choose to run them in order to recruit and motivate their workforce. There are also sound political reasons to give employees a greater share of ownership and a bigger voice on boards after a decade in which wages have remained stagnant in real terms. But companies should not be coerced into taking such action.
- Mr McDonnell claims these proposals are designed to tackle Britain’s productivity crisis – the evidence for this is sketchy and outdated.
- It could increase the cost of capital and deter investment.
- As the scheme would bear only on employers with more than 250 workers, it could also disincentivise growing businesses.
- There is a real danger that Labour’s prescriptions may end up only harming the patient.
- Businesses (and many voters) are concerned that the proposals on the table may only be the tip of Labour’s interventionist ambitions.
- With Brexit representing a step into the unknown, however, the UK needs to preserve business and economic stability, not further radical experimentation
Then a reversion to something approaching approval
“Nationalisation, dilution of shareholdings, workers on boards, sweeping trade union powers — John McDonnell’s economic prospectus for Britain is the Labour party’s most radical in several decades. The shadow chancellor further developed the party’s socialist credentials in his address to its conference in Liverpool on Monday. He senses that the appetite for change is great enough to take Labour into office on a hard-left ticket at the next election”. And: “Labour’s policies do speak to the mood of many voters. Many Britons believe inequality is growing, public services are collapsing and the excesses of capitalism need taming”.
Though not as wholehearted as the conclusion of former Treasury minister O’Neill: “Dealing with the UK’s deep-seated economic problems requires sustained thinking and attention, not just occasional lip service. The Labour Party has stepped into the vacuum left by the government and appears to be offering the radical change that people seek”.
End note: email from Moseley hit harder than the editorial board:
- Looking forward to a rise in the number of companies with 249 employees, if any stay in the UK, should the nightmare come about at the next election ( Ed: as share ownership proposals apply only to companies with over 250 employees).
- The shadow Treasury team admits that private, unlisted companies could not be compelled to hand out dividends to workers. In theory that could incentivise public companies to delist from the stock market.
- The next problem is that foreign-listed companies will not be obliged to hand equity to their UK workforces. Again, that could provide an incentive for London-listed companies to switch their listings to an alternative financial centre such as New York or Frankfurt.
- Nor is it clear how the British government could force an overseas company with a London listing to comply with the scheme if most of its workers are abroad.
- One group of workers who could feel aggrieved by the proposals are those in the privatised utilities such as rail and water. Labour is determined to nationalise the utilities, and admits that — as state workers — staff would no longer be eligible for the share scheme. At present a third of employees in United Utilities participate in their employee share scheme, as do two thirds of South West Water employees and 70 per cent of Severn Trent’s UK employees.
- Another complication is that some companies could find alternative routes to rewarding shareholders, for example by carrying out share buybacks instead of dividends.