The Economist - USA (2019-11-02)

20 BriefingCorbyn’s Labour Party The EconomistNovember 2nd 2019

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sun.” Mr Corbyn then had a public battle

with Morgan Stanley, after the investment

bank warned of the dangers of a Labour

government. Yet some in the financial es-

tablishment have started to look more fa-

vourably on the prospect, for two reasons.

The first is Brexit. The Conservatives

have negotiated the hardest of hard-Brexit

deals, which the best estimates suggest will

cut incomes by 6% in the long run. That is

not much less of an impact than leaving the

eu with no deal at all. Labour, by contrast,

promises to hold a second referendum on

Brexit, with a freshly negotiated deal put

against staying in the eu altogether.

Second, the polls suggest that Labour

has little chance of forming a majority gov-

ernment (see chart 2). Most probably it

would have to rely on the Scottish National

Party (snp) or the Liberal Democrats, which

are likely to become the third- and fourth-

biggest parties, respectively. In the com-

pany of more moderate parties, the argu-

ment goes that Labour would have little

chance of getting its most radical plans

through Parliament. That parliamentary

arithmetic, plus the checks and balances

on any British government, would thus

curb the instincts of a Corbyn government.

And battle come down

At a recent briefing from a big investment

firm in London, managers insisted that

British assets were now cheap, on the

grounds that too many investors did not re-

alise just how constrained Mr Corbyn

would be in practice. In September Citi, a

bank, suggested that a Corbyn government

would be “the more market-friendly elec-

tion outcome” relative to no-deal under the

Conservatives, provided that Labour was in

an alliance with the snp and Liberal Demo-

crats. Deutsche Bank has argued that while

“any market-unfriendly policies instigated

during a Labour government are tempo-

rary”, a no-deal Brexit would be a “perma-

nent shock”.

Those analysts are making a mistake.

Without a majority, Labour would be con-

strained, but it would still be radical. Com-

pared with most other countries, govern-

ments in Britain have unusual powers of

discretion to get things done without pass-

ing laws. No matter the makeup of Parlia-

ment after a general election, an incoming

Labour government could overhaul much

of the system—and do so fairly quickly.

Some of this could be for political gain;

an attempt to convince the British public

that it meant business. Labour could quick-

ly launch pilot schemes on the pros and

cons of adopting a “universal basic in-

come”. One Labour policy wonk impishly

suggests the incoming government could

follow the example of the Bolsheviks in 1917

and immediately publish highly sensitive

documents relating to previous govern-

ments—perhaps those related to the Iraq

war or the Troubles in Northern Ireland.

It could also pursue more substantive

policies. Take government spending. A re-

cent report from the Hansard Society, a

think-tank, noted that Britain has “among

the weakest systems for parliamentary

control and influence over government ex-

penditure in the developed world”. Mr Mc-

Donnell could boost spending on public

services at a stroke. He could go some way

towards creating a national investment

bank by boosting funding to the British

Business Bank, an existing programme

which directs investment to small firms.

He would need to seek parliamentary ap-

proval for such largesse at a later date. But

mps would have limited opportunities to

amend these plans, short of defunding the

entire government. 

Without much difficulty, a Labour gov-

ernment could unilaterally raise the mini-

mum wage (currently £8.21 for people aged

25 and over) to whatever level it deemed ap-

propriate. It could also reduce the age at

which people are eligible to receive the top

rate, to 18. The roll-out of “universal credit”,

a hugely unpopular Conservative welfare

reform, could easily be halted. That would

come close to Mr McDonnell’s pledge to

“get rid of the bloody universal credit”.

Labour’s plans for the Bank of England

could also be implemented with little scru-

tiny. The wording of the Bank of England

Act 1998, which enshrines the operational

independence of the central bank, leaves

plenty of room for change. For a period of

three months the Treasury can take over

the management of monetary policy “...if

they are satisfied that the directions are re-

quired in the public interest and by ex-

treme economic circumstances.”

The act also leaves the door open for

more permanent changes. The bank must

target “price stability”. Adding a target of

3% productivity growth does not appear to

flatly contradict that requirement, espe-

cially as the next bit of the act states that

the bank must “support the economic poli-

cy of Her Majesty’s Government, including

its objectives for growth and employment”.

An incoming Labour government could

probably move the Bank of England from

London to Birmingham, as it has said it

would like to. Its time in government

would probably coincide with the opportu-

nity to pick the next governor. Mark Car-

ney, the incumbent, is leaving the post ear-

ly next year. The Labour leadership is

thought to like Andy Haldane, the bank’s

chief economist, who has more left-lean-

ing views on economic policy.

When it comes to the rest of the pro-

gramme—including the sweeping nation-

alisations and the necessary tax in-

creases—legislation would be required.

Moderate Labour mps and trade unions

might try and block some of these plans.

Mr Corbyn is a life-long critic of both nato

and nuclear weapons. However, unions

would hate to see the disappearance of

well-paid manufacturing jobs in the arms

industry; the party at large retains a milita-

ristic streak. He has therefore pledged to

stay in the alliance and continue the re-

newal of Trident, Britain’s nuclear deter-

rent. While the country’s soft power could

shift, focusing on the pet causes of Mr Cor-

byn, its hard power would remain un-

changed. Britain could be left looking like

an ngo with nukes.

But in the case of domestic economic

policy, mps outside Labour’s inner circle

Corbyourenthusiasm

Source:PoliticoPollofPolls

Britain,votingintention,byparty*,%

*ExcludesSNPandotherpartiesthatdonotstandnationally

2

2015 16 17 18 19

0

10

20

30

40

50

UKIP

Green

Brexit Party

Liberal Democrat

Labour

Conservative

95%confidenceinterval

2015 election 2017 election Election called

Election called

Brexit

referendum

No longer the sick man of Europe

Source:ONS *Ten-yearmovingaverage

Difference in yields between British investment

abroad and foreign investment in Britain

% points*

1

-1.

-1.

-0.

0

0.

1.

1977 85 90 95 2000 05 10 15 18

Abroad safer

↓

↑

Britain safer