Corporate giants such as Starbucks, Vodafone, Amazon and Google would be forced by Labour to “pay their fair share of taxes”, John McDonnell declared as he set out his plans for an alternative to the Government’s austerity agenda.
In his first speech as shadow Chancellor, he backed “fairer, more progressive” taxes and heavy investment in industry and building projects as a route to tackling the deficit.
Our cuts will not be the number of police officers on our streets or nurses in our hospitals or teachers in our classrooms
He stressed he was breaking with previous Labour governments over the management of the economy and was cheered by activists as he declared: “We remain inspired by the belief and hope … that another world is possible. This is our opportunity to prove it. Let’s seize it.”
Mr McDonnell declared to applause: “Labour’s plan to balance the books will be aggressive. We will force people like Starbucks, Vodafone, Amazon and Google and all the others to pay their fair share of taxes.
“There will be cuts to tackle the deficit but our cuts will not be the number of police officers on our streets or nurses in our hospitals or teachers in our classrooms.”
He said Labour would review the nation’s major economic institutions, including the Treasury, Bank of England and HM Revenue and Customs, to ensure they are “fit for purpose”. The CBI warned that his plans would fuel inflation and drive up interest rates and the British Chambers of Commerce said Labour “must not confuse supporting growth with state control over the economy”.
The Bank of England
Mr McDonnell stressed that he would preserve the independence of the Bank of England (having once argued that he’d like to see it scrapped). But he did moot “new objectives” for the Bank’s Monetary Policy Committee such as targeting growth, employment and earnings. An explicit GDP growth target would not be a very radical shift. America’s Federal Reserve already has something similar. But an official target for employment and earnings growth could clash with its existing 2 per cent inflation target. The key question would be: which would take precedence?
A ‘Robin Hood’ tax
Contrary to expectations, Mr McDonnell made no specific mention of a new levy on financial transactions, commonly known as a Robin Hood tax. But a day earlier he did state that such a levy would be considered as part of a review of the taxation system.
The problem with a tax on financial transactions is that it is hard to know how much money it will raise because it is difficult to judge in advance how traders will change their behaviour in response to its introduction. If trading volumes fall significantly, then it will raise considerably less cash than under an analysis that assumes volumes (which are extremely large at the moment) hold up. The original goal of the tax, as conceived by the Nobel prize-winning economist James Tobin, was to curb what he saw as destabilising volumes of foreign currency trading, rather than to raise money for the state to spend. Campaigners for a Robin Hood tax, though, claim it would be a major revenue raiser.
What does five more years of the Tories mean for Britain?
What does five more years of the Tories mean for Britain?
1/8 Welfare payments will be slashed
One of the most controversial parts of the Conservative manifesto was to cut benefits for the working age poor by £12 bn over the next three years. But during the campaign they only said where £2 bn of these savings would come from. That leaves £10 bn still to find. Some experts think the only way they can close that gap is by means testing child benefit – with millions of families losing out
2/8 There will be tax cuts for those in work and those who die
The Tories will increase the threshold at which the 40p rate of tax becomes payable to £50,000 by 2020. They haven’t said so but it is also likely that at some point in the next five years they will abolish that 45p rate of tax altogether for the highest earners. They also want to increase the effective inheritance tax threshold for married couples and civil partners to £1m
3/8 There will be an in/out EU referendum in 2017
The next two years are going to be dominated by the prospect of a referendum on Britain’s membership of the EU. First off David Cameron has the daunting task of negotiating a deal with other EU leaders an acceptable deal that he can sell to his party so he can go into the referendum campaigning for a ‘yes’ vote. This may be unachievable and it is possible that the Tories may end up arguing to leave. Opinion polls show Britain is divided on EU membership, one poll this year showed 51% said they would opt to leave compared to 49% who would vote to stay in
4/8 There will be more privatisation of the NHS
Having won the election the Tories now have a mandate to go further and faster reforming the NHS. In order to make cost savings there is likely to be greater private involvement in running services, while some smaller hospitals may lose services they currently provide like A&E and maternity units
5/8 There will be many more free schools – and traditional state schools will become a thing of the past
The Tories plans to create 500 new free schools and make 3,000 state schools become academies. They will also carry on reforming the Department of Education and remove more powers from local authorities over how schools are run
6/8 On shore wind farms will be a thing of the past and fracking will be the future
Government spending on renewable energy is under real threat now the Lib Dems are no longer in power with the Tories. Subsidies are likely to be slashed for off-shore wind farm and other green energy supplies. Meanwhile there will be generous tax break for fracking as ministers try and incentivise the industry to drill for onshore oil and gas
7/8 There maybe more free childcare – but not necessarily
In the campaign the Tories pledged to double the amount of free early education for three- and four-year-olds from 15 hours a week to 30. The extra hours would only be offered to working families where parents are employed for at least eight hours a week. However they have not said where the money will come from to fund the pledge
8/8 Workers' rights could be reduced
The Tories want to slash business regulation, merge regulator and cut costs. The Lib Dems stopped them from reducing the employment rights of workers in power – but these are now under threat
Mr McDonnell sought to shake off the tag that he is a “deficit denier”. But his position on public borrowing still leaves many unanswered questions. In an interview at the weekend he suggested he was prepared to vote for George Osborne’s Charter for Budget Responsibility and said Labour would “always ensure this country lives within its means”. This would entail the Government running an absolute budget surplus by 2020.
But at other times, Mr McDonnell has argued Labour would always allow the state to borrow to invest in infrastructure – thus only balancing the “current” budget on day-to-day Whitehall spending. Yet the Chancellor’s strict Charter leaves no room for such investment borrowing, so it is hard to see how Labour can sign up to it.
Mr McDonnell suggested a major part of his own drive to reduce the budget deficit would come from forcing multinational corporations such as Starbucks, Amazon and Vodafone to pay “their fair share” of corporation tax.
There is no doubt that some corporations are avoiding UK tax through accounting tricks such as registering profits abroad, recognised by the Conservative Government and the OECD. But it is a major stretch to believe that closing such loopholes and slashing other “corporate welfare” could dent the deficit, which stands at £93.5bn. The idea that companies and shareholders could shoulder all the burden of closing the deficit in the timetable Mr McDonnell now seems to want to keep looks unrealistic. Either public services or welfare spending would inevitably have to be reduced, too.Reuse content