2020? Jonathan Perraton Department of Economics University of - - PowerPoint PPT Presentation

Corbynomics – A Vision for 2020?

Jonathan Perraton Department of Economics University of Sheffield

Corbyn’s Vision

• Changing the terms of economic debate
• Austerity has held back growth, but also led to an

unbalanced and unequal economy over-reliant on debt-fuelled consumption and characterised by weak investment, low skills and a large external

• deficit. Gains from growth are skewed towards

richest groups and regions

• Higher productivity economy needed to raise

wages; this is also needed to reduce the deficit

• Prosperity requires a new partnership between

government, businesses and workers

G7 Investment Rates

Key Policy Proposals

• Ending austerity – cutting in a downturn does not

produce growth. Now reject Osborne’s fiscal charter. Case for spending on infrastructure and skills (adult and further education; HE)

• Creation of a National Investment Bank as part of

strategy to up-grade UK’s industrial structure and encourage investment and innovation; particular emphasis on key industries including green technologies

• Shift in taxation to finance this; possible ‘People’s QE’
• Possible state ownership, although not clear beyond

rail

‘People’s QE’?

• The National Investment Bank could issue

bonds, these could then be purchased by the Bank of England directly to support this

• The BoE QE, they purchase govt bonds

indirectly (from private holders of these assets); unequal and of questionable effectiveness

• Latterly John McDonnell appears to have

distanced himself from this

Tax and Spend

• Have now rejected fiscal charter – a downturn,

with very low interest rates exactly the time to spend on infrastructure etc. Grow the economy to solve the deficit

• Tax burden to shift (make more progressive,

possible changes to higher income tax rates, corporation tax, inheritance tax)

• Key proposals to increase tax take: improve

collection of tax owed (increase HMRC staff); close loopholes; tackle underground economy; reduce expenditure on ‘corporate welfare’

Question Marks

• Much of the analysis of the problems of British

economy is widely shared

• Austerity has been widely criticised by

economists; Osborne’s fiscal charter also rejected

• QE – undermining BoE independence (McDonnell

denies this and arguably already compromised); unnecessary with very low interest rates anyway?

• Tax – estimates of potential take from these

measures appear high; ‘corporate welfare’ covers a wide range of activities, not all of which a Corbyn govt would wish to discourage

The Capital Dilemma

• Democratic left governments wish to intervene in markets to

change outcomes, redistribute income, build a welfare state

• But prosperity still depends on private investment; investment has

been low despite low interest rates, relatively buoyant profits

• Investment has been weak in the UK even before the financial crisis;

firms overall have accumulated large cash surpluses, rather than borrowing to invest

• Corbyn plan sees a sustained recovery in investment as central –

higher demand from an end to austerity and the NIB may help

• But in general there is little detail here on how investment might be

encouraged, and some proposals that might discourage it

• Keynes wrote of ‘socialisation of investment’ by the state if private

investment was insufficient to guarantee full employment

• Return of the dormant bond market vigilantes?