First published on Progressonline
The spending side of Corbynomics – set out in his manifesto The Economy in 2020 – with its promises of renationalisation of the railways, the energy companies and even the banking and financial services sectors, has received deserved scrutiny. Less so the question where the money to fund it has come from.
Such attention as there has been has focused on so-called ‘people’s quantitative easing’ which Robert Peston identified as carrying the possibility of ‘devastatingly inflationary consequences’ in a hardhitting blogpost of yesterday.
But Corbynomics also relies on two magic money trees – the ‘tax gap’ (the difference between the amount of tax HMRC calculates it should collect and the actual total) and so-called ‘corporate welfare’ (such as tax breaks and other favourable treatment of companies). And these are no saplings: the tax gap is said by his manifesto to generate £120bn per annum and corporate welfare a further £93bn. Add them together and you have generated revenues of over 31 per cent of all central government spending. Without needing to save a single penny.
Of course, those numbers cannot be right. But they are seductive – for those of a certain mindset – and their technical nature has rendered a rebuttal elusive.
Tax QC Jolyon Maugham, who advised the last Labour opposition on tax policy, has taken up the challenge in a series of pieces published on his blog, Waiting for Godot: Musings on Tax.
In a detailed takedown of the notion of corporate welfare, Maugham argues that it drags the left to a fairytale land of government in crippled obeisance to mendacious business’ and on analysis does little more than ‘fuel a prejudice searching for a justification.’
In his first piece on the tax gap he sets out the evidence that the size of the tax gap is not £120bn, but rather £34bn. This led Richard Murphy, Corbyn’s principal economic adviser, to admit to what the Telegraph described as a £100bn black hole in Corbyn’s tax plans. But even the £20bn residuum, Maugham points out in his second tax gap piece, is uncollectable.
While the debate on the leadership feels theoretical, Corbynomics is about to come under serious scrutiny. From one man’s blog, Fleet Street has pounced. Pieces in the broadsheets – in the Telegraph, Economist, Financial Times, Times – will soon break out into the redtops with disastrous effects for Labour. David Aaronovitch has described them as a ‘crushing repudiation of Corbynite magical thinking on the economy.’
Progress, of course, has long argued that Labour must work to regain its reputation for economic competence. Corbynomics provides easy solutions, but if life were this easy then these solutions would already have been followed. Comrades, it is time to fell some towering magical money trees.
Richard Angell is director of Progress.