13 March 2018

After letting Corbyn off the hook, the CBI admits the obvious


A few years ago, Buzzfeed published a list of 16 stunningly obvious facts. Among them were “Comic book vigilante Batman gets his name from being a man who dresses as a bat” and “The page number in a book denotes the number of the page you are on”. The humour was in the fact that the statements were so patently obvious that they did not need to be said.

An example from the law would be the “officious bystander”, a metaphorical figure and legal fiction. He was first proposed by Lord Justice MacKinnon in the Court of Appeal case of Southern Foundries (1926) Ltd v. Shirlaw [1939] as a way to determine when a term should be implied into an agreement. The suggested approach is to imagine a nosey, officious bystander walking past two contracting parties and asking them whether they would want to put some express term into the agreement. If the parties would instantly retort that such a term is “of course” already mutually part of the agreement, then it is apt for implication.

Again, the point is that there are some things which are so painfully obvious that it is unnecessary to say them. If Lord Justice MacKinnon had been giving his judgment today, or if Buzzfeed were to write a follow-up list, then they might include the comments from the President of the CBI, Paul Drechsler, who today stated that renationalisation would damage the economy.

For such a statement is just as stunningly obvious. The CPS recently published an excellent paper revealing the true cost of Corbyn and McDonnell’s renationalisation plans. The initial up-front cost would be at least £176 billion. This would represent around 10 per cent of the national debt, or nearly £6,500 for every household. It would be enough to pay for central government’s contribution to the cost of 2.9 million new social housing units.

Not only would renationalisation cost an absolute fortune, it would damage the economy in other ways. For example, as mentioned previously, the amount would amount to £6,500 for every household. This is money which could have been saved by households and borrowed by businesses to grow their company, provide goods and services which people actually need, and to provide employment opportunities. Alternatively, theses households could have spent this money or invested it in productive and successful companies.

This would have resulted in economic growth, as opposed to using this money to prop up failing and inefficient state owned organisations and industries. Renationalisation would result in money being transferred from the most productive companies and individuals to incredibly unproductive organisations where the money is captured by greedy rent-seekers who drive these industries into the ground.

Moreover, the money would have to be extracted from households through the tax system. This, again, would harm the economy. We know that, because there is a great deal of research demonstrating that one of the best ways to bring about economic growth is through reducing the tax burden.

Renationalisation would also damage the economy by leading to a huge increase in public spending. This is important, as a review of the academic literature reveals that high levels of public spending are associated with low economic growth. For example, research conducted by Fournier & Johansson reveals that high public spending is associated with low economic growth. This is supported by other economists such as Slemrod and Myles.

Further harm to the economy would be brought about by the increase in the national debt as a result of renationalisation. The evidence reveals that a high national debt hampers economic growth. Nations typically see growth slow when their debt levels reach 90 percent of GDP, with the median growth rate falling by one percent and average growth falling by even more. Such an increase in national debt would imperil the economy and make it extremely difficult to respond to shocks and crises.

If that were not enough, renationalisation will also have an impact on direct investment in the UK. Nobody with even the slightest business acumen would think that the very real danger of having your property expropriated by the State on the whim of Comrade Corbyn and his coterie of Marxists would be a sound investment decision. Furthermore, Corbyn and McDonnell’s threat that they would not pay the market price is particularly troubling. The result would be investment drying up, corporations fleeing the country, lost tax revenue, and a gigantic hole in the public finances.

The evidence is overwhelming and the conclusion is unavoidable: renationalisation will harm the economy. It is so painfully obvious it should not have to be said. However, despite it being the inescapable conclusion that anyone with a modicum of understanding of economics and business would reach, it is a welcome intervention from the CBI.

Welcome because the CBI has so far been silent on just how dangerous Corbyn and McDonnell’s plans are for the UK economy. Its obsession with Brexit has blinded it to basic facts about business and economics. And its endorsement of Corbyn’s Brexit plan to stay in the Customs Union has had the effect of bestowing tacit approval on Corbyn and McDonnell’s economic lunacy.

It should not be necessary for the President of the CBI to point out the perils of renationalisation. But having initially let Corbyn off the hook, the obvious now has to be stated: renationalisation would hurt the economy.

Of course there are risks (and also many benefits) associated with Brexit. Market volatility and economic adjustment is to be expected, and the CBI is right to point this out. However, the biggest risk to the UK economy are Labour’s economic plans. The CBI’s stance has, until now, allowed the policies of Corbyn and McDonnell to escape the scrutiny they deserve, and the concerns of businesses in the UK to be ignored. Moreover, it has placed the CBI in a position where they now have to state the blindingly obvious.

Renationalisation will harm the economy. It is practically a tautology. The fact that the CBI has chosen to finally say so is welcome, but also serves to show how their obsession with Brexit has given Corbyn and Mcdonnell a free ride.

Ben Ramanauskas is Policy Analyst at the Taxpayers' Alliance.