22 November 2019

Is Labour now an economics-free zone?


One of the main takeaways from Labour’s manifesto launch was the lack of any strong economic justification for many of the party’s policies. Jeremy Corbyn chose to emphasise that the proposals were ‘popular’, rather than actually sensible, and to argue that critics were motivated by self-interest instead of genuine concern about the wider economic and social impacts.

Indeed, when the independent Institute for Fiscal Studies rightly pointed out the flaws in John McDonnell’s claim that only the super-rich and ‘big businesses’ would bear the burden of higher taxes, Labour and its acolytes dismissed these arguments out of hand. For instance, McDonnell this morning blithely claimed there was “no evidence” that a big hike in corporation tax would have an impact on either wages or prices. This is worrying. What does it say about the willingness of a Labour government to listen to the Office for Budget Responsibility?

Even the financial costings provided alongside the manifesto felt like an attempt to blind the reader with science. This document was full of technical jargon that policy wonks like me might appreciate. But it completely missed the bigger picture of the sheer scale of the tax increases planned to finance higher current spending, let alone who would actually end up picking the bill. And there was nothing about the even bigger increase in borrowing required to pay for Labour’s investment plans.

A couple of examples illustrate the lack of clear thinking behind specific policies too. First, the pledge to ban so-called ‘zero-hours contracts’, which are simply contracts that do not guarantee a certain amount of work every week. It doesn’t seem to matter that many employees, including students and working mums, actually want this flexibility and the additional jobs that it creates. If you have a zero-hours contract and like it, tough. In Labour’s world, the government always knows best.

But the lack of any economic logic for this proposal is also striking. Even the highly-interventionist Taylor review of modern working practices didn’t support an outright ban on zero hours contracts. Instead, it noted that ‘18% of those on a zero-hours contract are in full-time education, which suggests that the flexibility of such a contract could be beneficial for those balancing work and study’.

The second example is the commitment to increase the national minimum wage to £10 an hour as soon as 2020 and to extend it to the under-18s, thus more than doubling the cost of employing a young person almost overnight. This is playing politics with jobs.

It’s true that the introduction of the national minimum wage and subsequent increases have not led to the job losses that some had feared. But this is because it has been set at sensible levels, based on independent evidence and advice. Indeed, many have already raised concerns about Labour’s plans.

The Resolution Foundation has noted that ‘there is good reason to maintain some age differentiation. Young people’s wages are lower, reflecting their relative lack of experience. Applying a higher adult wage rate to all young workers might damage their employment prospects – especially if that adult rate is itself pushed upwards, as under both parties’ plans’. This echoes previous warnings from the Low Pay Commission on the same points.

The Conservatives are also proposing sizeable and potentially risky increases in the national minimum wage. However, their plans are at least more cautious, and in line with the advice they have received from an independent review of the international evidence under Professor Arindrajit Dube.

Labour does occasionally ask for independent reviews too. But they don’t necessarily take much notice of the results. For example, the manifesto promised that ‘within a decade we will reduce average full-time weekly working hours to 32 across the economy, with no loss of pay, funded by productivity increases.’ But the report they commissioned from the economist Lord Skidelsky was far more realistic about what could actually be achieved, especially in the public services.

To be fair, there are some exceptions. Labour’s new fiscal rule for ‘public sector net worth’, while questionable, does at least have a decent intellectual base in work done by the Resolution Foundation. Labour seems to be more aware of the economic advantages of a relatively liberal policy on migration. The party’s rapport with poverty researchers and campaigners might help with plans for benefit reform too.

But things are already going awry, even here. For example, there is plenty of scepticism about Labour’s plans to scrap rather than improve Universal Credit. As the Joseph Rowntree Foundation has warned, this could create further upheaval for those who depend on it.

From the outside, it looks like the current Labour leadership has had rocky relationships with serious economists for some time, and this shows in the latest manifesto. The Conservatives have often also shown a cavalier attitude to evidence-based policymaking too, but a Labour government would surely take this to a whole new level.

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Julian Jessop is an independent economist