25 September 2017

John McDonnell and his magic money forest


The Queen in Alice Through the Looking-Glass was famously able to believe “as many as six impossible things before breakfast”. But I think John McDonnell has just about got her beat.

In McDonnell’s case, his remarkable skill is not believing things that are impossible, but mutually contradictory. So he can simultaneously announce in his speech to the Labour Party conference – presumably through gritted teeth – that “it was the Blair/Brown government that recognised and delivered the scale of public investment that a 21st century society needed” and devote the concluding passages of his speech to castigating the Private Finance Initiative, which was the tool they used to do it. He can promise that “never again will taxpayers’ money be used to subsidise the profits of shareholders” – and simultaneously pledge to buy back those shareholders’ PFI contracts.

He can promise to pump billions of pounds extra into the public services, but assure voters that this will all be paid for by closing tax loopholes and scams – by “simply asking that the rich and the corporations pay their way”. And, above all, he can promise to wipe out student debt, abolish tuition fees, spend billions on infrastructure, nationalise rail, water, energy and the Post Office, restore the trade unions to their former power, raise wages, protect pensions – and still eliminate the deficit.

This is the economics, in other words, not of the magic money tree, but the magic money forest. There will be all the spending that voters possibly want – which those wicked Tories denied them. There will be pay rises for public sector and private sector, punishment for the plutocrats, higher GDP, and tea and cake for everyone.

Of course, once you scratch the surface, some of the gilt rapidly comes off. It turned out, seconds after McDonnell sat down, that when he crowed of PFI contracts “We’re bringing them back! We’re bringing them back!”, what he actually meant was that there would be a review of all contracts, and some of them would be brought back. Maybe. “If necessary”.

No wonder the shares of the big infrastructure funds – John Laing, HICL, 3i and so on – remained resolutely untroubled. Perhaps because it is the same investors who will be needed to fund Labour’s planned infrastructure splurge. (In this speech alone we learned of new support for rail electrification, and HS2’s extension to Scotland, and the Swansea tidal barrage.)

Similarly, there were some weasel words elsewhere. McDonnell is promising only to close “the current account deficit”. Labour’s great planned spending splurge would be treated as “investment”, so would not go on to the books – just like PFI. But like PFI, it would have to be paid for in the long run.

But the big picture here is clear – as it has been since Labour published its election manifesto. Loads more spending. A whopping great amount of new taxation, its exact amount carefully shrouded in ambiguity, so the middle classes don’t realise what’s coming for them. And an invocation of the phrase “fully costed” when the sums involved are less fag-packet mathematics than pure wishful thinking.

Take, for example, Labour’s promise to nationalise the rail, water, energy and postal services – a commitment that received a genuinely rapturous reception in the hall yesterday. Rail franchises will be taken into public ownership as they lapse. But how will McDonnell afford to buy out Thames Water, Centrica, the Royal Mail and the rest?

Answer: Parliament will set the price. In other words, private property will be expropriated by the state. And which firms will invest in Britain then, if that’s what will become of their assets? (The CBI today said the plans will send investors “running for the hills”, and they’re not wrong.)

Yet even while McDonnell’s economic programme is both deceitful and likely disastrous – here, for example, are Tim Knox and Daniel Mahoney of the Centre for Policy Studies, CapX’s parent organisation, on Labour’s nationalisation plans – it is also a stroke of political brilliance.

Never mind that Conservatives have been in the forefront of decrying PFI – Jesse Norman MP wrote an excellent pamphlet on the topic for the CPS. They will, if they point out the flaws in his plans (such as the likely galumphing cost, given the approximately £300 billion value of the outstanding payments), be cast as the friends of the robber barons. Likewise those who point out, as I did recently, that Britain’s railways are near the top of the European class under private ownership.

Similarly, we can make nuanced, reasoned arguments about Gordon Brown’s fiscal legacy, and the problems that arise when government interferes in company management – but McDonnell has crowd-pleasing lines about the Tories piling on more debt than Labour, and FTSE executives paying themselves 160 times more than workers.

It was Nye Bevan who said that the language of priorities is the religion of socialism. But if that is the case, then John McDonnell is an apostate. He does not prioritise. He promises everything, to everyone. And the tragedy is, they seem to believe him.

Robert Colvile is Editor of CapX