Driven by data; ridden with liberty.
The main form of Labour’s nebulous economic policy is Plan B, alternately called the ‘Five Point Plan for Jobs and Growth’, in opposition to what Labour sees as Chancellor George Osborne’s rigid and caustic Plan A. The five points are: £2bn tax on bank bonuses to fund a “real jobs guarantee for all young people out of work for a year” and build 25,000 more affordable homes; bringing forward long-term investment projects; reversing the recent VAT rise; a one-year cut in VAT to 5% on home improvements, repairs and maintenance; and a one-year National Insurance (NI) break for small firms employing new workers.
The CEBR estimates the City bonus pool was only £1.6bn in 2012, making a £2bn tax impossible. The plan then shifted: £2.5bn from the 4G auction was to be reallocated to fund 100,000 affordable homes – four times the number supposedly being built from the £2bn bonus tax. According to each variant, the cost to build each affordable home is either £25,000 or £80,000. The 4G-version of Plan B also involved £500m replacing taxes not levied by a two-year stamp duty holiday for homes priced under £250,000.
Proposals for a national house-building programme have gained momentum, thanks to Independent columnist Owen Jones and others. All infrastructure projects require expenditure, contracted companies and planning permission. Only the first is met by this ‘stimulus’ spending. Negotiating contracts takes time, and invalidation from local residents and councils creates postponements. After similar promises in his first Presidential election campaign, US President Obama admitted in 2010 that “there’s no such thing as shovel-ready projects”. These projects are draped in urgency, but compounded delays sedate rather than stimulate.
The reversal on the Value Added Tax (VAT) rise is proposed to be for an undefined “temporary period”. Former Labour chancellor Alistair Darling cut VAT to 15% for 13 months in 2008. Labour accepts the 20% VAT rate, and would restore this neo-default rate after its hypothetical cut. Similar criticisms can be fired upon the proposals for impermanent reductions in VAT on home improvements and NI. Moreover, since Labour implicitly accepts that high NI costs are eroding employment, it was sheer foolishness to enter the 2010 General Election promising to raise NI payments. The VAT rate cut was effective from December 2008, but consumer spending didn’t break from its tailspin until the middle of 2009. Increased borrowing necessitated by these plans is never elucidated by Labour front-benchers, leading Business Secretary Vince Cable to remark, Labour wishes to: “out of this alchemy, reduce borrowing”.
Plan B remains one of Labour’s few articulated economic policies, rather than grand visions of ‘responsible capitalism’ that rewards “producers” and punishes “predators”. Shadow Chancellor Ed Balls stated he will not automatically reverse the coalition’s cuts or tax rises, whilst the party becomes a vessel for public anger and remonstration. Importantly, the Shadow Chancellor backed a full zero-based spending review, meaning every penny of government spending requires justification. The Economist says “Labour is fizzing with ideas”. Without firm policy, Labour will fizzle out.