JAMES BALL: Short-sighted leaders will harm economy
PUBLISHED: 06:00 16 June 2018
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JAMES BALL deconstructs Corbyn’s economically illiterate talking heads
As crunch time draws ever-closer on Brexit, Theresa May continues to kick the can down a distressingly short length of road – still not taking a clear negotiating position with her own cabinet, let alone with the EU, wasting more time on a clock with a very firm deadline.
But activity on the other side of the UK’s politics offers little prospect of hope either, with prominent pro-Corbyn commentators taking the public position that worrying about Brexit is a pastime for the elite and for the comfortable: issues like the living wage, austerity, and public services are what real people care about, they argue, and what really matters. Brexit is just a game.
Such positions are economically illiterate, complacent and wrong: Brexit is the issue that will define how able we are to bring social and economic justice for the next generation. In much the same way that many voters won’t cite ‘the economy’ as their main concern, some won’t cite Brexit – but that doesn’t stop both being the underlying issue that lets us raise tax and spend it elsewhere to make society fairer.
Given its importance, it’s worth setting out the numerous ways in which Brexit could leave Jeremy Corbyn – or any other left-wing leader – unable to do what they would like to invest in public services, boost the incomes of poorer families, and effectively tax rich ones more.
One of the key constraints on how much the government can spend is how much it takes in tax: while the government can borrow more from international markets or even, in the short run, print money to service its goals (indirectly, as the Bank of England is currently independent), both are eventually limited in their effectiveness.
The UK is already, according to the Bank of England, £900 per family worse off since the Brexit vote. The government takes around 33.2% of GDP as tax, meaning that the government has £299 per family less in tax revenue than it otherwise would. As Brexit continues to slow growth, that figure will only rise.
The country also faces warnings of losing jobs, or seeing business move elsewhere. This has far more devastating effects on public finances, as not only does the government lose the income tax and national insurance income from the workers’ salary, but also VAT, as they spend less, and employers’ national insurance – and it faces paying out more in welfare.
A worker on the full-time median wage who loses their job represents a loss of £3,348 in income tax and £2,421 employee’s national insurance alone. Higher-paid workers such as bankers might not be popular, but any such jobs we lose costs even more: a hypothetical worker on £100,000 who loses their job (or moves to another country) represents a loss of £28,346 in tax and £5,624 in national insurance.
If this was during a full-blown recession, Keynesian economics – generally favoured by those on the left – would suggest the government could and should at least borrow to invest. Brexit would risk limiting our ability to do this: if it hurts investors’ faith in the long-term prospects of the UK as a place to do business, government borrowing will be more expensive, making debt repayments more onerous, which risks a cycle in which economic confidence collapses (as we saw in Greece and elsewhere). Simply printing money, if taken too far, leads to high inflation and a further collapse in confidence.
Ultimately, our ability to do more for the working and middle classes depends on our ability to raise tax, and that depends on a successful economy. Brexit fundamentally threatens that – not just by collapsing existing revenues, but by making it harder to raise new ones. In normal times, it is clear the UK could tax the rich somewhat more, and tax companies somewhat more. At a time when they are already losing confidence, that prospect becomes far riskier.
All of this ignores other benefits of EU membership so far as social justice is concerned: the EU Commission is possibly the only body on earth powerful and interested enough to bring the tech giants successfully to heel, while the Court of Justice of the EU extended the full rights of same-sex partners across all EU nations. The European Union might be far from a perfect institution, but its benefits on workers’ and human rights are hard to dispute.
Why, then, does Britain’s Left feel no need to advocate for a course of action which could prevent huge harm to the Labour’s base and those it was created to advocate for? Partly, this could be a simple abdication of moral responsibility – an idea to sell politically popular (and good) ideas like the living wage while ignoring the economic realities underlying them.
But there seems also to be a risk it is also just preparing the ground for the current leader’s natural euroscepticism by suggesting that the people disagreeing with him on the importance of this issue are doing so because they prefer a wonkish topic like Brexit to ones that ‘really’ matter.
If that is the case, it’s a grave injustice – not to those advocating against Brexit, but to those who will spend the next 20 or 30 years with worse services, lower benefits, and less economic freedom, in part so that one man’s personal ratings could be propped up for a few months. Whether it polls well or not, Brexit will shape the social justice landscape for decades to come – and we cannot abdicate responsibility for that.
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