After unveiling his 5 point recovery plan in Liverpool, Ed Balls concluded with a flourish: “I don’t care what they call it, Britain just needs a plan that works”. I agree. Assuming the aim is to turnaround the slide into stagnation by generating sustainable growth which will steadily reduce unemployment, it is worth asking how far the Balls plan will achieve this.
Repeating the bank bonus tax this year (£2.5bn) could, as he says, be used to build 25,000 affordable homes (if they cost no more than 100,000 apiece) and will certainly provide jobs for some youg people (though his 100,000 seems on the high side). Bringing forward long-term investment projects is worthwhile , though without the volume and timescale proposed it’s difficult to estimate how much. Reversing the January 2.5% VAT rise should increase spending, though it would increase the deficit by £13bn (unless compensated by an equivalent rise in tax for the rich) and most poor families may decide to use most of the rise in disposable income to cut their debts rather than increase their spending. A VAT cut to 5% on home improvements and repairs is welcome, but won’t provide many jobs. A 1-year NIC tax break for small firms that take on extra workers won’t create many jobs while demand is still falling. Something is missing.
What is wrong with this package is that it accepts the Osborne position that recovery must come from the private sector and that the public sector has no role. In fact for every 2.4 jobs lost in the public sector over this last year, only 1 job has been created in the private sector. The truth is the opposite, that when aggregate demand has been and still is falling so sharply the private sector won’t invest because there’s not enough demand for their products or services, and only the public sector has the capacity to take up the slack and generate sufficient economic activity to reverse unemployment decisively. This is the missing component in the Balls package. Without it merely tweaking the tax breaks won’t achieve the turnaround on anything like the scale required.
The usual objection of course (certainly from Osborne) is how can it be funded? We should answer that. First, a Financial Activities Tax (with the useful acronym, a FAT cats tax). Second, pension tax reliefs now cost the taxpayer £38bn a year, two-thirds of which goes to those with incomes over £100,000 a year; ending this unjustified tax break for the richest 2% would thus yield £25bn a year for serious job creation (e.g. a quarter of a million affordable houses to be built a year). Third, the tax on bonuses, capital gains and dividends should be applied at the marginal rate (i.e. 40% or 50%, not the current 28% loophole which opens the way to so much tax avoidance by the rich). Fourth, a mansion tax above £1m valuation (and in the medium term a land value tax to replace Countil Tax). Amd fifth, pension funds which received £80bn a year in contributions should be required to invest a fair share of this in new jobs and improved technology and infrastructure.
We need to invest in the job creation and new manufacturing base that implementing many of the ZeroCarbonbritain 2030 blueprint for ‘powering down’ and ‘powering up’ renewable energy sources would bring. We need a new green deal to create growth. At the moment, the government is committed to the unproven technology of ‘clean’ coal … a project which is 1) not very ‘clean’ 2) not going to be fully implemented if successful until 2050 and 3) looks extremely like another financial device (developed by Blair’s favourite global management consultancy Mckinsey) which will divert billions of tax payers’ money into the coffers of the power companies.
in 1997 Labour imposed a windfall tax on the utility companies. Today we have cash rich corpoarations and a private sector investment strike. Why not a windfall tax on this hoarded cash to be spent on a council house building programme, and top quality apprenticeship schemes?
These dangerous times call for boldness. Ball’s is still locked in the neoliberal doctrine that only the private sector creates wealth. Voters will be looking to the State to save them as we slip into the double dip and likely depression.