Jeremy Corbyn’s plan to rewrite the rules of the UK economy
They looked like they were meeting the Gremlins”, is how one of Labour’s Treasury team remembers a meeting with senior UK civil servants ahead of the 2017 election. Jeremy Corbyn’s party was yet to surge in the polls and expected to take a thorough beating. For the officials, required to meet the opposition ahead of an election, this was a matter of going through the motions.
Yet John McDonnell, Labour’s shadow chancellor and the man driving its economic strategy, has not forgotten the experience. It confirmed what he always assumed, that much of the civil service, like the rest of the British establishment, is instinctively inimical to the party’s agenda. Treasury officials, he says, will be forced to learn “a wider range of economic theories”. If Mr Corbyn does indeed lead his party to power, they are not the only ones in for a lesson.
A Corbyn government promises a genuine revolution in the British economy. Labour’s leadership intends to pursue not only a fundamental change in ownership and tax but a systemic effort to embed reform in a way that future parties will struggle to unpick.
“We have to do what Thatcher did in reverse,” says Jon Lansman, founder of the Corbyn support group Momentum. “We have to take decisive steps to both achieve a significant redistribution and create a constituency of an awful lot of people with an obvious stake in a continuing Labour government.”
At the heart of everything is one word: redistribution. Redistribution of income, assets, ownership and power. The mission is to shift power from capital to labour, wresting control from shareholders, landlords and other vested interests and putting it in the hands of workers, consumers and tenants. “We have to rewrite the rules of our economy,” says Mr McDonnell. “Change is coming.”
David Willetts, a former Conservative cabinet minister who now chairs the Resolution Foundation think-tank, says Brexit has made it harder to paint Labour’s plans as risky. “Brexit is so radical and such a massive gamble, breaking a 40-year trading arrangement, that it’s hard for Tories to say to people ‘don’t gamble on Labour’,” says Lord Willetts. “They just think: ‘who’s the gambler?’”
Over the next week, the FT will be examining the impact of a prospective Corbyn government on the UK economy, exploring the intellectual underpinnings of Corbynism and examining the feasibility and price tag of the planned reforms.
Understandably, those who are doing well out of the existing arrangements are nervous. Matthew Fell, the CBI’s chief UK policy director, says: “The question on the lips of any international investor looking at the UK, is ‘what would a Labour government mean for the economy?’ From company ownership to taxation, they want to know that their investments will be safe.”
Mr McDonnell, the architect of the economic agenda, has been careful to avoid causing too many controversies. But even the plans already announced are breathtaking in scope: the nationalisation of rail, water, mail and electricity distribution companies; significantly higher taxes on the rich; the enforced transfer of 10 per cent of shares in every big company to workers; sweeping reform of tenant rights; and huge borrowing to fund public investment.
But this may be just the start. The leadership is also studying an array of even more radical ideas, including a four-day week, pay caps on executives, an end to City bonuses, a universal basic income, a “right to buy” for private tenants and a shake-up in the way that land is taxed to penalise wealthy landlords.
To supporters this is about fairness; about reorienting an economy that works for those at the top but not for the young, the unemployed or those struggling on zero-hours contracts.
To his opponents and those likely to be at the sharp end of such a programme — high-earners, business owners, investors and landlords, it is alarming. “Whenever we hold events I always ask, ‘what are you more worried about, a Corbyn government or a no-deal Brexit?’” says one business lobbyist. “Now the universal answer is Corbyn.” Terry Scuoler, former head of Make UK, the manufacturers’ organisation, has described the prospect of a Labour government as “nightmarish”.
It is not hard to understand their fears. Influential figures within the leadership now include former members drawn from various Trotskyite factions. The trade union Unite has a dominant role in the Labour leader’s inner circle. Mr Corbyn’s past opposition to Nato and the Trident nuclear deterrent and his onetime support for the Venezuelan regime continue to cause concern.
Already, the shadow chancellor has set out plans for £49bn of new taxes and extra spending a year, borrow £250bn to fund a National Investment Bank, nationalise a swath of utilities, rip up labour laws to help workers, build 1m social homes and sharply increase the minimum wage.
A central ambition for both the Labour leadership and its union backers is tilting the balance of power away from employers and back towards the workforce.
Where former prime minister Tony Blair accepted the Thatcherite consensus on union reform, the next Labour government would make it easier for unions to go on strike and extend full employee rights to all workers in the gig economy — such as sick pay, parental leave and protection against unfair dismissal. There are plans for workers on boards, and even staff votes for leaders of some companies. There would be a 20:1 executive pay cap for companies with government contracts.
Mr Corbyn has dropped plans for a “people’s QE” — printing money to pay for infrastructure — at least for now. But he would move the Bank of England from London to Birmingham and parts of the Treasury to Manchester.
There would be a host of tax rises, including higher income tax for those earning over £80,000, a new “excessive pay levy”, a £5bn-a-year financial transactions tax and a jump in corporation tax from 19p to 26p in the pound.
A recent report commissioned by the leadership, Land For The Many, suggested that the current exemption from capital gains tax enjoyed by millions of homeowners could be scrapped.
Mr Corbyn’s Labour is a far cry from Mr Blair’s “New Labour” of 1997, which sought to convince voters of its moderation. “Back then people wanted to be reassured about things not changing too much,” says one close ally. “This time people do want change.”
The financial crisis created the opportunity the Corbynites were waiting for. Its aftermath reinforced the sense of a rigged system, establishing a direct link between the excesses of the financial services industry and the economic travails of ordinary citizens. The Labour leadership further believes the decade of low interest rates since the financial crisis has been to the benefit of speculators rather than ordinary workers.
Many executives have been pleasantly surprised by a series of meetings held with the besuited Mr McDonnell, who pledges to listen to their concerns. Labour has also benefited from the Brexit chaos, which has caused many businesspeople to re-evaluate the Conservative party’s reputation as the party of economic stability.
Yet some political analysts argue that the deceptively gentle demeanour of a longstanding Marxist should not be misinterpreted. “Change doesn’t come from people having tea at the Ritz. It comes from people storming the Ritz,” he said a few years ago.
For Labour, Brexit is also an opportunity. In his speech to the 2018 Labour conference: Mr McDonnell noted: “The greater the mess we inherit, the more radical we have to be.”
It was at that same conference that Labour unveiled its most daring initiative to date: a plan to seize 10 per cent of the shares in every large company in the country — whether public, private or foreign-owned — and hand them to employees. In reality the workers would not entirely own the shares but would simply be eligible for up to £500 a year each in dividends, while the remainder would be taken by the exchequer.
Calculations by the FT and Clifford Chance can today reveal that the policy, called the “Inclusive Ownership Fund”, amounts to a £300bn raid on shareholders, albeit gradually over 10 years. “It’s the biggest stealth tax in history,” says one former member of Corbyn’s office.
Mr Corbyn and Mr McDonnell and are also studying an array of other initiatives including: the break-up of the Big Four auditors; a ban on all share options and golden handshakes; curbs on the voting rights of short-term shareholders; and the public naming of all workers on over £150,000 a year. Companies that fail to meet environmental criteria could be delisted from the London Stock Exchange.
Mr McDonnell has dabbled with the idea of a universal basic income but so far has promised only a pilot scheme. He is more excited about the idea of a four-day working week, and has asked Robert Skidelsky, the economist and Keynes biographer, to produce a report: “Until the first world war people thought it entirely normal to have a one-day weekend, but when it changed to two days the sky didn’t cave in,” says one ally.
Labour would also take an unconventional approach to trade. John Hilary, who is acting international liaison for Labour, has called trade deals a “new form of imperialism” and a type of “plunder”. At one event he said that “we reject the whole principle of free trade”.
By conventional yardsticks, the Labour leader’s political views would keep him from Number 10. His personal ratings are among the lowest ever seen for an opposition leader, while the public remains sceptical about Labour’s economic credibility.
Polling data show that voters currently evince little enthusiasm for a Corbyn government. And yet the existential shock of Brexit, combined with his appeal to younger voters and families fatigued by nearly a decade of austerity, could still deliver the unexpected.
For all the current woes Labour is still the party most likely to benefit from a decline in support for the Tories. But there are questions about how much of the Corbyn-McDonnell policy platform can be carried out in a single term, especially if Labour failed to win a majority.
“There must be a reasonably high prospect that they are a minority government,” says Bob Kerslake, former head of the civil service, who is helping Labour to prepare for government. “They will have to think about the implications of that for the delivery of their manifesto.”
While some in the business community have welcomed Labour’s plans for greater investment in infrastructure projects and for a more muscular industrial strategy, executives in a multitude of industries are now growing uneasy as they pay closer attention to the potential impact of a Labour government in terms of regulation, tax and red tape.
“I would be worried about Jeremy Corbyn, John McDonnell and Seumas Milne, they don’t give a fuck about the City of London,” says one senior Labour figure. “I think a lot of money would be shifted out on day one. There are a lot of people who are worried about the future financial security of the City.”
The Corbyn Revolution
The FT examines the effects Jeremy Corbyn’s economic theory would have on business in Britain.
The push for systemic reform
Still to come…
How much will it cost?
Corbyn’s inner circle
Video: Labour insiders talk to the FT
Subscribers can receive alerts when new content is published in this series by following “Jeremy Corbyn” with myFT.
In recent weeks it has become clear to investors in water companies, the National Grid, projects funded by the private finance initiative, and the Royal Mail that a Labour government would not pay them the market price of their shares when nationalisation takes place.
John Allan, president of the CBI, urged Labour in May to drop its “ideological positioning”, warning that the nationalisation plans are being watched by investors around the world. “People are now asking: is my money, my savings, my income at risk?” he asked. Mr McDonnell accused the CBI of ignoring the public clamour for change and “continuing to put shareholders first”.
Rumours have been swirling for months about other potential candidates for nationalisation — for example, airports or BT — which have been denied by the party. Mr Corbyn, meanwhile, openly advocates the nationalisation of parts of the struggling steel industry. Senior Labour officials believe there is a huge public appetite for state ownership of industries: one points to a recent survey by the Legatum Institute suggesting that one in four people want nationalised travel agents.
“Of course they can add to their manifesto commitments . . . but I’m not aware of some huge hidden list,” says Lord Kerslake.
Mr McDonnell has tried to play down the idea that Labour would have to impose capital controls if it came to power. The issue emerged in late 2017 when the shadow chancellor said he had hired an academic to plan for various post-election crisis scenarios including a run on the pound. “I want to make it explicit that we will not introduce capital controls,” he told the FT in January.
But a 2012 pamphlet with contributions from current senior Labour figures — “Building an Economy For the People” — set out plans for capital controls. With contributions fromAndrew Murray and Seumas Milne, two of Mr Corbyn’s most senior advisers, the booklet offers a range of measures to “control the flow of capital”.
“It’s a radical manifesto and it will take some delivering in one term, I think, but they will want to make significant progress on it in a first term,” says Lord Kerslake.
For the hard left, this feels like a once-in-a-lifetime opportunity. There is no appetite for timidity. “The last time that an established leading economy tried to go for a proper socialist government was Mitterand in the 1980s,” says one of Mr Corbyn’s advisers. “He said in economics there are two solutions: ‘Either you are a Leninist. Or you won’t change anything’. We want something in between, you could — to coin a phrase — call it a Third Way.”