Corbyn in No 10 ‘could plunge Britain into a recession’
A CORBYN government would cost Britain billions more in interest payments and could plunge Britain into recession, economists have warned.
Analysts at Capital Economics said net debt would be £100 billion higher under a Corbyn administration. Separate research has suggested the Labour programme would drive the cost of government borrowing, currently just above 1 per cent, soaring to above 3 per cent.
The resulting increase in debt interest repayments – at least £3billion – is worth almost 1p on the basic rate of income tax or the salaries of tens of thousands of NHS staff. Analysts at consultancy Fathom Consulting warned that Corbyn’s policies – which it dubbed ‘essentially old-fashioned tax-and-spend socialism’ – could spark a downturn.
Fathom said: ‘A Corbyn-led government could deliver inflation, through a much weaker currency combined with a fiscal splurge. But it could deliver a recession, too, through falling business confidence and collapsing asset prices.’
Labour says its programme would deliver a stimulus that would mean higher growth, higher tax revenues and ultimately lower debt.
But Fathom said confidence in the UK could plummet: ‘Markets punish tax-and-spend even if the government deficit is unchanged.
They doubly punish deteriorating public finances. And they punish threefold those two plus inflation. Sterling and sterlingdenominated assets could fall a long way in this world. In the past, that has usually been enough to blow tax-andspend governments irrevocably off course.’
In the short term, analysts expect shares to plummet. The FTSE 100 closed at an all-time high on Friday but Economists at consultancy Capital Economics said a Labour victory could send the market into reverse. ‘Labour’s intention to increase corporation tax to 26 per cent in 2020 from the current 19 per cent, for example, could be highly damaging for equities.’
A Labour-led coalition propped up by the SNP and leading to a second Scottish independence referendum would lead to ‘a sharp fall’ in Sterling, according to Fathom. Capital Economics said the financial markets are banking on a Tory victory and there could be wild moves in financial markets if that does not materialise.
Labour shadow chancellor John McDonnell has said his party will only borrow to invest. A party spokesperson said: ‘In the last few weeks, consultancy Oxford Economics said growth would be higher under Labour than Tories and the Institute of Fiscal Studies also confirmed that Labour will close the current deficit with room to spare, and meet our rule of lower debt to GDP target by the end of the Parliament.’