New win­ter of dis­con­tent is blow­ing in

Economists are brac­ing for a re­turn to the bad old days of the Seven­ties if Labour se­cures the right to put ‘scary’ fis­cal plans into prac­tice, re­ports Anna Isaac

The Sunday Telegraph - Money & Business - - Labour Party -

The Win­ter of Dis­con­tent, the phrase that summed up eco­nomic hard­ship for a gen­er­a­tion, is on peo­ple’s lips again fol­low­ing the Labour Party’s an­nual con­fer­ence this week. The term, from Shake­speare’s Richard III play, be­came the short­hand for de­scrib­ing the dire con­di­tions dur­ing harsh win­ter months at the end of 1978 and the be­gin­ning of 1979.

Mass pay dis­putes, con­tested by trade unions and James Cal­laghan, Labour prime min­is­ter at the time, led to what is be­lieved to be the largest in­dus­trial ac­tion since the 1926 gen­eral strike. Rub­bish piled high in the streets and the dead went un­buried. It cre­ated a last­ing im­age of a coun­try on the edge.

At this year’s Labour con­fer­ence, a speech call­ing for a gen­eral strike to bring down the Gov­ern­ment re­port­edly won a stand­ing ova­tion.

Labour’s eco­nomic pro­pos­als also raised ques­tions about in­fla­tion­ary pres­sures, one of the driv­ing forces be­hind the strikes of the late Seven­ties. Plans for the min­i­mum wage to be raised were mooted, risks to mon­e­tary pol­icy laid bare and a greater tax bur­den for busi­nesses, which com­pa­nies claim will force them to pass more costs on to con­sumers.

“I think the rea­son that peo­ple are reach­ing back to that sort of pe­riod is be­cause it’s the only one that gets close to par­al­lels of what we’re see­ing now,” says An­drew Good­win of Ox­ford Eco­nom­ics. “We’ve never seen any gov­ern­ment aim to have such a large fis­cal stim­u­lus [as Labour pro­poses].

“The real dif­fer­ence be­tween now and the Seven­ties is that we’re in a very dif­fer­ent eco­nomic sit­u­a­tion now. In­fla­tion, the deficit, were on a very dif­fer­ent path then.”

The City’s early es­ti­ma­tions of a Jeremy Cor­byn-led Labour gov­ern­ment were summed up by US bank Mor­gan Stan­ley as “more scary from an eq­uity per­spec­tive than Brexit”. The party pre­sented plans for mass na­tion­al­i­sa­tion, which might cost as much as £176bn, or £6,500 for ev­ery house­hold, ac­cord­ing to the Cen­tre for Pol­icy Stud­ies. It also sug­gested forc­ing the coun­try’s busi­nesses with 250 work­ers or more to put 10pc of their eq­uity into what has been termed “in­clu­sive own­er­ship funds” – some­thing one in­vest­ment man­ager says is “ut­terly in­sane” and likely to make “for­eign in­vestors run for the hills”.

He adds that ei­ther large com­pa­nies will sim­ply choose to re­lo­cate or find creative ways to keep their head­count at 249, “cur­tail­ing job growth”. How­ever, even the spec­tre of what the shadow chan­cel­lor termed “sec­toral col­lec­tive bar­gain­ing”, which led to such high pay rises that it ex­ac­er­bated the in­fla­tion­ary prob­lems of the Seven­ties, was not re­garded as the riski­est pro­posal on the ta­ble. In­stead, it is poli­cies con­cern­ing the Bank of Eng­land that have truly dis­turbed economists.

“We came to the judg­ment, hav­ing run two sce­nar­ios where there is ‘Good Labour’ and ‘Bad Labour’,” says Good­win. “Un­der ‘Bad Labour’, the out­come we think is more likely, in­de­pen­dence [at the Bank of Eng­land] would be com­pro­mised.”

Los­ing its in­de­pen­dence could leave the Bank un­able to push back against the in­fla­tion­ary force un­locked by mas­sive gov­ern­ment spend­ing and sharp wage hikes. Prices could rocket, but in­ter­est rates, the chief tool of mon­e­tary pol­icy, might not be al­lowed to keep them in check.

Chief among the rea­sons economists ex­pect a Labour gov­ern­ment to threaten the Bank’s in­de­pen­dence is the pro­posal to give the in­sti­tu­tion a 3pc an­nual pro­duc­tiv­ity tar­get. The Bank’s Gov­er­nor, Mark Car­ney, says it lacks the means to achieve such a goal. This marks the sin­gle big­gest threat to Labour’s rep­u­ta­tion, hard won un­der Tony Blair, for be­ing eco­nom­i­cally trust­wor­thy, one se­nior banker told

‘Labour poli­cies aimed at busi­nesses would im­pose costs, cause in­vest­ment jit­ters and ham­per firms’

The Sun­day Tele­graph. Grant­ing the UK’S cen­tral bank in­de­pen­dence was Gor­don Brown’s first act as Chan­cel­lor in 1997 in or­der to re­as­sure mar­kets.

“As things stand the Bank wouldn’t have the nec­es­sary tools to ac­tu­ally try to achieve a pro­duc­tiv­ity tar­get,” says Good­win. “There­fore I think the ten­dency would be to try to run mon­e­tary pol­icy much looser in or­der to try to achieve it and that would prob­a­bly be in­fla­tion­ary and re­sult in a loss of con­fi­dence in mar­kets.”

Dr Ge­orge Buck­ley, an econ­o­mist at No­mura, says plans to try to boost pro­duc­tiv­ity are also coun­ter­in­tu­itive when con­sid­ered along­side the full gam­bit of Labour plans. “Na­tion­alised com­pa­nies aren’t as pro­duc­tive as pri­vate sec­tor com­pa­nies,” he says. “Much as every­one hates the rail­ways and thinks they’re dread­ful, think back to what they were like when they were na­tional com­pa­nies. [Na­tion­al­i­sa­tion] presents pro­duc­tiv­ity is­sues.”

Labour’s planned spend­ing could mean the deficit will be higher in a cli­mate of ris­ing in­ter­est rates, Buck­ley notes.

Stephen Martin, di­rec­tor gen­eral of the In­sti­tute of Di­rec­tors, says: “The head­line Labour poli­cies aimed at busi­nesses would im­pose costs, cause in­vest­ment jit­ters, and ham­per firms’ abil­ity to adapt to chang­ing cir­cum­stances.” This is likely to re­sult in a fur­ther hit to pro­duc­tiv­ity.

How­ever, Martin also points to a no­tably ab­sent is­sue in both Jeremy Cor­byn and John Mcdon­nell’s speeches: how to cre­ate an im­mi­gra­tion pol­icy fit for a mod­ern UK econ­omy.

At the Con­ser­va­tive Party con­fer­ence, Martin says, busi­nesses will be look­ing for the Gov­ern­ment to show it un­der­stands that some of the big­gest bar­ri­ers to growth are do­mes­tic.

“At the top of the list con­sis­tently over the past year has been the stub­born is­sue of skills,” he says.

“Busi­nesses will want to see min­is­ters recog­nise eco­nomic re­al­ity and come up with a flex­i­ble and re­spon­sive im­mi­gra­tion sys­tem for the fu­ture.”

Labour pledged a 60pc re­duc­tion in emis­sions by 2030, and to cre­ate 400,000 skilled jobs in the re­new­ables sec­tor. But, like its plans for re­na­tion­al­i­sa­tion of power and other ser­vices, an­a­lysts can­not see where the money would come from

The fi­nan­cial in­sti­tu­tions of Lon­don would be hard hit by Labour’s con­tro­ver­sial poli­cies, with economists par­tic­u­larly fear­ful of the ef­fect on the Bank of Eng­land if its in­de­pen­dence was re­voked

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