If the Tories don’t pull together, Labour can gain power

Global markets are ignoring the potential danger of a hard-left Labour election victory in the UK.

For the moment, most international investors are sanguine as the next UK general election is due only in 2022. But the political and economic climate is likely to be volatile in the next three years. Moreover, Labour leader Jeremy Corbyn has indicated that he could sow discord and reject a government compromise Brexit deal with the EU. Mr Corbyn’s hope is that the Tory right and left-wing factions will tear each other apart over Brexit. This could open the door to an early election.

The hope of Tories and global investors is that the Conservative Party will eschew Brexit divisions; that the government will produce practical ideas and take action to regenerate the economy and improve the National Health Service, education and security.

Little progress- A sideways shuffle for more than a year

Majority, especially youth dislike Tories

If the Tory right and left cannot join hands, Labour could duck through the political gap and gain power.

Prime Minister Theresa May does not have a majority government. An Ipsos Mori poll shows that about six in 10 voters dislike the Conservative party while almost six in 10 prefer Labour. The Conservatives membership base has shrunk to 124,000, and they are mostly older people. Labour’s membership has soared to 540,000; and the majority of youth, especially in London, voted for the party in the 2017 election. If there were a “hung parliament” with no majority, Labour would seek support from the left-wing Scottish National Party and the Liberal Democrats.

McDonnell’s populism the key to a Labour victory

The key concern in the event of a Labour victory is John McDonnell, the shadow chancellor. He is regarded as a much shrewder, cleverer politician than Mr Corbyn. His proposed economic plans for Britain are aimed at gleaning the support of Britain’s discontented youth, gaining the backing of the main trade unions and winning on a populist ticket. His promised changes are the most radical in decades.

McDonald’s Promises

On the face of it, some of the plans are reasonable, but in practice they follow rigid authoritarian socialist rules. The general ambition is to re-nationalise the water utilities, railways and Royal Mail. These companies, which are an oligopoly, have antagonised their customers. They have raised prices even as clients have complained of sub-standard service. There are also plans to improve infrastructure and boost budgets of health, social services, transport and other public sectors.

Implications if Labour promises are carried out

The problem is money – how to finance these promises. Multi-billions of pounds would be needed to buy out utilities’ local and foreign shareholders. The aim is to raise taxes from the wealthy and companies. But that taxation would not cover proposed spending. The UK’s economy is only growing at 1.4 per cent per annum, and Brexit uncertainty is discouraging local and foreign investment. The nation has a twin budget and balance of payments deficit. The Bank for International Settlements (BIS) calculates that total government debt as a percentage of gross domestic product (GDP) is 85 per cent, and credit to the private, non-financial sector is 170 per cent of GDP. Combined government, corporate and household debt has reached a staggering $8.1 trillion, estimated the BIS.

Markets could undermine Labour aims

Britain has had a productivity problem for some time so Mr McDonnell proposes worker participation in profits. Employees would also be placed on boards. That policy has worked for German and other companies, but Mr McDonnell’s plan is complicated and wrapped in the state’s fist.
If polls begin to consistently predict Labour victory, markets could begin to react. Sterling, bonds, equity and property prices could well slide and a recession could follow. The Labour Party’s promises would then be exceedingly difficult to pursue.

© Copyright Neil Behrmann
This editorial was first published in The Business Times, Singapore. Neil is London correspondent of The Business Times. Jack of Diamonds his thriller on global diamond mining and smuggling, has recently been published. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner.
See reviews of both books on: https://www.amazon.co.uk/Neil-Behrmann/e/B005HA9E3M

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