Hard-won economic gains for Britain since the financial crisis — including full employment, repairs to the financial system, a return to growth and the slashing of the annual budget deficit to one-third of that inherited from the last Labour government — would be lost at a stroke.
The pound would go into an uncontrolled fall, countless businesses’ and individuals’ savings in shares, pensions and Isas would be ruined, and the new Corbyn government would find it impossible to sell the British bonds which allow the Treasury to borrow on global financial markets.
In a flash, instead of being among the fastest growing economies in the Western world, the nation would be at risk of financial devastation. Foreign businesses which have chosen to invest in the UK would consider an exit strategy. On the other hand, home-grown businesses would feel their livelihoods were at risk. Unemployment — which at 4.6 per cent is half that among our neighbouring countries in the eurozone — would soar.
For the truth is that at the heart of Corbynomics is a huge confidence trick designed to bamboozle the electorate.
Corbyn and his Marxist comrade McDonnell believe it will be easy for Britain to borrow hundreds of billions of extra money on the financial markets and to raise tens of billions in extra taxes.
Put to one side the fact that the markets would only lend money to the government at extraordinarily high interest rates, all the evidence is that raising tax rates for the highest paid and corporations leads to a reduction in revenues as avoidance strategies are put in place and fewer staff are hired.
Already the national debt is a terrifying £1.7 trillion. Reducing it and eradicating the deficit is not an ideological choice — it is a moral and economic necessity if future generations are not to be saddled with unsustainable debt.
But this is something that doesn’t seem to bother Corbyn — a man whose academic qualifications amount to two A-levels (both grade E) — who clearly does not understand the potentially catastrophic consequences of his irresponsible policies.
He must be blind if he hasn’t seen the devastating effects when foreign governments have pursued such kamikaze policies. Uncontrolled public borrowing and high taxes have brought Greece to the edge of bankruptcy.
The country’s national output has collapsed by more than 30 per cent and its government is still negotiating a third international bail-out of £74 billion.
There’s also Marxist-run Venezuela, which Corbyn has long regarded as a socialist utopia and has said is an ‘inspiration’. Britain, take note. Inflation in Venezuela is expected to hit a rate of 2,500 per cent by next year. A bag of rice costs a week’s minimum wage. Even doctors are rioting, demanding a change of government.
Having written about business and financial affairs for more than 40 years, I have rarely seen anything as deceitful as this Labour manifesto. Disingenuously — I would almost use the word ‘criminally’ — it leads voters to think that the party’s spendthrift policies can be paid for by taxing companies and the rich more. Again the evidence is that the higher the tax rates, the less revenues are collected. This was demonstrated by the Laffer Curve, famously drawn by the distinguished American economist Arthur Laffer.
Labour’s vow to load more taxes on any family with an income of more than £80,000-a-year may sound seductive to the majority of Britons who don’t earn that amount. But the fact is that the poorer sections of society will ultimately suffer — as punitive tax rates would quickly destroy initiative, kill entrepreneurial spirit and encourage the best and the brightest to move abroad.
Of course this would soon mean reduced tax revenue — not more, as Corbyn hopes — and, most importantly, less money to spend on the vital public services on which the vast majority of the population depends. Not surprisingly, Labour’s largely uncosted tax-and-spend plans have been criticised by the independent Institute for Fiscal Studies think-tank.
It has pointed out that although Labour’s pledge to raise corporation tax from 17 per cent to 26 per cent would raise extra income in the immediate term, over the medium term it would damage international confidence in Britain as one of the best places in the world to invest — just at the very time when the UK economy needs it most with complex Brexit negotiations about to begin.
What we can be absolutely certain of is that, even if a Corbyn government did manage to raise the extra £48.6 billion a year it says it would get to pay for its pledges, this would be merely a fraction of the amount needed to fulfil all the pie in the sky promises we’ve heard during the Election campaign.
To top all of this, Corbyn wants to bring back into the public sector the railways, the water industry, energy and the Royal Mail. The monstrous cost of such wholesale nationalisation has been estimated by experts as £80 billion or more.
It is true that some of these utilities have been run irresponsibly by private contractors. But I am convinced that if they are returned to public ownership, there is no guarantee the service would be improved. What’s more, there would be scant extra public money to invest in them.
Moreover, another enormous cost of renationalisation would be from the Treasury taking on the billion-pound responsibility of the employees’ pension liabilities. Also, there would be worry that trade unions would exploit renationalisation with service-sabotaging strikes, demand big taxpayer-funded wage rises and block vital technological innovations required to boost the nation’s productivity.
Also, not even included in Labour’s own costings for its wish-list of policies is the estimated £300 billion bill — a terrifyingly large liability for future generations of taxpayers — that would result from its promise to reverse the Government’s decision to increase the age of eligibility for receiving the State pension to 66.
Crucially, this spending spree would hugely increase the national debt. This, inevitably, would spook the financial markets, where the Government has to negotiate borrowing terms. Any sign of weak-ness and Britain would have to pay even higher rates of interest.
Currently, repayment rates are not as punitive as they could be because of the UK’s good credit rating of AA+. If our rating was downgraded, it would have a severe effect on the ability of the Treasury to raise money on the international currency markets.
Indeed, a cut in our credit rating would almost certainly happen on Day One of a Corbyn-led administration as the world financial markets took fright at the prospect of the profligate spending plans and naivete about the economics of the incoming government.
The UK Debt Management Office would find it impossible to sell bonds to foreign buyers and UK holders would most likely dump their investments, making it almost impossible to fund government.
The Bank of England would be forced to increase the interest rate to try and keep bond-buyers on board and to support sterling as it plummeted on the foreign exchanges. We would be faced with the kind of sterling crisis not seen since the Labour governments of the 1960s and 1970s.
Prices and mortgages would rise, wages would fall, unemployment would begin to increase again, interest rates would soar and many families would face the peril of having their houses repossessed.
In sum, Britain would suddenly face the kind of financial chaos which we all believed and hoped was a thing of the past.
‘Economic Armageddon’ is a phrase which no one should use lightly. But as someone who has seen the worst of times and the best of times reporting on the British economy, I believe the risks posed by a Corbyn government of such an event are as great as anything seen in living memory.
