Debunking Tory economic myths

If Labour is to have a hope of winning the next election, its leadership team has to challenge the Tories` handling of the economy. Dictating the economic narrative should not be the preserve of the Tory party, especially as it insists on churning out the same economic theories, which have more to do with mythology than modern thinking on the subject. It`s time Labour debunked these theories once and for all! In the weeks approaching Sunak`s budget, we will be inundated with figures about the dreadful state of the country`s finances, and how the government must start paying back some of the national debt as soon as possible. This is straight out of the Thatcherite economics text book, and is typical of a chancellor desperate to put ideology before common-sense mathematics, and to start justifying a return to some sort of austerity. Osborne did the same in 2010, claiming that the UK was on the verge of bankruptcy and ruin, ignoring the fact that the Bank of England was at the time creating £350bn with its quantitative easing scheme. The mistaken theory on which this is based states how government debt is like household debt, and must be paid off as soon as possible. As well as stating that government investment is far more urgently required now than debt repayment, Starmer should question Sunak`s figures about the debt totalling over £2tn. If the £895bn of quantitative easing money is included, it means that well over a third is actually owed to the government owned Bank of England. The USA`s national debt stands at $27tn , yet that is not preventing Biden spending £1.9tn on a stimulus package; the UK`s debt should not prevent government spending here either! Sunak will mention frequently, no doubt, how our debt-to-GDP ratio now exceeds 100%, but will ignore pointing out that this has been the case in Japan for over 20 years. Starmer will need to do it, instead! The chancellor will also stress how the government has spent billions already, but never will admit that much of that expenditure actually will return to the Treasury in the form of income and corporate tax, and VAT returns. These economic multipliers are obvious, but we the people, treated as mugs as usual, are presumably not expected to understand them. Really? If a construction company wins a government contract, a large proportion of the company`s fee will result in profits, which are taxed, will pay wages, which are taxed, and will be spent , which will generate VAT returns. This is why cutting benefits is purely ideological, as economically it makes little sense. Perhaps Starmer, and shadow chancellor Dodds, could point out Sunak`s inevitable omissions, when he claims to be part of a generous, "one-nation" government? The third myth in need of greater challenge from Labour, is the one suggesting how the Tory party is the only one which can be trusted with taxpayers` money. The Covid crisis has shown this to be a nonsense, with so much cronyism, contracts given to firms with some connection or other to members of the government, and so much money also wasted on private firms like Serco and Deloitte, resulting in a massive £22bn splashed out on a test and trace system which has so far achieved little. Such government profligacy has to be a major target for Labour; even the National Audit Office pointed out last September the lack of transparency and conflicts of interest in the procurement processes. By proposing that the National Audit Office be allowed more "independent invigilation" of government spending, Dodds has made a sensible start towards winning credibility, but much more is needed. Taxation is often a problem for Labour governments, largely because it gives too much credence to the significance of the so-called Laffer curve, and ends up increasing taxes on the wrong people. Modern economists disregard Laffer`s invention, designed as it was to enable President Reagan to cut taxes for wealthy Americans, but Tories still use it to justify having a mere 45% as the highest band of income tax. The claim that if the rate is higher, fewer taxes are paid, is nonsense, and Starmer and Dodds need to ignore it when targeting the wealthy earners for tax increases in the next election manifesto. Challenge too the absurd Tory notion that taxing the rich is anti-aspirational; are people really deterred from aiming high because taxation will prevent them from enjoying their money? Tories are far too keen to forget that average income is around £26,000, while insisting increasing taxes for everyone is the only way to save the NHS. Wrong on so many accounts! If Starmer is so keen on playing the patriotic card, he and his team should stress how paying taxes in full is the truly patriotic thing to do, and make public their recent tax details. Throwing down the gauntlet to the Tories should soon reveal which party is the more patriotic!