John McDonnell's speech on the economy: The business reaction

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The shadow chancellor John McDonnell has unveiled his “new economics for new politics” policies, including support for “direct action” against government proposals, a Robin Hood tax and reforms to the Bank of England.

New Labour leader Jeremy Corbyn’s most controversial appointment said direct action, including disruptive protests, had been successful on a number of points, including the third runway and tax avoidance.

As expected, he raised the prospect of a Robin Hood, or financial transactions, tax, worrying those in the City who fear such a levy could harm its competitiveness.

He added that the Bank of England’s mandate should be reviewed given that it is not meeting its inflation target and suggested that quantitative easing would only be used at certain times in the economic cycle on his watch.

He also said he would announce a review of the HMRC.

“John McDonnell’s economic rhetoric is deeply disturbing.”

Mark Littlewood, Director General at the Institute of Economic Affairs

Here’s how business group’s have responded so far:

John Longworth, director general of the British Chambers of Commerce:

“There is a difference between an entrepreneurial state – one that supports growth and innovation – and a big state, reaching into and directing every facet of business and national life. 

“As it develops its economic policies, the leadership of the Labour Party must not confuse supporting growth with state control over the economy. 

“John McDonnell is right to go back to first principles and review the shape of the UK economy. He is right to start fundamental reviews of how the Treasury and the Bank of England work.

“He is right to engage economic experts to look in detail at how the state can better support economic growth.

“However, he must not prejudge these reviews – or insist on attacking businesses and wealth creators, when a conversation is what is needed. Labour needs to get the tone right if it wants to build a partnership with business, in the national interest.”

John Cridland, the CBI director general:

“The shadow chancellor was strong on intent but has not yet provided great detail on how he intends to deliver his plans. The overall impression of this speech was of rather more intervention in the world of business and the economy.

“We share the aim of seeing more people getting into higher-paid jobs but pay rises need to be sustainable and affordable – and based on rising productivity.

“Mr McDonnell talks of working in partnership with businesses and entrepreneurs, and recognises the importance of deficit reduction, infrastructure, and skills. But this is best achieved by liberating entrepreneurs to create wealth and jobs.

“Most companies pay the right amount of tax and in the last financial year business paid £174 billion into the Treasury – singling out individual companies from the podium is not the best way of signalling a partnership approach with business.”

Russ Mould, investment director at AJ Bell:

“Winston Churchill, once Chancellor of the Exchequer, argued: ‘We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle’ and in the case of a financial transaction tax it is easy to agree with him.

“We must all remember that the tax will ultimately be paid out of our own pension funds and what are seemingly minor charges will compound up over time, eroding the value of everyone’s savings pots and not just those of the already wealthy.

“In December 2012, Italy introduced levies on corporate bond, stock and derivative trades yet raised just €159 million of the targeted €1 billion in receipts during the FTT’s first year as investors switched their attentions away from domestic equities and toward platforms, instruments and asset classes where the tax’s impact was lowest.”

Mark Littlewood, Director General at the Institute of Economic Affairs:

“John McDonnell’s economic rhetoric is deeply disturbing. Despite offering few concrete policy proposals, it’s clear we have a Shadow Chancellor enamoured by the economics of intervention and nationalisation.

“Labour seem to believe it possible to eliminate the deficit purely through higher economic growth and clamping down on tax avoidance.

“There is no evidence that any sort of state activity can boost the sustainable growth rate of the economy to the extent necessary to close the deficit in this way.

“The Labour Party now believes the ingredients for long-term prosperity are higher taxes, higher spending, more regulation and government interference in industry. The overwhelming evidence from the last century suggests the opposite to be the case.”

Video: McDonnell on top rate of tax

Melanie Leech, chief executive of the British Property Federation:

“‎Such a tax (the Robin Hood tax) could make the UK a less attractive REIT regime versus other countries where no such transaction tax existed.

“We would be suspicious of any tax brought in, in the name of more funding for the NHS. That was what the Mansion Tax was supposed to be to pay for, and any tax should be judged on its own merits, not whatever good cause it is supposedly being raised to support. 

“Most financial transactions are not just A to B but tend to be much more complicated, so this tax could be difficult to implement without harming existing methods and practice.‎”

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September 28, 2015 |
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