Fraser Nelson

Clueless Chuka

Clueless Chuka
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Given that the Labour leadership campaign is so dull, we should thank Chuka Umunna for cheering us up with his comedy economic analysis. Now on the Treasury Select Committee, he has regaled us with an ‘Open letter to George Osborne' where he makes many entertaining points. It’s worth looking at, because it sums up a few errors swirling around the Labour benches.

 

1)   During our exchange, you insisted your budget was "progressive"… you stood by your decision to apply a 10 percent cut to the housing benefit of those who have been on JSA for more than 12 months. Osborne has to use words like “progressive" to assuage the LibDems, but by their definition he is right. For the first time ever, the Budget produced a distributional impact - along the IFS lines - to show the rich paid more than the poor (we reprinted it on CoffeeHouse). Some £3bn extra was poured into Brown’s tax credit scheme to achieve this graph (which assumed perfect transmission to those in need). Given that Labour economics is defined by judging programmes by their intentions, not their outcomes, the budget was indeed ‘progressive’ using the definition of Labour and the LibDems.

2)   “You could reverse your decision not to raise National Insurance contributions.” If Umunna had even half a clue, he’d realise that the NI contribution rise is, alas, going ahead - by 1 percent on “both employers and employees”. But this, of course, is also Labour language. All of the cost is borne by the employee, who becomes 2 percent more expensive to hire. It’s a mad idea, which is why (as we know from Mandy’s memoirs) Darling opposed it. Cameron spoke with forked tongue when he said on the election trail that he’d ‘get rid of the tax on jobs’. What he is doing is forfeiting some £3bn of revenue by raising employed thresholds to neutralise the effect of this Labour-created NIC increase on the lower paid. That Umunna doesn’t realise what’s gone on here illustrates that he is without a clue.

3)   With this [his proposed ‘restoration’ of the NIC rise that is not being abolished] you could reverse the planned benefit cuts, putting money back in consumers' pockets and supporting the recovery. Let us pause to consider the logic here. An NIC tax rise would take money out of people's pockets - it means lower wages for employees, or high prices for consumers. To even construct a sentence like this suggests Umunna regards the welfare-dependent as the only legitimate form of consumer. Or, more likely, that he hasn’t figured out the link between tax rises and consumption.

4)   You could join with the French and German governments and leading economists in backing a "Robin Hood" tax on financial transactions. Someone should take Umunna aside and explain to him that London is, still, the largest foreign exchange centre in the world - and that this brings a huge chunk of tax revenues. This business can move anywhere, anytime. The reason the Tobin tax has been a daydream is that grown-ups realise it’s unworkable unless every major country in the world implements it. Sweden tried it in 1984, trading plunged by 85 percent so they ended up (surprise surprise) with LESS revenue and eventually had to abolish it. There’s an excellent paper on it here http://ow.ly/2cUzs.

5)   Even the Economist – that bastion of social democracy – argues that "fiscal consolidation will succeed only if the public accepts the package as fair" and that "a contribution from higher taxes is required". I’ve never understood why the FT and The Economist are portrayed as the voice of liberal capitalism, as if they fulfill the role which the Wall St Journal plays in America (and, through its European edition, here). The FT has backed Labour at the previous four elections, while The Economist backed Labour in 2001 and 2005. In 1992, it said the “best reason” for wanting Kinnock to lose was to make “Labour and the Liberals rejoin each other” to bring in PR. Anyway, Osborne is achieving 20 percent of his fiscal consolidation through higher taxes. Your point, caller?

UPDATE: Allister Heath has written more on Sweden's Tobin Tax disaster here.

UPDATE 2: Left Foot Forward has run a spirited rebuttal of my rebuttal here.