‘There’s going to be a lot of people who vote for Theresa May who will deeply regret it’
Tax Specialist Richard Murphy describes the looming crash ahead for the UK after GE2017, and the myth of a ‘strong and stable’ conservative government
RICHARD MURPHY: I am Richard Murphy, I am Professor of Practice in International Political Economy at City University of London.
The general election is a sham. We don’t need a general election now, the law said we should not have a general election now. The law said we should have a general election in 2020, but Theresa May thought she could exploit the situation to increase her majority, to impose hard Brexit on the UK before we go into a serious financial crisis.
Are we going to go into a serious financial crisis? Yes. When? Soon. How I do I know? Debt is increasing, individual debt is increasing. The number of bankruptcies is increasing, the number of county court judgments is increasing, real wage rises are falling, the amount of new credit available in the economy is reducing, so people will not be able to make up the shortfall. We are therefore going to have an economic downturn.
We’ve already suffered a fall in the exchange rate, investment is declining, we are in trouble. She knows that, that’s what the real economy’s doing, so before that becomes apparent to people, she’s going to run to the country, exploit the situation, where she’s seen as strong and stable, whatever that means, complete nonsense, and exploit the fact that Jeremy Corbyn is unpopular and say, “Give me the mandate I need to take us out of Europe.” God knows why, she hasn’t explained, literally she has not explained what she’s going to do with this mandate and, she’s doing it all before the crisis begins to hit home. There’s going to be a lot of people who vote for her, who are going to deeply regret it I suggest.
We are told we are going to get a strong and stable government in the UK. It’s a complete nonsense, first of all, we’re going to get Theresa May, we’re not going to get a government that even campaigned to vote Theresa May, so that’s not a government, that’s a Prime Minister, for the first time we’re getting a President. Secondly, have they got a good track record of strong and stable? Everything that the Conservatives are saying is lies, one of the pieces of research I’ve done is very simple. I looked at the last 70 years, and said, “Who on average in real terms has borrowed more money? Labour or Conservative?” And the answer is, it’s always the Conservatives borrow more. But they say strong and stable is a balanced budget, well they’ve never delivered it, they’ve borrowed more than Labour, every year in office, on average.
They talk about strong and stable, because they’ve delivered austerity, but they’ve crashed the economy, they’ve reduced real wages, they’ve cut our services, they’ve pushed people into poverty, that’s not strong and stable, that’s creating misfortune, disharmony, division in society, stress, how’s that stable? Actually I think we’re living in a very dangerously divided country after seven years of austerity. I don’t get strong and stable, I get weak and feeble maybe, but certainly not strong and stable.
The Labour Party has issued its manifesto for the 2017 general election, and I’m on record as saying, I welcome this manifesto. What’s good about it? Fundamentally, this says we reject neoliberalism, we reject all the arguments of the last 35 years, which have said the markets know everything, and they provide the solutions, this says the government has a fundamental role in society, in providing education, healthcare, housing, training, all the other things we need, infrastructure investment, says that’s a government role, and we can’t outsource it, Hallelujah! At last, we’ve got somebody who’s willing to stand up and say, government can be a good thing and is the right provider of the solution.
To balance that, there’s a request for more taxation. I argued years ago we should be increasing the tax rate on higher paid people, I argued there should be a cap on tax relief on high earnings, and that appears to be pretty much flowing through into this manifesto. I’ve argued that we should have a high corporation tax rate and corporation tax cuts are absurd. In fact, corporation tax cuts are absolutely counter productive for our economy. If you have a large company investing right now, with a tax rate of 19%, and the rules we have for allowances on investment, for every 100 pounds they invest, they get 3.80 pounds back in a tax saving in year one.
Now admittedly they get some more in years two, three and four, I don’t deny that, but they get very little money back each year. Not enough to really change their decision. If Jeremy Corbyn introduces a 26% corporation tax rate and, he matches that with an investment allowance, and I think he should, which says you get 100% relief, they get 26 pounds back in the year they spend the money, and that creates a massive incentive to invest, and an incentive to invest boosts productivity, boosts the value of labor, can increase wage rates and create a virtuous upward cycle in taxation, that actually delivers us a strong economy for the future.
Yes, the whole point about a high corporation tax rate, is that what it does, is encourages people who are really going to invest, to lay their cash on the table, to go out there and buy new equipment, to invest in technology, to get people to train, because they get a lot of tax relief on it. The best tax avoidance of all, is literally investing in the real economy if you have a high corporation tax rate.
Let’s also look at the other side of this. Some people will say this will give an incentive to move money out of the UK. Of course they’ll say that, they always say that. First of all, that’s complete nonsense, there’s no evidence that people move real businesses on the basis of taxation. Real businesses require people, and they require customers, and the UK’s got 65 million people, who can either work, or can be customers, no big business is going to turn its back on that.
So let’s be clear, nobody’s going to walk out of the UK, this is a big market. They might try and take their profits out of the UK, and a decade ago, they’d have got away with that, but now we’ve got country by country reporting for taxation. Country by country reporting shows when somebody is artificially understating profit in one country, and artificially overstating profit in another country. The UK is going to still have this rule after Brexit, so they will be able to find out who is abusing by trying to shift their profits out of the UK. If it’s found out, it can be challenged and corrected.
Do I therefore believe that actually there’s very much risk from having a 26% corporation tax rate, because all the money is suddenly going to fly away to tax havens? No, because in the last decade, we’ve won the argument on this issue, we’ve got the systems in place, the cheats will be found out, they know it, they won’t try it.