Labour’s John McDonnell on Google and tax avoidance

I wrote this post yesterday about the recent news about a tax deal reached between HMRC and Google. In the comments a reader alerted me to an interview on Channel 4 News with Labour’s Shadow Chancellor John McDonnell. He’s almost very good in it. As seems usual these days, no Government Minister was willing to be interviewed about Google (no empty chair though again), so Cathy Newman stepped in. She tried her best to trivialise the issue, but McDonnell didn’t do too badly under her line of questioning. He did a reasonable job of linking the issue of tax avoidance with the concept of ‘fairness’. This is the correct way to address the issue in my view, but he went about it the wrong way in one sense, and dropped a clanger in another.

A couple of times he implores companies to “pay your taxes”. The trouble is though, they are paying their taxes according to the law. What he should actually be doing is targeting the anger at George Osborne to “change the tax system”, preferably with a few concrete ideas about how to do that. By focusing on the companies themselves, he lets the Government off in a big way and makes it purely an administrative issue on the part of HMRC, saying they are not doing their job right or are underfunded.

McDonnell’s clanger came when he talked about taxes paying for things he thinks should be funded. By doing this, he sets himself up to fail later on because whenever he suggests a policy, the Tories will either say there is a funding black hole or that taxes will have to go up on ‘hardworking families’ to pay for it. A smarter play would have been to just hype the fairness aspect. Every individual and SME can relate to having to pay a more ‘standard’ rate of tax, so the unfairness of tax avoidance should be an easy sell.

Here’s the video. See what you think.

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4 thoughts on “Labour’s John McDonnell on Google and tax avoidance

  1. It’s a car crash every time with McDonnell. Just when you think he’s getting somewhere he’s straight back to the standard rhetoric.

    As long as he keeps playing away at neoliberal united he’s going to keep losing the argument.

    The line here should be that Osborne needs to change the law in parliament and introduce strong profit shifting measures – retrospectively if that is considered necessary. He needs to fund HMRC properly, and then he needs to HRMC to give Google the bill and get them to pay it

    Taxation shouldn’t be backroom deals or whatever the Righteous Team at camp Corbyn says is ‘fair’ this week. It should be entirely a matter of law, enforced very firmly by HMRC.

    1. I would love nothing more at this moment to be a fly-on-the-wall in side Corbyn + McDonnell’s meetings with their economic advisors. Nothing would satisfy my curisoity more than knowing whether any of them “get” MMT but don’t want to say anything publicly (yet) for fear of antagonising voters/PLP/media, or whether they are all just New “Keynesians” who believe in the Government Budget Constraint and lack an appreciation of Sectoral Balances, endogenous credit etc. I’m dying to know whether McDonnell really does think that Sovereign, fiat currency issuing fiscal authorities are constrained in their spending like Local Councils, as he seems to suggest when (continuously) rferring back to his time balancing the budget in his local authority. I’m not sure which would be preferable: knowing about MMT, but willfully lying, or not getting it at all!

      Still, it could have been Chris Leslie…

  2. McDonnell cocked his interview up by rabbiting on about taxes being needed to pay for things such as schools and hospitals, &c, which is just a way of taking Osborne’s line that government expenditure has to be paid for. He did the same thing on Newsnight though he spent less time doing it. He never seems to get it right. And because he isn’t producing a coherent alternative narrative, there is sedition within the ranks. If he fails to do this, they don’t have a hope in hell of winning the next election. Bernie Sanders is doing better than McDonnell in developing an alternative narrative, though he has to iron out some kinks. If Sanders can do it, why can’t McDonnell?

    1. As to your last question “if Sanders can do it, why not McDonnell” (& why not Corbyn, I might add), I think there are a number of explanations. To be clear, these are explanations, not justifications: I think your right about needing to adopt an MMT understanding + framing to kill-off the “how are you going to pay for it” line of argument, which always leads inevitably to the “but didn’t you spend all the money” line of erroneous questioning. I’m just trtying to come up with reasons why Corbyn + McDonnell are doing what they’re doing; this is not the same as saying they should:

      1. The electoral context: at the Presidential level, the Democrats have been much more successful at winning elections than UK Labour in recent years, and are more “trusted” on economic matters by their respective electorate than Labour is. To put it bluntly, Sanders thinks he can afford to experiment with less rhetorical emphasis on “sound finance” because he polls better than virtually any Republican candidate already, and because the Democrats have nothing to prove when it comes to perceived economic “competence”. Contrast this with UK Labour’s situation, where the party is being assailed from all sides by “data” purporting to show that the British public like the party’s policies on socioeconomic issues, and would love to “trust” the party with government, but that Labour first needs to demonstrate “fiscal prudence” and “take the deficit seriously”: We saw this claim in the recently released Beckett report, which attributed the party’s defeat partially to perceptions of economic competence rather than its lposition on the left/right spectrum. Even during the leadership contest, we had people like Cruddas telling Labour that they could be as redistributive as they wanted, so long as they did so within a “responsible” (i.e. budget balancing) fiscal framework. This has motivated Corbyn + McDonnell to think they are limited to offering “progressive” plans to balance the budget, instead of confronting the whole concept of “sound finance” with the much more realistic idea of Lernerian “functional finance”. They do this, either becuse they believe electoral imperatives demand it, or because the PLP does, with Corbyn + McDonnell not wanting to antagonise the PLP.

      Of course, the PLP is unlikely to ever change its (hostile) stance towards the new leadership just because of this; only electoral success or mass membership pressure could achieve such an outcome. Which makes the decison to adopt the “progressive deficit reduction” narrative all the more ironic: electorally-speaking , Corbyn is doomed to be portrayed as radical regardless of his choice of fiscal stance, so the only plausible route to electoral success for someone like him lies solely in drastically changing the prevailing electoral narrative and what people regard as “responsible”, from an emphasis on fiscal numbers to one based on outcomes like ful employment, equity, and price stability. Its that or bust.

      2. Who are they listening to?: Corbyn has had, as far as we know, no direct contact with any of the academics responsible for developing MMT: I recall no evidence that he met Professor Bill Mitchell when the latter came to London in the Summer. Warren Mosler claimed he had offered to give advice to the new leadership as soon as it was elected; I’ve heard nothing since about what happened, if anything, as a result. Nor have we heard even rumours of meetings between the new leadership and the likes of Kelton, Tymoigne, Wray, Tcherneva etc. Judging by how horrified Steven Hail was when McDonnell early on signified he might back Osborne’s fiscal charter (or a revised version thereof), I can’t imagine he was consulted! Even in developing his PQE approach, Corbyn was only indirectly influenced, at best, by MMT, through the offices of Richard Murphy, himself no consistent MMTer but knowledgeable of the approach to some extent. Similarly, McDonnell’s advisory panel, formal and informal, lacks a single academic from the MMT school: Wren Lewis and Blanchflower are New Keynesians, and the same could be said for Stiglitz. Ha-Joon Chang and Mazzucato’s expertise lies on supply-side government interventionism, not fiscal plicy. Only Pettifor has, to my knowledge, used (elements of) MMT from people like Wray, and even she appears unwilling to adopt the framing consistently.

      Compare this to Bernie Sanders, whose economic advisor as ranking Treasury Democrat is (and continues to be) Stephanie Kelton, and who has apparently worked extensively with both Wray and Kelton durin his time as a Senator. So, its quite possible that differences between Corbyn/McDonnell and Sanders’ aproaches stem from the fact that the latter actually knows about + gets MMT, while the former have only been exposed thoroughly to New and (at best) Post-keynesianism (of the non-MMT variety).

      All this said, I agree with you that MMT needs to be openly embraced: Those who understand MMT will comprehend that it is the emphasis on deficit reduction itself, not whether the reduction takes place in a right-wing (spending cuts) or left-wing (tax increases) way, which is fundamentally flawed: So long as the UK has a deficit on its external account, and so long as the domestic private sector wishes to net save in order to reduce its indebtedness, a fiscal deficit is inevitable (and sustainable, given the UK’s nature as a sovereign currency issuer always able, physically, to meet liabilities denominated in its unit of account). Any attempt at deficit reduction, given the aforemenioned state of British sectoral balances, constitutes austerity. Left-wing austerity, or attempting to cut the deficit through tax increases, is still austerity, and suffers from the same problems. Many activists appear not to get this; austerity just means spending cuts, as far as they are concerned, and does not refer to “progressive” attempts at deficit reduction, which explains why most members appear to back the new leadership’s approach on economic matters (they think it constitutes a rejection of austerity when, in sectoral balances terms, it doesn’t really). As long as Labour continue promising “fair” deficit reduction, even as a consequence of economic growth through the automatic stabilisers, they violate Lerner’s law, and will be punished accordingly: does McDonnell really think that the press won’t attack him for his willingness, for example, to let the capital budget float even while promising to balance the current budget? The only way at this stage for Labour to be seen as fiscally responsible is to change what that means, not find more left-wing ways of conforming with the existing definition!

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