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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A Tale of Two U-Turns

Today was a day of U-turns. One for the Tories, one for Labour. For the Tories, David Cameron decided to pull out of bidding for a Saudi prisons contract, over concerns for human rights and the death penalty in Saudi Arabia. The wily Michael Gove appears to have leaked the story of a Cabinet row in a (successful it seems) bid to paint himself in the best possible light, but others may wonder if Jeremy Corbyn’s public calls for the contract to be pulled also had something to do with it. Whatever the truth, Cameron’s decision seems to be popular as U-turns go.

For Labours part, Shadow Chancellor John McDonnell made a significant U-turn of his own. This one has gone down like a lead balloon within his own party, even though it’s a very good about turn for him to make. Two weeks ago he appeared to commit Labour to voting for George Osborne’s Fiscal Charter; a ridiculous document which would commit future governments (in theory, but not in practice) to run fiscal surpluses in ill-defined ‘good times’. McDonnell appears to have signed up to it to try to allay concerns about Labour’s ‘fiscal discipline’. He has now changed his mind and should be applauded for doing so, although it will be embarrassing for him for a few days and has caused serious ructions in the Labour Party. Veteran MP Mike Gapes (who it seems has been having a lot of fun today) summed this feeling up succinctly today Tweeting:

It’s no secret that many (most) Labour MPs actively despise McDonnell, so it should be no surprise that they look to pounce on any perceived errors in judgement. The important thing though is that he has now made the right decision on the Fiscal Compact and now has a chance to make a coherent case against austerity. They should probably now try to get as many ‘experts’ as they can onto the airwaves to trash the Fiscal Compact. That shouldn’t be too hard.

Arguing against “really simple” economics

I blogged earlier about Labour’s decision to sign up to George Osborne’s “fiscal compact” and whether or not that was a good idea. I’ve just been reminded of a bit from Thursday’s Question Time when a member of the audience talked about being “really simple” with the government’s budget being just like his own. I wonder if this kind of thinking is was prompted John McDonnell’s move yesterday. As you can see in the video, economist Yanis Varoufakis quite succinctly set the audience member right, prompting applause from the rest of the audience. It shows that this kind of “common sense thinking” can be countered quite easily if the will is there. I suppose the question is whether the bloke who asked the question changed his mind after the exchange, or still thinks he is right:

Labour chooses to play on away team’s turf for next five years

The Labour Party Conference starts tomorrow and on its eve, Labour’s Shadow Chancellor John McDonnell gave an interview to the Guardian in which he committed Labour to signing up to George Osborne’s “Fiscal Charter”, which commits the government to running a surplus by 2019-2020 and beyond in ‘normal times’. In effect, the fiscal charter is meaningless because governments don’t have total control over either their spending or the amount of tax they collect, so the government’s budget balance is largely dependent on factors outside its control. That said, it was a ‘clever trick’ designed by George Osborne to trap Labour. I guess they were supposed to reject it on the perfectly reasonable grounds that it’s economically illiterate, after which Osborne and co. could paint Labour as ‘fiscally irresponsible’.

McDonnell’s decision then is a tactical one. One would hope he realises the fiscal compact is nonsense, but he has decided for whatever reason to go along with the charade. In doing so he is like a sports captain who agrees that his team will play all their games away from home. It doesn’t mean you won’t win the league, but it does make your task a lot more difficult. McDonnell is clear that committing to ‘live within our means’ does not mean a continuation of austerity for the poor, but rather a shift of the burden onto those on higher incomes.

Playing on the away team’s turf in this context means you must cost every policy along the lines of “We will pay for x by raising tax on y or cutting spending on z”. You also need to get organisations like the Institute of Fiscal Studies to mark your homework and say “yes the sums add up”. If your plans include raising taxes on the rich, there will be no shortage of people queuing up to tell you apocalyptic consequences will follow as a mass exodus of ‘wealth creators’ ensues. Labour should be ready for this. They’ll also be attacked along the lines of their plans not being believable. “You can’t trust Labour” etc etc.

The alternative for Corbyn’s Labour would have been to bring the Tories onto their home turf. They started to do that, even getting the term “Corbynomics” coined. Some of the ideas within Corbynomics – PQE in particular – took a look of flak and they now seem to have backed away from them somewhat. To me though, they had sparked quite a bit of interest in academia and they could have used that as a launch pad to start to talk about the economy in new and much more interesting ways. It would still have been tough, but it would have been in keeping with Corbyn’s “new politics” vibe.

So now they are playing on the Tories home turf instead of their own, can they still win? It’s not impossible, but it makes anything they propose open to the same old attacks. If I had to guess, I would think Corbyn and co. realise they will face the constant threat of a coup from now and for the next five years, so are trying to head that off by appeasing some in the party. There’s an idea that what you say in opposition and then what you do when in power don’t have to bear too much similarity to each other – Osborne is keenly aware of this – but whether McDonnell’s tactics are wise here, I’m not so sure.