Paul Mason nails the flaw in the anti-Corbyn front pages of Britain’s billionaire-owned media today

Paul Mason
Tracy Keeling

Many of Britain’s billionaire-owned media outlets ran the same front page quote about Labour’s manifesto on 22 November. Based on comments by the boss of the Institute of Fiscal Studies (IFS) Paul Johnson, they screeched at readers that Jeremy Corbyn’s plans are “not credible”.

But economics journalist Paul Mason nailed the glaring flaw with this notion. Namely, that the attack line stems from a failure to think outside of the current prevailing “ideology” in Britain, which Labour’s plans fundamentally do, and arguably, the country desperately needs.

A question of trust

The IFS offered its hot take on Labour’s manifesto proposals on 21 November. Johnson gave an interview to ITV in which he made the “not credible” claim about Labour’s tax proposals. Mason questioned the IFS’s “credibility” in response:

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Mason then went on to highlight the wider point made by Johnson and the IFS regarding Labour’s plans. The Guardian reported that the IFS director said:

The truth is of course that in the end corporation tax is paid by workers, customers or shareholders so would affect many in the population.

As Labour’s manifesto details, it will “reverse some of the Tories’ cuts to corporation tax while keeping rates lower than in 2010”. The party plans to increase this tax on companies gradually, up to 26%, which is less than the 28% it stood prior to the coalition government. Regarding Johnson’s position on this, Mason clarified:

So the argument is that corporation tax, and other taxes raised on companies “inevitably” gets passed on to consumers, workers and shareholders. The right wing ideological claim “companies don’t pay taxes, people do”, then is at the heart of the argument…

The economics journalist points to a problem with this argument, though. He said “Labour’s structural reforms will protect consumers and workers”. So, Mason argued:

It is simply ideology, not professional economics, to insist that the burden of a 26% tax rate on corporations “must” be felt by workers and consumers.

Change the calculation

Effectively, Mason is saying the IFS has passed judgement on Labour’s tax plans without factoring in the impact of all its policies. Labour’s manifesto contains a whole raft of proposals besides raising corporation tax. Lower housing, energy, water, transport, and even broadband costs through its nationalisation plans would obviously benefit many consumers. Meanwhile, the party’s plans for workers, such as a Real Living Wage, higher public sector wages, scrapping zero-hour contracts, and strengthening union rights will not only protect but embolden workers.

As Mason notes:

There is no experience in the post-neoliberal economy of a rich world govt systematically blocking corporations from passing on tax rises to consumers and workers – yet that is what Labour will do.

Basically, Mason says outfits like the IFS aren’t equipping themselves properly. They’re examining Labour’s tax plans within the boundaries of an “ideology” that wouldn’t exist under a Corbyn government. The economics journalist did, though, helpfully offer a way through the impasse the IFS currently finds itself in:

Here’s the challenge: build an agent based model to simulate the behaviour of workers, consumers, the government, financial speculators, companies and the central bank. Test Labour’s manifesto against it. Without that the IFS “not credible claim” is just bullshit.

Not fit for purpose

That is the challenge for institutions like the IFS: analysing Labour’s plans in the context of the party’s transformative plans for the country as a whole, not through the lens of the system as it stands. If it doesn’t rise to it, it’s in danger of misleading the public.

It’s not a challenge the billionaire-owned papers that seized on the IFS claim are likely to take up, though. Doing so would severely interfere with their propaganda operations. They’ll no doubt continue to spread anything that could be damaging to a progressive agenda on their front pages. However, people deserve better from the IFS.

Featured image via the Institute of Art and Ideas/YouTube

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  • Show Comments
    1. Thanks for an informative article on a muddy topic.

      There is another consideration, one perhaps not highlighted in Labour’s manifesto: government borrowing. Some politicians portray supervising the national economy as an exercise in balancing the books under the ‘Micawber Principle’.

      Blair’s neo-liberal government followed by subsequent Coalition and Conservative governments latched onto the ‘private finance initiative’ (PFI) as means not only to enrich friends in the private sector (in accordance with neo-liberal doctrine) but also to pull wool over the eyes of the electorate. Most among the electorate understand ‘Micawber’ despite being unable to put his principle into practice within their own households. Balancing the books at national level can be portrayed as ‘prudent’. ‘Micawber’ and debt mix like oil and water. Thus PFI was used as substitute for government borrowing and doesn’t appear on the books as debt.

      The foregoing has been understood by various commentators for a while. Analysis shows PFI payback as vastly more costly than conventional borrowing. Recently a new element is added to the mix. It is realisation that at national level ‘Micawber’ is naive.

      Household and corporate housekeeping differ qualitatively from demands to be met by government housekeeping. For individuals and business, planned debt can serve useful purpose. Out of control personal and business debt can be disastrous both for the debtors and the economy as a whole.

      There is a cadre of economists questioning the validity of ‘Micawber’ at national level. Moreover, they point out that omission of consideration of individual/business ‘Micawber’ debt from conventional macro-economic models gives distorted view of how an economy operates which could be dangerously misleading.

      These ideas have been brought to the fore following the 2008/9 financial disaster and introduction of quantitative easing. The USA is good example of a nation living beyond ‘Micawber’ prudence for decades. The USA has debt measured in trillions of dollars and is reaching the point where more debt is required merely to service existing debt. Under ‘Micawber’ rules that is recipe for disaster: instant gratification with dire consequences pushed into the future. The USA, and to lesser extent other nations, gets away with this because fiat money is on tap to treasuries and the unit of international settlement, the US dollar, is itself fiat. Some argue that, in principle, what Micawber would regard as fantasy economics could be sustained indefinitely. In practice it can’t for the USA because of increasing reluctance elsewhere (e.g. China and Russia) to use the dollar as reserve currency and unit of settlement. Additionally, physical gold is in much demand by many governments and suggests distrust of fiat money in general and the US dollar in particular.

      One may posit that had the USA spent its debt bonanza differently it would be in a strong position to weather changes arising from secular geopolitical trends. Bond issues and more recent spectacular money printing have not serviced productive industry or provided opportunities for individuals and families. US physical infrastructure is decaying rapidly and private/corporate debt is worryingly high. Debt arising nationally has been sucked into providing military support across the globe for the US empire.

      Can lessons be learned from the USA by the UK? One obvious lesson is how not to organise healthcare services. More pertinent to this discussion is taking a positive message from the USA’s sanguinity over national (but not personal/corporate) debt.

      Labour should borrow as much as it requires. That so long as the money is put into infrastructure improvements benefiting the public and private sectors, and individuals. For instance good transport arrangements and telecommunications (primarily the Internet) benefit all. Excellence in primary, secondary, tertiary and continuing education has direct effect in improving people’s opportunities to fulfil potential (including participation/appreciation of ‘high culture’) and offers to state and private employers prospect of a higher calibre workforce fitted to cope with 21st century exigencies.

      Discussion of how much money can be raised through corporate taxation and increasing tax rates on high earnings is almost irrelevant to the bigger picture. Governments and central banks can raise money at pretty much zero percentage interest. Introduction of negative interest rates means they can be paid to borrow.

      Labour’s already radical intentions can be ramped further. What matters is that expenditure on infrastructure and communal services is arranged such as to leave a legacy for future generations to build upon rather, than as in the USA, a bleak dystopian landscape upon which to subsist.

      Just one example of even more radical thinking should help make the point

      Labour, for sound political reasons, has committed to actively supporting indigenous defence industries. The manifesto points out the innovation and technical skills already present make our defence industry a strong competitor on the world stage. The downside to the defence industry is that its products are of limited shelf life and consumables like bombs and shells when used, in general, don’t add a jot to human happiness or cultural progress.

      Suppose the government were to commit to a decades long strategy of re-skilling defence industries for another high technology purpose such as exploitation of resources in the solar system. Money borrowed at zero or negative interest rates by the government could pump-prime the transition in a manner ensuring shareholders are placed in no greater market risk than at present. Rather than being nationalised the industry would remain in private hands and be pointed in the direction of immense future profitability. The transition need not necessitate giving up arms manufacture as a medium term staple product. Rather, in proportion to the world as a whole becoming more stable as the USA declines, the UK government could maintain current expenditure to the industry (plus the borrowed money) but contract for a share in space related activities; initially these need not be peaceful but would hone transferable technical skills.

      —–

      Released under the Creative Commons Attribution 4.0 international license (sic).

    2. Agent-based models are precisely the problem in macro-economics. Mason is himself talking nonsense.
      Labour doesn’t need him with defending their manifesto, People with more intelligence and integrity like Grace Blakeley do a far better job.

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