Business and the return of a red scare

In the UK, Labour’s hard-left leadership’s radical policy proposals have drawn gasps of horror from the business community.

Business and the return of a red scare

Kyran Fitzgerald

In the UK, Labour’s hard-left leadership’s radical policy proposals have drawn gasps of horror from the business community.

While Jeremy Corbyn soaked up the applause, shadow chancellor John McDonnell was laying down a few markers and causing ructions in the process.

Last week, he warned business leaders that they will have to face a much more uncertain future, with Tory trade union laws rapidly dismantled and employees being given shares in private companies employing more than 250 people.

Nationalisation of a brace of utilities, starting with the water industry, is also on the agenda.

Copying former leader Ed Miliband, a huge investment in green energy projects is proposed while the privately run academies set up under the Tories would be brought under the control of local councils.

In the past, the socialist money men have gone out of their way to reassure when preparing to take power.

Back in 1992, shadow Labour chancellor John Smith toured the City of London making contacts and easing peoples’ concerns.

Mr Smith was replaced by Gordon Brown who, while a committed social democrat, was always keen to emphasise the solidity of his commitment to financial stability and private sector-led job creation.

Mr McDonnell is an altogether different character — happy at times to play tough cop alongside the more cuddly Mr Corbyn.

Mr McDonnell was once sacked for being too radical by Ken Livingstone — a hate figure of the right — when he headed up the Greater London Council, which Mrs Thatcher later abolished.

Unveiling his ‘Share Plan for Workers’, he warned:

We are ending the profiteering on dividends, vast executive salaries and excessive interest payments

Under the plan, 10% of the worth of companies affected would be taken away and put in a ‘social dividend’ fund from which an annual dividend payment of €500 a year would be made to each employee. Labour suggests that it could raise around £2.1bn (€2.35bn) a year for investment in the fund, but commentators suggest that the real figure will be far higher.

The BBC’s Simon Jack estimates that 10% of the annual dividend payout from Shell alone amounts to £1.2bn and that when you deduct the £500 paid to each of its 6,500 staff, you are left with a hefty £1.12bn going to the State.

This has the feel of a smash and grab raid about it. Many businesses will not hang around waiting like turkeys to be plucked if Labour looks a likely victor in the upcoming general election.

None of this is good for those of us who have investments, direct or indirect, through pension funds and other savings funds in UK-quoted companies.

Labour has calculated that 40% of the private sector workforce would be initially covered by the share scheme, which could be extended.

Investors in utilities would be hit on the double. McDonnell has targeted for renationalisation the water industry followed by railways, energy companies and mail delivery. The ownership of existing water and sewerage companies would be transferred to new regional authorities.

Shareholders would be compensated, but would not receive the current market value of their investments.

Private finance initiative contracts — the UK equivalent of public-private partnerships — would be brought back under state control.

Additional government bonds would be issued to cover the cost of renationalisation, but the implications for the UK’s broader borrowing requirement could be serious.

Remember that Labour is also promising a huge programme of public housebuilding.

Something will have to give as a return to the vertiginous income tax rates of the 1970s will simply not be feasible in today’s’ highly mobile, highly skilled, jobs market. Low tax rates have played a major part in the success in recent decades of London and the rest of the UK’s prosperous south.

Governments mess with that at their peril.

A post-Brexit Britain may anyway find it a lot harder to raise money at reasonable rates to cover an inflated public debt at a time when the prospects for the economy are cloudy to see the least. Ireland would not be unaffected by a Corbyn/McDonnell victory.

Union-friendly labour laws could herald a new era of industrial disruption. Some British based unions operate in Ireland and there could be spillover effects.

But most significant would be a government in London led by people who sympathise with the idea of a united Ireland, the prospect of which has become more real in the wake of the 2016 referendum vote.

Irish taxpayers would have to start coming to terms with the implications of a British withdrawal, however gradual. An economic meltdown could hasten this process.

On a more positive note, a British business crisis could generate investment opportunity for Ireland — along similar lines to Brexit — but few would welcome such a development in a market, for labour and exports, which remains of great importance to us.

The McDonnell/Corbyn vision has found many followers among the young and the lower paid.

Many Tories now accept that the mix of wage stagnation, soaring tuition and housing costs is proving toxic and Theresa May has indicated that she favours more employee representatives on boards — one-third of directors will be worker directors if Mr McDonnell gets his way.

At this stage, it is all to play for.

But what is clear is that many on the right are rattled by the prospect of Mr Corbyn squeezing into power at the head of a left-leaning coalition. Matters are finely poised and many on the hard left are feeling cocky, perhaps excessively so.

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