Tax and Fiscal Policy

Labour’s approach to deficit reduction is pure fantasy


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Commenting on Shadow Chancellor John McDonnell’s speech to Labour Party Conference, Mark Littlewood, Director General at the Institute of Economic Affairs, said:

“John McDonnell’s economic rhetoric is deeply disturbing. Despite offering few concrete policy proposals, it’s clear we have a Shadow Chancellor enamoured by the economics of intervention and nationalisation.

“Labour seem to believe it possible to eliminate the deficit purely through higher economic growth and clamping down on tax avoidance. There is no evidence that any sort of state activity can boost the sustainable growth rate of the economy to the extent necessary to close the deficit in this way. Nor are his figures on clamping down on tax avoidance credible, unless one defines tax avoidance to include stacks of activities which the government currently incentivises. What we are left with is a strategy which would entail huge private sector ‘austerity’ through tax increases rather than public spending cuts.

“One only need look at Labour’s new economic advisors to see the huge intellectual shift this new leadership represents. Thomas Piketty wants a global net wealth tax and top rates of income tax of 80 per cent. Mariana Mazzucato believes the state is the key source of innovation. Simon Wren-Lewis and Joseph Stiglitz want significantly higher public investment levels.

“The Labour Party now believes the ingredients for long-term prosperity are higher taxes, higher spending, more regulation and government interference in industry. The overwhelming evidence from the last century suggests the opposite to be the case.”

Notes to Editors:

To arrange an interview with an IEA spokesperson, please contact Stephanie Lis, Head of Communications on 0207 799 8900 or 07766 221 268, [email protected]

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.



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