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20 November 2015

How John McDonnell is trying to reframe the economic debate

The shadow chancellor warns that George Osborne is "opening up a massive deficit with the future" . 

By George Eaton

One charge frequently laid against Jeremy Corbyn’s leadership campaign was that it was too retrogressive. Opponents cited promises to renationalise the energy companies and to consider reopening coal mines (both since ruled out) as evidence that his programme was merely reheated Bennism. Some on the left complained that Corbyn failed to grapple with the new trends analysed in works such as Paul Mason’s Postcapitalism and Nick Srnicek and Alex Williams’s Inventing the Future. 

With its promise of “socialism with an iPad”, John McDonnell’s speech today felt like an attempt to answer this criticism. The shadow chancellor told his audience at Imperial College: “If we are to thrive as an economy we have to base our future on the rapidly developing new technologies. It’s what many are calling the new machine age. Miss this boat and we will struggle to keep up in a competitive global market place.” The echoes of Harold Wilson’s “white heat of technology” were clear.

McDonnell cited the example of Finland, which transformed itself in the 1990s “from an exporter of lumber, to an exporter of technology”, and vowed to “bring together business, unions, and scientists in a new Innovation Policy strategy”. He notably promised to raise infrastructure spending to at least 3.5 per cent of GDP (the OECD-recommended minimum), compared to 1.6 per cent at present.

Such a commitment doesn’t come cheap. As Karim Palant, Ed Balls’s former head of policy, noted, the House of Commons library estimates that an extra £45bn will be required to meet the target by 2020. But a McDonnell aide told me that the pledge could be met through incentivising greater private investment and incereasing public investment. The shadow chancellor promised to examine changing the corporate tax system “to give companies incentives to invest wisely” and to investigate “a higher tax on retained earnings should be investigated” and “improved deductibility for long-term investment”. 

Having abandoned his original support for George Osborne’s fiscal charter, he is also now making an unambiguous case for borrowing to invest. In an attempt to reframe the economic debate, McDonnell warned that Osborne was “opening up a massive deficit with the future” by pursuing a budget surplus by 2020. His aim is to present the shortfall in investment as the greatest threat to the UK’s prosperity, rather than the gap in the nation’s public finances. In making this argument, McDonnell has broken decisively with the approach pursued under Ed Miliband, who never made an explicit case for borrowing to invest and who vowed to cut public spending to eliminate the current deficit.

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The shadow chancellor’s address was the first of what Corbyn aides describe as a series of “framing speeches”. McDonnell defined the “three pillars” of the Labour leader’s project as “a New Politics”, “a new Economics” and “a New Relationship with the World”.

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He said: “Jeremy was elected leader of the Labour Party by an overwhelming majority of members and supporters on the basis of a programme that rested on three pillars. First, a New Politics, the creation of a more democratic, engaging and kinder politics in both the Labour party and society. Second, a New Economics, laying the economic foundations of a prosperous, fairer and sustainable society. Third, a New Relationship with the World, based upon a foreign policy promoting mutual co-operation, conflict prevention and resolution rather than military aggression.”

Corbyn will elaborate on these themes when he addresses Labour’s south west regional conference tomorrow, delivering a version of the speech postponed following the Paris attacks. After the events of the last week, it is his remarks on foreign policy that will be most closely watched. Corbyn was due to say that Britain had been “at the centre of a succession of disastrous wars” that had “increased, not diminished, the threats to our own national security in the process”, an argument since challenged by MPs, incuding shadow Europe minister Pat McFadden.