John McDonnell is being Pretty Financially Irresponsible

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Adam Smith's picture
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The Shadow Chancellor, John McDonnell, committed himself to being pretty financially irresponsible as he blasted PFI during his headline conference speech in Brighton this afternoon.

Sam Bowman, Executive Director of the Adam Smith Institute criticised McDonnell's commitment to bring an end to PFI, to nationalise swathes of British industry and the impact these policy proposals will have on British taxpayers. He said:

"Behind everything John McDonnell promised was an unspoken, but unavoidable, price: to pay for all this, we’re going to face big tax rises.

"The tax avoidance ‘tax gap’ exists because beyond a certain point it costs more to pursue tax than it actually raises, not because of some clever conspiracy at the Treasury. So you can’t hope to raise revenues just by ‘getting tough’, because ‘getting tough’ is expensive and difficult in itself. It’s dishonest to suggest that this can pay for the sort of policies McDonnell is proposing, and people should be aware that Labour’s extra spending will mean higher indirect taxes for most workers.

"There are problems with private finance initiative schemes, but on the other hand using private funds to pay for new roads, railway lines and hospitals seems like quite a good idea when government itself is so strapped of cash. By all means we should be trying to do PFI schemes with more accountability for the government departments that go ahead with them, so that taxpayers do not face unnecessary risks, but ruling out PFI altogether will either mean much greater costs for taxpayers or much less money available for capital investment. Higher taxes and less investment might be a price John McDonnell is willing to pay for ideological purity, but for the rest of us the right option is to improve the existing systems, not scrap it altogether.

"Nationalising big swathes of the economy will likely mean higher prices, worse service, or higher taxes, or some combination of the three. In the case of rail and energy, costs are high for users because wholesale prices are high and we have chosen to make users pay instead of forcing others to subsidise them. Nationalising these industries will end up starving them of investment, just as they were before they were privatised in the 1980s. That could mean a return to energy shortages and an underserved train network that barely anyone rode."

For further comment or to arrange an interview please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07584778207).

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