How might Chancellor McDonnell affect the City?
Should Labour triumph in the next election, John McDonnell is likely to become the new Chancellor. Iain Anderson explains what that could mean for the City
The prospect of a Labour government has been keeping City folks up at night since the Tories’ election disaster last year.
Last summer, I started using a picture of Jeremy Corbyn standing on the steps of Downing Street in my conversations with some FTSE boards. The usual reaction was nervous laughter. I can tell you, they are not laughing so much now.
While the Conservatives have moved into an average small lead over Labour recently, the numbers are too close for comfort and business leaders are listening more to Labour now than at any time since 2015.
So what would a Chancellor McDonnell do for – or more likely to – the City.
Let’s be clear up front: John McDonnell is no big friend of big finance. Since he entered the Commons in 1997 he has twice stood for the leadership of the Labour Party – in 2007 and 2010 – on an avowedly hard left programme. In those times he was happy to be described as a ‘Marxist’.
While McDonnell may resist such labels now, his whole political philosophy and career has been to rail against the excesses of ‘capital’. He thinks it is too short-termist in approach and that it has carried on regardless since the financial crisis of the late noughties. More than that, it has rewarded itself at the cost of magnifying austerity on public services.
Expect City regulation to become a LOT more intrusive and HMRC to have a LOT more firepower on anything located in an offshore ‘paradise’.
So perhaps the biggest policy impact Chancellor McDonnell would have in the first Labour budget would be to introduce a Financial Transaction Tax. McDonell prefers to name it the ‘Robin Hood Tax’. Specifically that would mean an extension of Stamp Duty towards a whole series of market transactions currently outside its scope.Tweet
A bit like Bank of England independence on interest rate setting [which never in fact made it to the Blair/Brown Labour 1997 manifesto] McDonnell remains intriguingly vague about the policy. But what we do know is that this stance is a significant change of heart from New Labour who previously said any FTT could only work on an international basis.
Next up is hiking Corporation Tax to 26%. Now while Major, Thatcher and Blair never got Corporation tax below that level, it would mean BigCo paying the same level of corporate tax last seen in 2011. And if you get a big City bonus, Comrade John may be coming for you too, with higher-rate tax at 50% set to start from £123k.
Nationalisation will be back – and big time. Most voters tend to back Labour’s plans to renationalise railway operators, the Post Office, energy and water companies. You know it’s going to cost well over £120bn so the Government Debt Office is going to get rather busy.
But hey, there might be work for some of the best brains in the City to help renationalise what they helped privatise under Thatcher and Major and Blair. All McDonnell has said is that he would love those brains to help him and come to the aid of their country on a ‘pro bono’ basis. So what are you all waiting for?
And there’s a lot more from Labour. The jewel in the crown is to create a National Infrastructure Bank and regional development banks to invest in the ‘long term‘ way that McDonnell thinks the City does not. Stand by for RBS to be broken up too into small regional entities. And a Labour ‘Glass-Steagall’ Act would enforce separation between wholesale and retail banking. Oh yes and expect City regulation to become a LOT more intrusive and HMRC to have a LOT more firepower on anything located in an offshore ‘paradise’.
While Brexit has been preoccupying many City brains for the past two years, McDonnell gives everyone a whole bunch of new problems to think about.
Last year, McDonnell let slip that Labour was planning for a run on the Pound as the immediate international markets reaction to the most socialist economic programme seen since 1945.
Are you ready for Comrade John?