‘The rhetoric now is all about public control being the key to driving economic growth, which is, of course, nonsense at all sorts of levels. For a start, public control doesn’t really mean public control. If you want public control, you can do that through the markets. State ownership is something a bit different.’
Will the man who paints himself as the antidote to Thatcherism lead us back to the worst of the 1970s? This week on The Capitalist, as Britain’s borrowing costs spiked and Andy Burnham faced MPs as Prime Minister, I spoke to the economist Julian Jessop about Burnham’s plans – and whether they can really get Britain back to growth.
We discussed whether nationalisation is a recipe for reducing the cost of living, and Burnham’s curious belief that Britain’s current condition – with taxes at record levels and the state bigger than ever – can be labelled a failed experiment in neoliberalism.
Below, you’ll find some short excerpts from our conversation.
Marc Sidwell
Editor, CapX
On Burnham’s ‘public control’ rhetoric:
‘What we are now starting to see, I think, is the lurch to the Left that many people feared when it became clear that Burnham was going to take over as Prime Minister. So the rhetoric now is all about public control being the key to driving economic growth, which is, of course, nonsense at all sorts of levels. For a start, public control doesn’t really mean public control. If you want public control, you can do that through the markets. State ownership is something a bit different. That means ministers – who often have no private sector or business experience whatsoever, and frankly often are just in hock to the trade unions – will be making big decisions, providing public services and investing lots of taxpayers’ money. And it’s far from clear this will produce any sort of improvement in the economy or the cost of living.’
On reversing Thatcherism:
‘Burnham's spoken a lot, particularly before he became Prime Minister, but certainly afterwards, about reversing Thatcherism and neoliberalism. Not quite clear what he means by those terms, but those of us who just might consider ourselves Thatcherites or neoliberals or free market economists had a sort of hollow laugh at that. The idea that we've moved further towards a free market economy over the last 10 or 20 years is clearly nonsense, given very high levels of state intervention in the economy, very high levels of spending, tax, regulation… Not just under the previous Labour administration, but under the Conservatives. Late-stage Sunakism, in particular, was highly interventionist. He’s got this bee in the bonnet that he just needs to reverse this “lurch to the Right” and somehow things will be a lot better.’
Will nationalisation keep costs down:
‘For me, it basically still comes back to incentives. Private sector businesses have one set of incentives. They obviously have incentives to keep prices down, provide goods and services at the lowest possible cost. Usually that works in favour of consumers. Some people would then say, well, actually public ownership would be good because public companies will prioritise the interest of consumers – but not necessarily. They may well prioritise the interest of workers or the trade unions that are very important in public sector organisations. It might be they prioritise the interest of politicians. So rather than obsessing about exactly who owns a business, or who provides the goods and services, have a look at what the incentives are. And I think in almost all cases, a well-run private sector company with good regulation – if regulation is needed at all – will produce a much better service, at a much better cost, than the same business in the public sector run by ministers or civil servants in Whitehall.’
Why privatisation’s successes get forgotten:
‘There is a perception that companies are bad in some way, and that profit is bad. And that sort of explains the rise of the Greens in particular, with their strongly anti-capitalist rhetoric. It is very frustrating, the way, for example, that rent controls are being seriously discussed as a policy option in this country, despite the overwhelming evidence, both in this country and elsewhere, that rent controls backfire and end up hurting the very people that they're supposed to help.'
Markets think longer-term than politicians:
‘Politicians have often actually shorter time horizons than the markets do. People often say that companies only care about the next quarter’s profit numbers, but that’s simply not the case. If you look at how small companies are rated by investors, they’re clearly taking a much, much longer view. Lots of highly valued tech companies, for example, haven’t made any money yet – but nonetheless the market can take a five or 10 year view and say those will be the big companies in five or 10 years’ time. So the market’s perfectly capable of taking a long-term view, not worrying merely about the next month or quarter of profit numbers.’
What’s coming in the autumn Budget?:
‘The reality is that the UK is paying the highest cost of government borrowing of any comparable economy. And on top of that, the numbers are a lot higher than the Office for Budget Responsibility was assuming the last time it ran them, in March earlier this year. … It's very difficult to see how this Government in particular can square the circle without raising taxes even further. … I think everything is pointing to another big round of tax increases in the Budget. We've already got clear signs it will focus on two things. One is taxes on the so-called wealthy – it doesn't mean new wealth taxes, it means raising the taxes on wealth we've already got: targeting capital gains, targeting property values, targeting pensions, which sort of fits in with Burnham's ideological redistributive agenda. The other thing he's going to target is what he regards as antisocial businesses, or antisocial practices by businesses, like making windfall profits when interest rates go up or when energy bills go up. So I think there'll be some more badly-judged tax increases on the energy sector and on banks, even though those sectors already pay a lot more tax than other types of business do. It's going to be the usual dog's breakfast of itty-bitty tax increases that don't really repair the hole in the public finances, but collectively just increase the complexity of the tax system, discourage investment and entrepreneurship.’
