The Financial Times recently published an article advising their readers on how to hedge their finances against the risks of a Corbyn Government.
Now, on the one hand, this is a very good thing. Articles like this are a sure sign that the financial elites who have captured policy making in this country over the last thirty years are scared. That means we’re probably going to win, and they know that there isn’t very much they’re going to do to stop it.
On the other hand, that doesn’t mean they aren’t going to try. These kinds of attacks represent just a taste of the kind of vitriol Corbyn’s Labour can expect from financial elites when he comes to power. These people have become inured to getting their own way, by fair means or fowl, and any attack on their entrenched privilege is likely to be met with the staunchest possible opposition.
Refuting these arguments on their own terms won’t be enough to stop the onslaught. This is why any Labour Government needs the support of a mass social movement to mobilise the 99% against the 1%. But it is worth spelling out how these people are wrong about the economy — and that the arguments they make only serve to promote the interests of finance at the expense of everyone else.
“Unless we solve the UK housing crisis, we’re going to have Jeremy Corbyn as prime minister,” says Richard Buxton, one of the City’s best-known fund managers and chief executive of Old Mutual Global Investors. “Capitalism is not working for the under-40s, so they’re voting for socialism.”
The financial elites who contributed to this article know that they have only been able to get away with plundering UK economy for thirty years by giving those on middle incomes access to home ownership. This was always going to be unsustainable, and has now resulted in the most acute inter-generational equality ever witnessed in this country. But the Conservatives are unable to build enough new homes to gain the support of young people because doing so would bring down house prices, which would hurt their core constituency — wealthy old people. Richard Buxton seems to think that all he has to do to solve this conundrum is call Jeremy Corbyn a socialist — even though the majority of people in this country express outright support for socialist economic policies.
“You don’t need to be a high net worth individual to have a second home abroad,” says Mr Bertin.
Mr Bertin is, in a way, right to assert that you don’t need to be a HNWI to have a second home abroad. But you do need to be incredibly rich relative to the average person in the UK in 2018. So this statement begs the question as to whether Mr Bertin has ever actually met someone who doesn’t have a second home abroad.
“We’re not talking here solely about the very rich. Labour party statements make it clear that those earning more than £80,000 can expect to pay higher income taxes under a Labour government.”
In another stunning example of complete out-of-touchness, this man genuinely believes that people on £80,000 a year aren’t rich. Just to put this in perspective, this represents less than 5 percent of earners — most of them making money in the speculative activities that caused the financial crisis.
In the long term, there is little that can be done to reduce this burden, unless people consciously work less hard, move down the jobs ladder or emigrate,” Mr Bull says.
Mr Bull’s comment comes from the perspective of someone who has enough freedom to be able to choose what he does, how hard he works, or where he lives. And he thinks people will base their decisions about these activities on the amount of tax they are paying. It might come as a surprise to Mr Bull that most people in this country can’t wonder into work and tell their boss they want to be demoted because it would be more tax-efficient for them, or hop on a plane and decide to start a new life in Hawaii.
But that doesn’t really matter to Mr Bull, because what he really means is ‘I’m going to threaten to leave the country if you raise my tax, even though there is actually nowhere else in the developed English-speaking world where I could go to pay less tax. I wonder if Eton has a subsidiary in Bermuda…’.
Analysis by the Institute for Fiscal Studies, the independent think-tank, suggested that Labour’s plans to increase tax rates on the rich would raise extra revenue mostly from those with incomes between £80,000 and £200,000, rather than those with the very highest incomes.
This is a reference to something called the Laffer curve — the idea that, if you raise taxes above a certain level, you’ll get declining revenues as people work less, avoid tax, or leave the country (see above). Now, the logic behind the Laffer curve — which was drawn up on the back of a napkin by a neoliberal economist in the 1970s — is highly disputed. And even if it does exist, the so-called ‘optimal’ rate of tax is likely to be much higher than the ones we have now.
This sentence is really meant to remind us that the wealthy don’t have to pay tax because they can spend some of their money employing tax advisers to hide their incomes in trusts or shell companies in the Cayman Islands. These advisers are generally very good at their jobs because they are the same people the Government hires to write our tax law. The Government also makes it quite easy for them by supporting a network of tax havens that are still technically under British colonial control. These people know that their ability to avoid tax hinges on the Government’s tacit support of these activities — they also know that Corbyn is unlikely to let them continue to avoid tax, which is why they’re writing this article.
Mr Stovold says people avoiding tax by using trusts would fear “trial by media”. “It would be a witch hunt,” he says.
Mr Stovold wants us to feel sorry for people who avoid tax by using arcane financial structures like trusts. He thinks it would be very unfair for the public to know who these people are — most of whom have made their money via inheritance or through the speculative financial activities that caused the financial crisis. He thinks the public might not be very nice to these people, and that that is extremely unfair. Much more unfair than asking ordinary people to spend billions of pounds bailing out reckless banks and then forcing them to endure 10 years of austerity to make up for it.
Whatever the long-term outcome of Labour’s policies on UK stocks and bonds, the election of Jeremy Corbyn would initially be likely to push down the price of UK gilts, take a toll on domestic UK stocks and result in a slide in sterling according to investment commentators
This is a bit more complicated. UK (and indeed US and European) equities are currently highly overvalued, and UK gilt yields are extremely low. This is because the Bank of England has pumped money into the economy by buying up UK Government debt through its quantitative easing programme. The reason the Bank did this was to boost asset prices after the financial crisis in order to simulate a recovery instead of investing in the real economy. This had the direct and intended effect of making asset-holders (i.e. the wealthy) much richer, whilst loading ordinary consumers up with unsustainable levels of debt. This bubble will eventually burst, and when it does the wealthy are counting on the Government to intervene to prop up asset prices again. It’s likely that financial markets know a Corbyn Government would not have bailed them out in 2007, and wouldn’t have pursued the kind of QE programme based on a portfolio rebalancing (i.e. asset price inflation) effect. If they can blame this bubble popping on investors’ fear of a socialist Government, then so much the better.
“The issue with gilts is that if you’re borrowing more, you become a higher-risk lender and it becomes more expensive to borrow,” says Adrian Lowcock, investment director at Architas.
The threat of ‘market discipline’ is a favourite of neoliberal economists. This is the kind of language financial institutions like the IMF and the World Bank used when threatening countries in the global South. Poorer countries were blackmailed into opening their financial systems to international capital flows, making them highly vulnerable to the kind of capital flight that happened in the 1980s. When this capital flight did occur, they were wholly reliant on funding from the international financial institutions to prevent total economic collapse. But this funding was only provided on the condition that these countries committed to implementing the kind of austerity programme that has been seen in the UK over the last 10 years — only much, much more severe.
‘Market discipline’ works in a similar way. Financial speculators blackmail Governments into implementing the kinds of policies they want — policies like low inflation and a strong currency to protect the value of their speculative gains, low tax rates on those gains, and tacit subsidies in case anything should go wrong — by threatening to stage a run on Sterling or UK Government bonds. But these threats only work when they are tacitly endorsed by Governments. In the 1980s, UK capital markets were deliberately opened up to these kinds of speculative flows to ensure that future Governments were forced to abide by the logic of the markets. The kinds of levels of capital mobility we see today, which allow financial speculators to make these threats, are unprecedented. And they are unlikely to continue under a Corbyn Government — another reason why these guys are so scared.
“Sectors including utilities and energy companies are high dividend payers and whether it’s nationalisation or increased regulation and price caps, the outlook for higher and sustainably high dividend incomes looks under threat under a Corbyn government,” says Mr Stevenson.
These sectors earn lots of money because they are effectively monopolies that are immune from competitive pressures and can therefore charge consumers whatever they like. They were originally privatised as part of the neoliberal ‘reforms’ of the 1980s in the face of strong public opposition. These privatised monopolies are some of the most extractive, exploitative, and hated companies in the UK today. Private monopolies of this kind suck wealth out of the economy and return it to shareholders, making everyone (except the already rich) worse off. Nationalising them would improve economic efficiency, yield a host of positive externalities, and create large amounts of consumer surplus.
But lots of people who currently earn lots of money from this rent-seeking activity would lose out. Financial speculators think that it is the job of the Government to protect their ill-gotten gains at the expense of supporting ordinary people in the real economy. They know that Corbyn disagrees.
The Bigger Picture
Henry Pryor, an independent buying agent, says the prospect of a Labour government is “frightening” for the owners of large, expensive assets. But Mr Corbyn is not the only cause of disquiet among the wealthy, he adds. “The way the winds are blowing, homeowners have a problem whichever party is holding the reins because they’re all talking about moving from taxing income to taxing wealth.”
Financial elites in this country know that they have spent the last thirty years capturing UK Government policy to promote the interests of the 1% against all other sections of society. This has dramatically increased income and wealth inequality, and led to the kind of economic dysfunctionality that we are seeing today. They know that the financial crisis exposed the corruption at the heart of their economic project, and they have been terrified ever since 2008 that what they like to call a ‘populist’ Government would come to power as a result.
When these people say they’re ‘terrified’ of a Corbyn government what they really mean is that they’re terrified of democracy, because they know that democracy and oligarchy do not mix.