Six of Labour’s daftest policies

Given my faith in the economic and social benefits of free-market capitalism, you might not expect me to be a fan of the Labour party’s latest policies. And you’d be quite right. Here, in my opinion, are six of the daftest promises Labour has made during the election campaign.

First, let’s start with one of the most recent: Labour has set out plans “to deliver fast and free full-fibre broadband for all by bringing parts of BT into public ownership and creating a new British Broadband public service”. This is bad economics.

There is no doubt that the wider availability of broadband would be a good thing. But the case for state ownership and control is flimsy. As I discuss in more detail here, the “public goods” and “externalities” arguments are weak, and Labour’s estimates of the financial costs are far too low.

Labour is holding up South Korea as an example of how the state can help deliver top-quality broadband. But even there, the service is provided by competing private companies, and customers are expected to pay. A better comparison might be Australia, where the government set up a national network operator which acquired others to form a state monopoly. This has resulted in long delays, huge cost overruns, and failed to deliver the expected results.

There are doubtless ways in which the UK telecoms market could be made to work better, including stronger pro-competitive regulation and a reduction in barriers to the rollout of broadband, such as easier access to land and properties for all providers. But creating what is soon likely to become a state monopoly would be a huge and costly step in the wrong direction.

Second, Labour has promised to close the gender pay gap (GPG) by 2030. It seems unlikely that whoever came up with this target understands what the GPG actually measures. Campaigners like to claim that it shows how much less women are earning relative to their “colleagues”. But the GPG is a crude measure of the difference between average hourly earnings across all jobs in the UK, not of the difference in pay between men and women for doing the same, or comparable, jobs. 

This distinction is important. Even in a world of equal pay for work of equal value, and of equal opportunities, there is still likely to be some GPG as a result of individual choices. As it happens, we are moving closer to that world. The latest data shows that the combination of sensible government support (notably equal pay legislation) and market forces has already largely eliminated the GPG for full-time workers aged under 40.

But clumsy state intervention to accelerate this process is likely to backfire. In particular, across EU countries there is a fairly good correlation between the size of the GPG and the level of female participation in the workforce. In other words, countries with narrower pay gaps tend to have fewer women in work. Similarly, the easiest way for a company to reduce its GPG to meet arbitrary government targets would be to employ women only in higher paid roles.

Third, Labour has pledged to end the need for food banks within three years. This might sound admirable. It should certainly be possible for any government, Labour or Tory, to reduce demand for emergency food parcels by fixing problems in the benefits system, notably delays in the payment of universal credit, which I discuss here. But unless Labour is promising to eliminate poverty altogether, expecting to do without food banks completely is a bad idea.

The truth is that, in the words of the Global FoodBanking Network, “the food bank model has been an effective hunger relief intervention for 50 years in industrialised, high-income countries such as the United States, Canada, Australia, and most of Europe”. Indeed, even the current elevated levels of food bank use in the UK would not be considered at all unusual in other countries.

Labour has at least acknowledged that charitable food banks would have to be replaced by “different food security measures to be taken across several local and central government departments”. But would these alternatives work as well? Would it not be better to find other ways to help people lift themselves out of poverty, rather than yet more state intervention?

Instead of ever-higher transfer payments, why not focus on reforming the planning system to reduce housing costs, or cutting taxes whose burden falls disproportionately on the working poor, or promoting rather than penalising more flexible forms of employment? I have no confidence that Labour has the answers.

My final three daftest promises all concern the labour market. The fourth is the pledge to ban so-called “zero-hours contracts”, which are simply contracts that do not guarantee a certain amount of work every week. It doesn’t seem to matter to Labour that many employees, including students and working mums, actually quite like this flexibility and the additional jobs that it creates. In practice, people on these contracts typically work for an average of around 25 hours per week.

Fifth, Labour has proposed moving to an average four-day working week within ten years, claiming that this would pay for itself in the form of increased output per hour. However, this measure of productivity would have to jump by an extra 25 per cent if people wanted to earn the same total wage despite working one day fewer.

That might be possible in some firms and sectors. But if you believe Labour’s narrative, then bosses are not just evil, they are also stupid. In Jeremy Corbyn’s world, businesses will refuse to implement reforms that would boost the productivity of their own workforce, and hence increase their own profits, unless and until a Labour government forces them to do so.

In reality, achieving the necessary productivity gains would be a huge stretch across the economy as a whole and especially in public services, where taxpayers and those relying on these services would have to pick up the bill. Even Labour’s own advisor, the economist Robert Skidelsky, has rejected the idea of compulsion, citing the widespread harm caused by France’s introduction of a 35-hour week in 1998.

Sixth, Labour is proposing to increase the national minimum wage to £10 an hour as soon as 2020 and extend it to under-18s, which would more than double the cost of employing a young person almost overnight. This is playing politics with jobs.

It’s true that the introduction of the national minimum wage and the subsequent increases have not led to the job losses that some had feared. But this is because it has been set at sensible levels, based on independent evidence and advice. In other words, the policy has been successful precisely because it has not been too ambitious – a message seemingly lost on Labour.

I could go on. And I will. Labour’s cavalier approach is further illustrated by its proposal to give workers full employment rights “from day 1”, even before they have had any time to demonstrate their value to the employer. This is bound to make firms more reluctant to take on new staff.

The party is also proposing to end exemptions from the working time directive, even where irregular hours may be an essential part of delivering critical services. And plans for sector-wide collective bargaining would hand power back to trade unions, who might protect some of their own members but have little interest in helping others.

In short, Labour’s thinking on labour markets is completely muddled. On the one hand, the party seems to hate flexibility, as shown by its antipathy towards the gig economy. On the other, it thinks that employees should be able to demand flexibility, such as the right to “set their own hours”.

At best, this will be a bureaucratic nightmare, with higher costs forcing businesses to raise prices or find offsetting savings elsewhere, including by cutting benefits and pensions. At worst, many employers will simply decide that the additional costs are not worth the hassle, with lower paid workers and other more vulnerable employees most at risk of losing their jobs.

Altogether then, the party’s policies are riddled with examples of economic illiteracy. And it will be the very people that Labour says it wants to help who end up paying the price.

Written by Julian Jessop

Julian Jessop is an independent economist.
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