Thursday, December 12 2019 will be an election day in the U.K. that has echoes of 1979. That year was marked by Margaret Thatcher coming to power in May.
Her Conservative government swept into power to reverse the militancy of the trade unions whose frequent strike action led to rubbish bags piled up in the streets and dead left unburied during the “Winter of Discontent”.
The strikes were a result of the Labour government trying to contain inflation by abandoning their social contract with the unions. They imposed rules on the public sector that pay rises be kept below 5%, to control inflation.
Data from the Office For Budget Responsibility shows the budget deficit during the tenure of the then-prime minister James Callaghan ran between -6.5% and -4.0% of GDP. Such was the weak state of U.K. finances that in 1976 the Labour government had been forced to borrow $3.9 billion ($17.5 billion in 2019 Dollars) from the International Monetary Fund (IMF). This at the time was the largest loan to have been requested from the IMF.
Could the nation be willing to go back to those unionised days of despair?
The economic agenda that has been proposed in Labour’s manifesto is going to be costly. The plan to seize 10% of UK firms and transfer those shares to employees has been judged to cause a hit to the economy worth £67 billion ($86.4 billion), in research carried out by the Centre for Economics and Business Research (CEBR). Under the Labour plan, 10% of every UK company with more than 250 staff would be transferred into an employee owned fund. The Government would then take any dividend paid above £500 ($645) per employee.
Officials at the CEBR have warned that the economy will suffer and rather that Labour’s plans under Jeremy Corbyn and John McDonnel boosting economic growth the level of output could be 3.1% smaller in 20 years’ time as a direct result of the policy. The lost GDP would also include investment spending by businesses, forecast to be lower by 28% and would see the revenue collected as corporation tax fall by £25 billion ($36 billion).
The plan has been regarded as more economically damaging than the 1970’s ambition of Labour’s Tony Benn to nationalise the UK’s 100 biggest companies.
The forecast came as Brexit uncertainty damaged the UK economy which grew 0.3% in the third quarter of 2019. This marked a recovery from a 0.2% contraction in the previous three-month period, however, it missed market expectations of a 0.4% expansion. The service and construction sectors provided positive contributions to GDP growth, while output in the production sector was flat.