Economic Watch: UK Labour’s optimistic economic policies may have unwanted effects

by Xinhua writers Larry Neild, Zheng Bofei
LONDON, July 23 (Xinhua) — Although Britain’s new Labour government tries to exude optimism in their economic policies, their policy may still result in unwanted effects, British experts said here recently.
Two leading economists gave their verdicts in exclusive interviews with Xinhua on the economic policy unveiled by British Chancellor of the Exchequer Rachel Reeves earlier this month, and some macroeconomists struck a different tone on Labour’s policies.
Those measures announced by the new chancellor seem to focus on stability, investment and reform, yet it still lacks of innovation, the experts said.

SQUASHING ENTREPRENEURIAL SPIRIT
In her first speech as chancellor, Reeves has promised to “get Britain building again” by mandatory housing targets to reboot the British economy.
“There’s nothing wrong with building houses and infrastructure, but unfortunately, growth should come from innovation by entrepreneurs, the entrepreneurial economy, and it looks like they’re bidding to squash that quite effectively,” Patrick Minford, an economist and professor at Cardiff Business School, told Xinhua.
Michael Ben-Gad, a professor from the Department of Economics at City University of London, was also not impressed by Reeves’ debut speech.
Ben-Gad described the chancellor’s plans for a national wealth fund and a growth mission board as gimmicks, and it will be interesting to see how the chancellor deals with trade unions and their demands.
The new chancellor has also pledged that Labour would be a strong ally to the business community, committing to significant infrastructure improvements.
Minford said that the Labour government seems to be focused more on regulation and higher taxes.
However, there is a need to cut marginal tax rates on entrepreneurs to encourage enterprise, which the government has not addressed, he added.
“The big problem is, how do you encourage private capital if there’s no incentive to make money? This is the big thing that she misses,” he said.
“Unfortunately, it’s all gone down the plug-hole as a result of the incompetence of the last Conservative government, and I don’t think Labour has grasped what the Conservatives did wrong,” said Minford.
Looking ahead to a planned budget in the fall, Minford said, “The chancellor will try and raise a bit more tax. She’ll probably tighten up the capital gains regime, and even raise the inheritance tax.”

LIMITED CHANGE
British economy was expected to grow 0.7 percent this year, the IMF said earlier this month.
The financial agency said that Britain’s economy is approaching a soft landing, a situation where a central bank raises interest rates too much and too high, leading to an economic slowdown but avoiding a recession.
Minford said that there’s no big difference between Labour’s approach to the economy and that of the defeated Conservative administration, and that both governments have lost the plot in terms of what’s needed to get the economy growing.
“You prefer Labour over Conservative because they might at least be competent and tackle a few things that everybody wants to tackle, like the planning system and infrastructure. At least they’re trying to do those things, whereas the Conservatives just gave up,” said Minford.
The Labour Party has restricted itself from raising taxes on income, “The one thing I would say that I think where things will be different and better are the proposed changes to the planning system,” Ben-Gad said.
He said the public finances are in bad shape, largely because the population is ageing.
“It has nothing to do with Tory misrule or anything like that. This is true for nearly every developed economy,” said Ben-Gad.
The chancellor had her heart in the right place but was severely constrained in what she could do, he said. ■