Miliband’s lurch to left is a recipe for disaster

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WE NOW know what Labour’s strategy to win the next election will be: shift to the left, bash business, stoke envy and jealousy, attack the City and come up with a raft of populist policies. It might even work.

New Labour is well and truly over, an experiment now deemed an obsolete, almost shameful failure by the party establishment, despite its extraordinary electoral success.

Hemmed in by the catastrophic fiscal situation, Labour is being forced into a degree of temporary responsibility when it comes to spending; expenditure as a share of GDP in 2015-16 is likely to be no more than a few tenths of a percentage point greater than what the coalition is proposing. But this compromise has emboldened the party in other areas. Miliband is the most explicitly socialist leader the party has had since Neil Kinnock; he believes that the crisis and continuing pressure on living standards – and the rise of Ukip – will allow him to achieve the triumph Kinnock failed to pull off in 1992, without having to make the concessions of Blairism.

So instead of seeking to win the elections by moving to the centre, the traditional strategy pursued by parties, Labour is becoming increasingly extreme and shrill, appealing to its base and to the left-wing electorate. It is openly taking on the better off, companies big and small (though it downplays the latter), City workers, successful entrepreneurs, people who own expensive houses, business executives and generally speaking the “rich” – people on over £60,000, and probably those on significantly less.

I cannot remember any time in the past 15 years when business groups and companies were so hostile to Labour. The attack on its latest policies from several large companies, including Centrica yesterday, were as unprecedented as they were spot on. Yet that is music to Ed Miliband’s ears: he doesn’t want and doesn’t think he needs their support. He wants to regulate them much more heavily, tax them more harshly and dictate to them who they can and cannot hire and how much they can pay them. His narrative is that he is standing up for the little guy against corporate power. It would be a great message if it were true.

Yet the policies announced yesterday will inflict massive havoc on the economy, give more powers to bureaucrats and ultimately hurt, directly or indirectly, many of the people Miliband wants to help.  He is proposing, inter alia, a plan to cap energy prices and a house-building programme, two areas in need of a genuine shake-up.

He wants to cap gas and electricity prices for 20 months. Yet price controls have been tried thousands of times throughout history in hundreds of different markets and always fail. (If only it were that easy – think prices are too high? Let’s legislate to lower them). Why not try that with everything else, and get bureaucrats to decide what they think the “right” price and the “right” profit margins are (apparently, in energy, six per cent is too high, and supposedly Labour “knows” that energy firms have “over-charged” by £7bn)? And what would happen were wholesale prices to shoot up, bankrupting firms? What would happen to competition? Wouldn’t companies all hike their prices on the last day before the new rules came into place? And why should firms assume that the cap wouldn’t be permanently extended? Why would anybody want to bother investing in Britain?

Down that road lies socialist madness, a collapse in investment, the retreat of firms from markets as it becomes unprofitable for them to sell goods at mandated prices, increasing demand as prices fall in real terms combined with declining supply, scarcity, rationing and eventual nationalisation as the only way for the authorities to ensure at least some production. It’s right out of a 1970s playbook; this is Miliband at his absolute worst. The energy price caps are also incompatible with getting the industry to invest the billions our crumbling infrastructure requires, and with Miliband’s aim of decarbonising energy by 2030.

Injecting more competition would undoubtedly lower prices and profits; but wholesale prices, regulatory-mandated investment and the politically-driven move to replace cheap sources of fuel with expensive renewables are the primary drivers of the higher prices consumers so resent. Politicians are passing laws to hike energy prices – and then calling for new laws to cap the hikes. This is demagogic, dishonest nonsense, a deeply irresponsible policy which risks causing blackouts before the end of the decade.

What of Miliband’s housing plan? Of course, he is right that we need more house building but the answer is not to threaten developers with expropriation if they don’t build what they are told, or to make up a random target of 200,000 new homes a year by 2020 (which could actually already happen naturally under present policies, and is in fact not especially ambitious given the huge need). That would be an astonishing shift, and another grave threat to private property. The solution is to deregulate planning rules, allowing lots of land to become developable and reducing its price. Some land banking takes place because of the artificial scarcity caused by existing rules: if developers know prices will keep going up, it makes sense for them to hold on to land. They also need some stocks to reduce their exposure to planning risk and to smooth their output.

But the phenomenon is limited, and in 2008 the Office for Fair Trading  “found [no] evidence to support the view, that, at the national level, homebuilders are hoarding a large amount of land with implementable planning permission on which they have not started construction.” A Glenigan report for the Local Government Association found in 2011 that there were 399,816 homes with unimplemented planning permission.

But of these 191,000 were actually under construction but not finished – a building site may have permission for 1,000 flats, and the developers may be half way through –  and 83,000 were unimplemented provisions for social housing. There were just 127,000 private, unstarted units; there will usually be good reasons for these. A site may be unprofitable at current house prices after taxes and various other levies faced by developers. 

But none of this matters. Red Ed is a demagogue; he wants to fuel tensions and the politics of envy. British politics has become interesting again.

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