Corbynomics: Room for improvement?

Corbynomics: Room for improvement?

The new Labour leader has been met with mixed reactions from within his party, and some analysts are wary of Jeremy Corbyn’s economic policies – dubbed “Corbynomics”.

Many economists would agree with Mr Corbyn that austerity does not work. Chancellor George Osborne’s focus on cutting the deficit – currently at about 5 per cent of GDP – through budget cuts have come at the cost of low growth. But critics have been equally sceptical of the alternative policies presented by Mr Corbyn.

One of his headline policies is a “people’s QE”, under which he would have the Bank of England reignite its quantitative easing (QE) programme. But instead of buying government bonds, the money created would be used to purchase bonds in a new national investment bank, which would then put that money towards infrastructure projects.

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Improvements to UK infrastructure would ultimately boost productivity, but some economists warn against reliance on QE as a long-term source of funding for government projects, as this would come at the cost of the Bank’s credibility and lack of long-term confidence in the British economy. Some have speculated that this would drive up interest rates too far and too fast, which would make investment in the UK unappealing.

Higher regulation, a less flexible labour market, and more taxes would discourage businesses from coming to Britain, according to Robert Smithson, fund manager at THS Partners. He said, “The policies he espouses range from unaffordable to unwise. The plans to nationalise railways, the energy companies, and the Post Office would come with a huge price tag, and would involve significant battles with foreign owners of, for example, British power stations.

“The core planks of Jeremy Corbyn’s populist message would be bad for business, bad for investment, and bad for the people of Britain.”

Mr Corbyn appears to have a habit of spotting genuine problems within the UK economy, but his responses may fail to present feasible solutions.