Labour is promising to spend £150bn “repairing our social fabric” after years of government budget cuts, as the election battle lines begin to emerge.
Shadow chancellor John McDonnell vowed to upgrade schools, hospitals, care homes and council homes in a speech setting out his party’s plan for government on Thursday.
Business leaders welcomed some of the opposition’s plans, despite McDonnell’s warning that “the days of the City dictating terms to the rest of the country are over.”
But Conservative chancellor Sajid Javid called McDonnell and Corbyn “the anti-vaxxers of economic policy” and dubbed the proposals “fantasy economics” in his own speech on the economy today.
Javid told an audience in Manchester he would loosen strict borrowing rules followed by his Conservative predecessors to “unleash Britain’s potential.”
The chancellor a Conservative government would ramp-up UK government spending on school and hospital buildings, transport and infrastructure projects.
It comes as the Institute for Fiscal Studies (IFS) says Javid’s existing spending plans suggest the era of deficit reduction is coming to an end after a “remarkable decade of cuts to day-to-day spending.”
But it warns whichever party wins the election that “fiscal realities can’t just be wished away,” suggesting debt cannot keep rising and taxes must rise or other spending must fall to ensure budgets keep pace with rising demand.
Labour promises ‘irreversible shift’ towards working people
Speaking in his home city of Liverpool, McDonnell said a new £150bn ‘social transformation fund’ will be spent over the first five years of a Labour government.
He also promised to move a “powerful section of the Treasury” to the north of England.
“Our aim as a Labour government is...an irreversible shift in the balance of power and wealth in favour of working people.
“That means change means investment on a scale never seen before in this country and certainly never seen before in the north and outside of London and the south east.
“The social transformation fund will begin the urgent task of repairing our social fabric that the Tories have torn apart.”
He said the financial sector will be “brought in line with the rest of us in addressing the emergency, with an end to short-termist thinking.”
He attacked financial models for only pricing in risks “associated with an investment here and now,” rather than factoring in longer-term costs of carbon investments in particular.
Conservatives claim McDonnell’s plans put ‘recovery’ at risk
Javid hit back in his speech on the economy that a “decade of recovery” under his party will be threatened by Labour’s plans.
“Jeremy Corbyn and John McDonnell are like the anti-vaxxers of economic policy,” he warned.
“Not only did they reject the treatment needed to heal our economy and get the deficit down by four-fifths, they now want to take every step imaginable to make the country sick and unhealthy again.
“After a decade of recovery, of difficult decisions, we can’t let Labour turn back the clock, let spending get out of control and make hardworking families pay the price.”
Businesses ‘agree with John McDonnell’
Adam Marshall, director-general of the British Chambers of Commerce, gave a surprise welcome to some of Labour’s proposals.
“Our business communities will agree with John McDonnell on three fronts: the UK needs more public investment in infrastructure, more focus on upgrades in the regions, and more decisions taken locally, rather than in Westminster.
But he added: “We may agree on the aim – but businesses will raise real questions about how Mr McDonnell plans to get there.”
Rain Newton-Smith, chief economist at the Confederation of British Industry (CBI), also said Labour’s ambitions on eradicating regional economic inequalities and decarbonisation were “shared by business.”
But she said spending must be “planned responsibly,” calling for more details on both parties’ plans and urging parties to work “with business, not against it.”