Labour election win would spark ‘sudden and dramatic’ run on the pound, experts warn
A LABOUR election win would spark a run on the pound in a "sudden and dramatic reaction" on the markets, experts have warned.
Leading economists say the party's plans - which suggest splurging £83billion on extra day-to-day spending- "would not inspire market confidence".
Jeremy Corbyn's proposed spending spree works out at £28 to every £1 the Tories will spend daily.
Among his proposals are policies to increase the health budget by more than four per cent and to also freeze state pension age.
Unveiling his party’s manifesto last week, the Labour boss also pledged to blow £1trillion over five years on nationalisations and a range of freebies.
'CAPITAL FLIGHT'
His tax assault includes a second homes tax, reversing inheritance tax cuts, a transaction tax on bankers, VAT on private schools and a windfall tax on oil companies.
But new research from the Centre for Economics and Business Research (Cebr) shows Corbyn's proposed spending spree could cause a "capital flight and a falling pound" should Labour be elected.
Cebr founder Douglas McWilliams told The"even their maths must have tired near the end because there is a final £5bn of additional revenue attributable to 'multiplier effects'".
He added: "If elected, it is likely that there could be capital flight and a falling pound."
Mark Littlewood, director general of the Institute of Economic Affairs, added that the research "stands to reason";.
He said: "Capital is now incredibly mobile and billions can leave the country at the touch of a button. We might end up with some attempt to bring back exchange controls of some sort.
"Markets seem to be expecting a Tory win. If we do get a surprise Labour victory, it's unlikely that much of this risk is 'priced in' in the way it would be if people thought a Labour victory was a 50pc chance. So, if Labour do win on December 12 there could be a sudden and dramatic reaction."
'FALLING POUND'
And Ruth Lea, an economic adviser at Arbuthnot Banking Group, agreed.
She told the Telegraph it was likely that "people will just pull their money out, that there'll just be a cash flight".
People will just pull their money out. There'll just be a cash flight
Ruth Lea
She explained: "Wouldn't you? Everybody I talk to who has any assets, they'd get their money out of the country as quick as they could.
"There's no doubt the Labour party would have to consider bringing in exchange controls."
Corbyn called his blueprint for Britain “the most radical and ambitious in decades”.
CORBYN’S 12 TAX BOMBSHELLS
- Corporation tax - Companies will now be made to pay a 26 per cent duty
- Unitary tax of multinational companies – Labour believe this will stop large firms transferring their cash out of the UK to countries with low income-tax rates.
- Second homes tax – Corbyn hopes this will help with the homelessness crisis in Britain by charging people with a second property a tax that can go into building new council houses.
- Transaction tax – Corbyn wants people to pay a higher duty on paperless transactions like buying shares in a UK company.
- Reverse of inheritance tax cuts – This means that Brits could now pay more on the estate of a loved one when they die.
- VAT on private schools – Corbyn has vowed to “close the tax loopholes” enjoyed by private schools and use that money to “improve the lives of all children”.
- Windfall tax on oil companies – Labour will enforce a tax on fuel giants who have “knowingly damaged our climate” to “help cover the costs”.
- Income tax for those earning over £80k and £125k – Corbyn has vowed to wage a class war on the country’s wealthy
- Capital Gains tax – Brits will now be taxed more on profit when they sell an asset that has increased in value.
- Dividends tax – Those who have shares in companies will now be forced to pay a higher duty on the payments they receive.
- Scrap Married Person’s Allowance – Brits will no longer benefit from the tax cut which reduced your bill between by between £345 and £891.50 a year.
- New Fair Tax Programme - Corbyn has vowed to “go after the tax dodgers” with a new tax avoidance scheme.
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He is offering free university tuition, free social care, free childcare for all two to four-year-olds, a public sector pay rise of five per cent, a four-day week and freezing the state pension age at 66.
The TUC welcomed his manifesto but CBI director-general Carolyn Fairbairn said: “Labour’s default instinct for state control will drag our economy down.”
Boris Johnson said until Brexit was done, “none of this carries any economic credibility whatever”.
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