UCL Conservative Society

Labour could only ever reconcile themselves with capitalism for one generation, maybe one-and-a-half tops, before recoiling and recanting back to their old ways.  In an interview for today’s Sunday Telegraph, Hain demanded a 66% tax on City bonuses.  Were it to be effected, it would mark the first such move against high-earners by the Labour Party since Michael Foot’s hopeless election campaign of 1983, and the first by any government since Harold Wilson slapped a disastrous 5% cap on raises at the height of Labour-engineered stagflation.

This change of heart is not politically inexplicable.  The Labour Party is more dependent upon the trade unions than they have been since before the Second World War, relying on them for as much as 90% of their income over the past few months.  And, with reliance upon the unions comes a responsibility to implement their traditional radical socialism.  Last year, this meant refusing to reform public sector pensions: guaranteeing hundreds of billions of pounds are thrown at the public sector workers whose productivity has fallen so dramatically since Labour came to office.

However, unlike the pensions deal, this move is more insidious, and more indicative of the union movement’s, and many Labour MPs’, whole-hearted rejection of capitalism.  It is not based upon either ability or need.  Instead, it is based upon envy: the cornerstone of socialism.  If one group (in this case, the unions) envies another group (City workers) enough, and wields enough power, a socialist government will bend over backwards to bring that other group down to earth with a bang.

Clearly, the consequences of such a move would be devastating.  Most high-fliers in the City are not British, but American, German, Russian, or Swiss.  This is known as the Wimbledon Effect for obvious reasons: we host the damn thing and our own guys never reach the top, but it remains the biggest show on Earth.  If the City’s lucrative bonuses are attacked by socialist sniping, we can wave goodbye to these overseas workers, who won’t stand two-thirds of their bonuses being taken away, simply for being successful.  If they lose their best people, the banks and funds that have set up shop in London will also leave, turning the City from the centre of the financial world into the Sterling-specialised backwater that it was after the war.

It also comes at the worst possible time.  The United States is considering reforming (and revoking parts of) the Sarbanes-Oxley Act that has inadvertantly turned London into the world’s foremost financial centre.  Dubai has promised to pour its oil money into developing itself as a major centre, whilst Shanghai is finally turning from a financial backwater into a market to match its undoubted commercial value.  Meanwhile, Europeans are fighting hard for Frankfurt to regain the Euro markets that it so humilatingly lost to London in 1999.  And, whilst the heart of the City emerges as the world’s #1 terrorist target, none of this competition will be easy to fight without the government letting business do business.

Thus, Hain’s intervention into this previously non-existent debate is unnecessary and unwanted.  However, it is also vital for the Labour Party if it is to maintain good relations with the trade unions, and for Peter Hain if he is to become the next Labour deputy leader.  The City of London has become the economic motor, not just of the United Kingdom, but of the world.  To throw it away, simply because of Labour’s internal politicking, would be a travesty, and an act not befitting of a government, or any party or politician aspiring to it.

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