There’s an astonishing note just out from analysts at Bank of America Merrill Lynch (the world’s fourth largest investment bank), absolutely tearing into the Labour party’s prospects if they emerge as the winners of May’s general election.
The analysts say that if Labour don’t win an overall majority a coalition with the Scottish National Party or the left wing of the Liberal Democrats, it would not moderate them and could turn the UK into France, with lower potential growth (emphasis ours):
A left wing coalition around Labour, would, in our view, continue to deliver on fiscal austerity albeit a milder version than the Tories with the accompanying cyclical headwind that this entails, while embarking on structural changes which could in the medium run reduce the appeal of the UK as a business location and trigger, ultimately, a deterioration in potential GDP growth. In a nutshell, the UK would look increasingly like France.
The analysts add that they think with very little fiscal room to please its supporters, Labour would “seriously interfere with the private sector”, suggesting big increases in the minimum wage and more stringent labour market regulation.
In our view, a Labour government in power, to deliver the goods to its traditional base – will have no other option, this time, but to seriously interfere with the private sector. If a centre-left government cannot tackle inequality through social transfers, it will be tempted to focus on fighting “primary inequality”, for instance by imposing a massive increase in the minimum wage. In our estimates, Labour’s pledge to bring this to GBP 8 per hour would put the UK at the level where France is, in terms of distance from the median wage. Re-regulation of working contracts and working time would also be likely. The “energy price freeze” – mooted by Labour last year — and the proposals to introduce a market share cap in the banking sector are other examples of interference with the private sector.
Boosting the UK’s minimum wage to £8 would raise it to from less than 50% to more like 60% of the average wage in the country. Here’s a chart from BAML:
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