Belfast Telegraph

Labour's efforts on economic credibility 'damaged by leadership contest'

Labour's efforts to build up its economic credibility were damaged by the leadership contest, shadow chancellor John McDonnell admitted.

The challenge to his position faced by Jeremy Corbyn had set back attempts to build bridges with industry and develop policy, Mr McDonnell told activists.

Mr Corbyn secured a decisive victory over Owen Smith to be re-elected as Labour leader on Saturday.

Mr McDonnell, a key ally of the leader, said Labour's relatively low credibility rating on the economy "hasn't shifted for nearly 10 years", but he was trying to raise the level of debate within the party.

He said Labour's economic guru professor Mariana Mazzucato had warned against describing the party as "business-friendly" but was instead focusing on creating an "entrepreneurial state".

At a Labour conference fringe event in Liverpool he said: "Mariana Mazzucato is advising us on how we become an entrepreneurial state. What does that mean? It means working alongside the wealth creators - entrepreneurs and workers themselves - to see what assistance we can give in the creation of products, the creation of markets.

"And in that way you create the prosperity."

He added: "What she says is, whatever you do, don't describe yourself as business friendly. That isn't what this is about.

"This is about making sure that we are working in partnership, but laying the climatic conditions in which entrepreneurial talents can be developed.

"I think that's the way we are going.

"There will be other times where there needs to be a much more direct, interventionist approach by Government - rather than just laying the foundations which people can build upon, there might be times when we have to intervene, like we did with steel, which means a much more direct intervention by the state."

Labour's perceived lack of economic credibility was one of the factors that cost Ed Miliband the 2015 election.

Mr McDonnell said: "That hasn't shifted for nearly 10 years. All we are doing now is raising the level of economic debate and then building up all the policies."

Asked why Labour was not making progress on that issue he said: "To be frank, in the first 10 months or so we were keen to do that. This last two months, with the diversion of the leadership election, I think that has been a setback to us.

"If you look at what we have been doing in terms of developing economic policy, and the engagement with the business community and the wider community on those issues, it has been significant, it is light years ahead of anything we have done in the past."

He dismissed the claim by his predecessor as shadow chancellor, Chris Leslie, that plans for £500 billion of investment would lead to tax hikes, insisting the money would be largely borrowed instead.

"In terms of Chris Leslie, I will send him a calculator," he said, stressing the plans did not rely on increased taxation.

"We are not increasing income tax, we are not increasing VAT, and Chris knows that."

Mr McDonnell said he was "anxious about investment decisions" by businesses in the UK after the Brexit vote, but rejected the "exaggerated claims" made during the EU referendum campaign.

"My own view was that the economic consequences would not necessarily be felt initially, but there would be an incremental undermining of certainty and confidence in our economy," he said.

Mr McDonnell said Labour was arguing for the UK to retain access to the single market, but full membership would be "preferable".

"At the moment we are arguing for access because we think that's a more realistic prospect, but it's an open discussion.

"We argued to remain, full stop. Therefore membership is preferable, but actually it's likely access is more realistic."