McDonnell: Britain doesn’t want a Bankers’ Brexit for the few – it deserves a People’s Brexit for the many

This is the full text of the speech given today by shadow Chancellor John McDonnell at the Institution of Mechanical Engineers in London.

I’m very pleased to be here at the Institute of Mechanical Engineers this morning.

There are presently a lot of fine words, from all corners of the political spectrum, on how essential engineering and manufacturing will be in the wake of Brexit.

As we look for a new role for Britain in the world, and a new basis for our future prosperity, it is clear that our great heritage of manufacturing and engineering can be an immense resource for us.

Already, the political changes are beginning to take shape.

I want to lay out what those changes mean for our country, and how Labour will fight for a Brexit that works for the British people.

In just the last few weeks the Conservative Prime Minister has spoken of the need to remember “the good government can do”.

A Cabinet minister for industrial strategy has been created.

It is an extraordinary shift at the level of political rhetoric after decades in which successive ministers would denigrate any idea that governments should be there to support the economy and essential industries.

It reflects not only the abject failure of the Conservatives original plans for the economy.

As the leaked Treasury memo made clear this week, there has been a “severe worsening in the public finances”.

The Conservative Government’s original plans for a £10 billion fiscal surplus by the end of the decade have been dropped.

But it is the referendum result that is doing most to reshape our politics.

It is forcing a series of profound choices on our country.

It is a question not only of defining Britain’s new role in the world, it is also about defining who we are as a society and a country.

Like the rest of the Labour frontbench, I campaigned for a vote to remain in the EU.

After six years of George Osborne, the risks to our economy of a Brexit shock were too great.

The EU is a flawed institution, but we judged it better to fight for its reform than to leave.

By a majority, the referendum shows that the British people made a different choice.

Britain voted to leave the EU, and that decision should be and must be respected.

We have to now think about what Britain after Brexit will be like.

As the negotiations get underway, we will face a series of choices.

“Hard” versus “soft” Brexit does not cover it.

We will need to decide on our openness to trade, investment, and migration.

Labour will always prioritise supporting jobs, growth, and the public finances in making those choices.

But this is not only about getting the best possible deal for the British people in any negotiations.

It is about our values, and who we are as a society.

It is about our identity, as much as it is about the kind of economy we live in.

For those of us on the left and those who believe in an open, fair society, we have to now make clear our own answers to the profound questions the referendum has posed.

It would be an absolute mistake for us to try and run away from them.

We should not pretend that the referendum result can be undone.

If we do that, and walk off the field, we will simply be allowing other forces to give their own answers to those questions it has posed.

When Conservative ministers speculate about introducing foreign worker lists, we can hear only too clearly what some of those answers might sound like.

Labour are not about to make the same cynical promises, like the Conservatives, on reducing migrant numbers – knowing full well they can’t be met.

But to make sure our own answers are heard, we have to first listen to those posing the questions.

You can read the social research on the vote to find out why people voted to Leave.

It shows the direct correlation between long term unemployment and lower growth, and a vote to Leave.

If you’ve been to some of those former industrial towns that voted so comprehensively to Leave, or see what has happened to our coastal towns, you will know immediately where much of the vote came from.

It came from years, stretching into decades, of under-investment and of the slow draining of hope and pride from places that were once thriving communities.

And all of this was then justified by successive governments on the promise of a “trickle-down” that never really happened.

For decades, we have all been told that if the rich are allowed to get richer, the rest will share in the prosperity.

If you think like this, you will believe that taxes for the super-rich and giant corporations should be cut to a minimum.

You’ll turn a blind eye to tax avoidance, and positively encourage privatisation.

You’ll let the market rip across society in the belief that it will produce the best possible outcomes.

You allow debt bubbles to balloon, and let speculation run rampant in our financial services.

That has been the philosophy of successive governments in this country.

In either case, the result was the same. Instead of a trickle down of wealth, we have seen a grotesque trickle up.

There were a few winners. But there were many more losers.

If you lived in the wealthier parts of the south-east, and were fortunate enough to work in financial services, you could do very well indeed.

But for too many, it meant secure jobs could not be found. You would be offered insecurity and poor pay.

And now since the crash even those who have been better off are, to coin a phrase, “just getting by”.

Those in work face a lost decade in earnings.

The young are staring at a lifetime of debt and uncertainty.

Our public services are being cut.

There is too much wealth in too few hands in too few places.

Too many decisions on our economy are taken by those in the City or in Westminster who are wedded to the old economic model.

It should come as no surprise that when the failure of this economic model coincided with the arrival of migrants from Eastern Europe, many drew the conclusion that the migrants were to blame for the failure of the model to deliver widespread prosperity.

By stripping away protections at work and demobilizing unions, governments encouraged employers to try to undercut wages with migrant labour.

It is not migrants to blame for low pay or insecurity at work, or the high cost of housing.

It is the failing of our whole economic model, which has not supplied the investment in work or in housing that people need.

We have to change the model, and rebuild the institutions of our country.

We should not pretend we can wind the clock back to some happy point before the Referendum result when everything was all right.

For far, far too many people, that point did not really exist.

Our economic model was already broken.

On one side, it has left our economy seriously weakened, with miserably low investment and productivity growth flat-lining.

And on the other, because of this failure, public support for the model itself is evaporating.

Whatever deal is struck with the EU will have to address the realities of the British economy.

That deal will have to place jobs, prosperity, and the public finances first.

And our economic model will have to win the confidence and trust of the British people.

Yet this is not the approach being adopted by the Government.

There ought to be a political consensus on finding a deal that protects jobs, prosperity, and the public finances.

Yet there is a minority Tory opinion that favours a scorched earth approach.

They are making the running in the Government’s own Brexit negotiations.

The Government is hurtling towards a chaotic Brexit that will damage our economy, and hurt the poorest and most vulnerable most of all.

By pulling up the drawbridge and tearing up longstanding ties to Europe, we will inflict huge and unnecessary pain on our society.

Yet a hard-line Tory minority believe that if we allow market forces to tear through our society in the wake of Brexit, we will emerge a more productive society.

It is the fantasy of turning our whole country into a giant offshore tax haven, with rock-bottom wages and no public services.

It is a fantasy motivated by ideology on the one hand, and special interests on the other.

It bears no relation to the reality of the country the rest of us live in.

It is a nightmare vision that I believe would be rejected by the majority of people who live here.

That includes a majority of those who vote Conservative.

I don’t believe for a second that those who voted Conservative in the last election shared a vision of Britain as a brutal, uncaring society.

It is certainly not the rhetoric of David Cameron and George Osborne during the campaign.

They promised more money for the NHS and said the Conservatives would continue to support Single Market access.

And yet this dystopia is the future that is being laid out for us by the current Conservative government.

It is the failure of Theresa May as Prime Minister to stand up to the hardliners in her own Cabinet that is leading us there.

She knows that it is better for the country that she stands up to them.

As she told Goldman Sachs earlier in the year, the chaotic Brexit the hard-liners favour would lead to job losses and businesses leaving the country.

But Theresa May has shown that she will change her mind on a constituency matter like Heathrow.

If she can turn her back on her constituents, she can look the other way on a Brexit deal for our country.

And nor can we trust Philip Hammond to speak for Britain in striking a deal.

Just look at his record.

In 2013 when he was Transport Secretary and dealt with the Thameslink trains contract when it came to British workers fighting for their job, he chose to award a contract to an overseas country regardless of the job losses.

And his excuse? He was worried not about those workers losing their jobs, but upsetting Eurocrats.

Already, Tory Cabinet ministers are looking to cook up special deals for their friends in the City of London.

They want a “Bankers’ Brexit”, in the interests of an elite few, not the majority.

They’ll be willing to cut a deal for finance, but ignore our small businesses and manufacturers.

Let me be clear: those who voted Conservative in 2015 are not the same as the Tory establishment.

Like me, you will have friends who have voted Conservative.

They don’t want a Bankers’ Brexit any more than I do.

The simple truth is that the Tory establishment cannot be trusted to make a success of Brexit. They want to take control for themselves, not the many.

They want to turn Britain into a Singapore of the North Atlantic.

Not because they want to match the huge council housing provision that country offers for the many. But because they want to match the low taxes for the few.

The Tories would want to strike their own TTIP deal that would keep in place the backdoor privatisations of our NHS, and they would run down our hard-won employment rights.

Labour in government is the only party that would be prepared to take the necessary measures to make a success of Brexit.

Labour is committed to serious investment in our country that would make sure our economy can power through the stresses of Brexit, and help us rebuild and transform our country so no one and no community is left behind.

Labour is also the only party of government that has the necessary fiscal framework that will underpin it so we can take control of the public finances.

We are also committed to making sure that Brexit works for everyone not an elite few. The Tories want to cut special deals for bankers, and cut taxes for big multinationals.

Labour would work with our European neighbours to protect our key industries like steel, and negotiate deals with the EU to make sure big multinationals like Google pay their fair share in tax.

Labour will take back the economic levers of power currently in the hands of the EU, such as State Aid rules, and return them to the people.

Not a Bankers’ Brexit for the lucky few, but a People’s Brexit for the many.

We have seen Conservative backbenchers attack the governor of the Bank of England.

Followed up by a Conservative Prime Minister questioning the Bank of England’s independence.

Labour gave the Bank of England independence to stop Tory Chancellors leaving monetary policy to the whims of their backbenchers.

Operational independence for monetary policy, as I’ve made clear in the past, should be sacrosanct.

Labour will fight any moves by this Tory Government to undermine that independence and we will resist attempts to blame the Bank of England for failed Tory economic policy.

We will fight for all jobs in London. Not just a few jobs in the Square Mile, but every job in our financial services and across every mile of London.
The Tories want to protect their friends in The City who fund their party.

Labour will fight for all Londoners, and for every single job in our country at risk of a Tory-led Brexit.

We have reached the end of the line for the old economic model, with financial services at its centre.

It will no longer be possible to balance national prosperity precariously on a mountain of debt.

Our current account deficit, which has reached record levels, is completely unsustainable without those in the rest of the world being willing to finance it.

For decades, we have not been able to pay our way in the world, selling less than we buy, and have depended instead on what Mark Carney has called the “kindness of strangers”.

The rest of the world was kind to this unbalanced economy because we had the world’s most important financial centre here in London.

They were prepared to lend money and buy assets to sustain the imbalance.

But under David Cameron and George Osborne, their kindness was stretched to breaking point.

The referendum vote finally caused it to snap.

The reaction of currency markets to the vote, and to Theresa May’s commitment to a rushed and chaotic Brexit, shows that this kindness has ended.

Traders know full well that without a deal for UK finance, its access to EU markets will be severely curtailed.

The so-called “banking passport”, which provides blanket rights of EU market access to financial companies based here, looks set to go.

There are direct threats from major banks to leave London and head elsewhere in Europe to secure EU access.

Estimates for the potential job losses range as high as 100,000.

London may well no longer be the world’s leading financial centre.

It is on this prospect, and the prospect of much reduced future growth, that currency traders are gambling.

Labour’s red lines in the negotiations have made very clear that we will continue to defend financial services access.

We will do this because we will prioritise the defence of jobs for those who live and work here in any negotiations.

But we must recognise that the world has now changed after the referendum.

We will not offer special favours to financial services where these come at enormous expense to taxpayers.

Yet that was the offer apparently being considered by Conservative ministers last week.

It would have meant us paying billions to the EU to keep full market access for financial services, whilst leaving other sectors, including manufacturing, apparently out in the cold.

We can debate the meaning of the referendum vote.

But surely no-one voted to Leave the European Union expecting a Bankers’ Brexit.

Instead of special favours, Labour want a new deal with financial services in Britain.

We want to maintain their access to EU markets, but also want that access for other sectors.

We will defend financial services and Britain’s leading role, and in return we will expect Britain’s financial services to show clearly that they are delivering for this country.

Paying taxes, but also delivering the finance that rebuilding our economy will require, particularly for our small businesses.

In the textbook theory, the slump in the value of the pound should be enough to cause our economy to reorganise itself.

As export prices fall, and import prices rise, we should see a shift in how we produce and trade towards exports and away from imports.

The powerful market signal of a 16 percent depreciation in the pound should cause this shift to occur, and close our current account deficit.

In practice, this is unlikely by itself.

As an excellent new paper by Lord Skidelsky and others makes clear, recent evidence suggests that a devaluation in the pound may have little impact on the British balance of trade.

This is because even as our exports become more competitive, our imports become more expensive.

With so much of our manufacturing reliant on importing raw materials and part-finished products, the overall impact is muted.

We will need a concerted political effort from government to create and support new industries and markets.

We will have to learn, once more, to produce more at home, and rely less on the goodwill of the rest of the world.

We will need an industrial strategy worthy of the name.

That doesn’t mean just warm words, or even the re-labelling of a government department.

After Brexit, this is an indulgence by Westminster this country can no longer afford.

We need a government committed to delivering the investment that will transform left-behind Britain.

We need a government that can provide the support our strategic industries like steel need, and that can help create the conditions for new sectors like renewables to grow.

And we cannot have governments hiding behind the excuse of the EU’s State Aid rules to block interventions.

A Brexit deal that works for Britain must allow the maximum possible capacity for effective government intervention.

That will include the intervention needed to defend our steel industry.

It will mean changing our procurement rules to favour domestic production, backed up by protection for workers and the environment.

So Labour will look, as far as is possible, to remove any unnecessary restraints of State Aid in a post-Brexit deal.

We will fight against any attempts to introduce forced privatisation and deregulation as part of any deal.

And any deal must continue to support Britain’s rights to trade, and the rights of others to trade here.

Today, the European Union is our single largest overseas market.

If we cut ourselves off from it, the damage to our economy will be substantial.

For an economy that has been weakened by six years of austerity, and where decades of underinvestment have left communities vulnerable to shocks, this is a significant risk.

Jobs and prosperity are threatened – both those who will be hit directly, working in our successful manufacturing exporters, and those who suffer indirectly as the effects of the shock roll through our whole economy.

And as the impact of trade restrictions spread, they will turn into further job losses and then into damage to the public finances.
No responsible government would inflict a shock to the economy like this.

Yet the Tory hardliners, with Theresa May unable to stand up to them, are actively working to make that shock happen.

To protect jobs, prosperity, and the public finances, Labour will insist that any deal with the EU includes, at least as an interim, tariff-free Single Market access.

Negotiations on the shape of the eventual deal with the EU will continue, before and after the signing of Article 50.

Full Single Market access implies freedom of movement, as in Norway’s European Economic Area deal.

Over the longer term, we have a choice to make.

This has always been a trading nation, and I believe that the economic benefits of free trade are well-known throughout this country.

Business organisations like the British Chambers of Commerce and the CBI have already argued the case for Single Market access, and criticised the Conservatives for threatening it.

There is a robust economic case to be made for the benefits of free trade over the perceived costs of migration.

Labour is prepared to make that case.

There is huge potential and talent in every part of this country.

We will have to learn once more how to make the most of it.

The old model, supported by successive governments, in which rapid growth in one part of the country could be redistributed across the rest will no longer function.

We will have to, because we have no choice, learn to invest and produce across this whole island – not concentrate everything in a single world-leading centre.
This is a necessity. But I also view it as an opportunity.

Too much of our country has been left behind by our current economic model.

This isn’t just about the poison of austerity, whose effects have been so powerfully documented in Ken Loach’s ‘I, Daniel Blake’.

Lives have been destroyed by this Tory Government’s attempts to close the deficit.

They placed the immense burden of the costs of the financial crisis of 2008 on the backs of those least able to support it.

And as the leaked Treasury document this week makes absolutely plain, it was an utterly futile effort.

All that pain and suffering was inflicted needlessly.

That was six wasted years.

David Cameron and George Osborne bear a heavy burden of responsibility.

But for left-behind Britain these wasted years were piled on top of whole wasted decades.

We have an opportunity now to reshape this.

Brexit represents a challenge to our whole political order.

Its outcomes are not determined.

We can either let the Tory free-market fantasy dominate, with added racism for good measure.

We can let our new deal with the EU be determined by special interests alone, with Tories prepared to sell out the rest of the country for their elite friends.

Or we can rise to meet the challenge, and start to offer a new course for our country.

We can preserve the good we have in our public institutions and our open society.

We can do that when we have an economy that delivers security and prosperity across the whole country, and not only for an establishment elite.

There is an alliance to be struck between those who want a fairer and less wasteful economy, and those who want to keep our open, fair-minded society.

Labour in government can offer not a Bankers’ Brexit, but a Brexit that can work for everyone – a People’s Brexit.