Owen Smith is reviving Project Fear – the Labour leadership contenders should play by the rules

This week on the campaign trail, including our £500bn promise and the trouble with quantitative easing.

Jeremy Corbyn launched ten pledges for his leadership campaign this month, detailing how the Labour Party will rebuild and transform Britain when it returns to government. The focus is on the economy – and not just because the Tories’ dreadful mismanagement and poor planning are helping to push us into recession. It is also because there is a chance now to unwind 30 or more years of neglect by successive governments.

The figures are stark. While the whole country is crying out for investment to deliver the high-skilled, secure jobs of the future, half of all government investment spending in England goes to London. Only by committing resources in a serious way can we hope to turn around left-behind Britain. That’s why Jeremy has called for a £500bn investment programme, backed up by a national investment bank and a network of regional banks.

With a proper industrial strategy and a boost in funding for research and training, we can create a million good, secure jobs across the country, restoring pride, especially to those communities in which voting Leave was a demand that they no longer be ignored by the Westminster elite. Alongside delivering the jobs needed to rebuild this country, Jeremy has committed to a secure home guarantee, building a million homes, half of them council houses.

Helicopter money

As the scale of the downturn following the Tories’ poorly planned Brexit becomes apparent, it is not surprising that the Bank of England has intervened. I don’t envy its governor, Mark Carney, or the Monetary Policy Committee. The firepower that the Bank has ready access to – the usual lever of interest rates, even quantitative easing (QE) – is in danger of being exhausted.

Negative interest rates, once assumed to be a practical impossibility, seem to have had limited effect and potentially significant downsides where tried. QE, meanwhile, seems to have helped support GDP growth but, by the Bank’s assessment, may have done so at the cost of increasing inequality, helping drive up asset prices to the benefit of the wealthy. Over time, the impact of fresh injections of QE cash appears also to be diminishing.

It might be more effective if we could follow the example of the European Central Bank and use QE cash to fund an independent investment bank, which would leave decisions about what specific projects to fund entirely out of the Bank of England’s hands. We could entrust the allocation to those with the relevant specialist knowledge.

More radical options are being discussed, too. “Helicopter money”, originally proposed by Milton Friedman, is gaining ground as a means to get fresh cash directly into the economy. However, with interest rates at all-time lows, the first priority has to be making full use of fiscal policy.

Investment spending, particularly in the parts of the country that have been starved of funding, would keep the economy moving. The counterproductive cuts to government investment that George Osborne planned would need reversing. Yet the new Chancellor, Philip Hammond, appears to be content to drag his feet and let the Bank of England take up the slack. With recession threatening, this is approaching a dereliction of his duty.

Playing by the rules

I am chairing Jeremy’s leadership campaign, as I did last summer. I have to say that it has been carried out on our side with an upbeat, positive approach, with thousands of people at events showing their support for Jeremy to continue as leader. However, the same cannot be said of the rival camp.

I have found Owen Smith’s campaign strangely confusing at times. It makes wild claims, uses unfounded facts and takes contradictory positions. His main policy to date is simply the Tory MP Stephen Crabb’s investment fund, with double the money and no method of implementation. He was meant to shadow a Tory cabinet minister, not mimic him. In contrast, the £500bn investment plan I announced last month has an implementation structure involving the creation of national and regional investment banks. It is not an arbitrary sum, either, but a figure supported by independent experts.

Owen has also criticised me for defending members who were barred from having a say in this contest by a narrow clique at the top of the party’s executive. The same clique also wants to use members’ subs to pay for legal costs to deny them a voice. Owen recently said that I shouldn’t “interfere” with decisions by the National Executive Committee and added that he just wants to “play by the rules”. Yet earlier the same day, he called for an extension to the election contest. He offered no alternative time frame or consideration of the additional cost of delaying the party conference; nor did he acknowledge that these are all rules set by the NEC.

Furthermore, he copied the cheap attacks made by Tory-supporting newspapers on Jeremy over nationalism and attacked me for not having any policies, despite announcing some of my policies as his own. When those smear tactics fail, he reverts to a “Project Fear” approach of talking up a split that is being led by a minority of MPs who support his campaign. These tactics were the reason we lost the EU referendum. It seems odd to embrace them again.

If Owen Smith can’t stand up and publicly condemn the minority of MPs talking up a split who back his campaign, how can anyone believe that he would stand up to the same MPs who also, deep down, oppose many of these policies? It’s clear that anything Owen announces this summer has a sell-by date of 24 September, and members know it. All he has to do to show that he is prepared to campaign positively is say that he will respect the outcome of this election, which means being prepared to serve under whoever wins, as Jeremy and I have done. Otherwise, he will continue to be a “disunity” candidate.

John McDonnell is the shadow chancellor