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Forget VAT -- why did they rule out a rise in income tax?

New Labour is not dead. It lives. Shame.

Who says "New Labour" is dead? Gordon Brown used the phrase seven times in his speech this morning in Birmingham, where he launched the party's general election manifesto.

The papers speculated on the Blairite tone of the document ahead of its publication -- including the Times, which predicted that the former leader's legacy would "flavour almost every page of Labour's manifesto".

And, lo and behold, the Ed Miliband-drafted document is indeed sprinkled with copious references to so-called public-service reform, from "personalised" welfare to "more responsive" police to "direct control" over services.

But it is on taxation that the Labour manifesto sounds so frustratingly conservative, cautious and, yes, Blairite. "We will not raise the basic, higher and new top rates of tax in the next parliament," it proudly proclaims, echoing the 1997, 2001 and 2005 pledges.

Hmm. Why not?

Isn't the Budget deficit £167bn? And doesn't the first of the manifesto's "50 steps to a future fair for all" pledge to employ "fair taxes" to help "halve the deficit by 2014"? Is there a fairer tax than income tax?

If there is, it ain't VAT -- which, in the words of the leading tax accountant Richard Murphy, "is intently regressive -- meaning that the burden of the tax falls much more heavily on low-earnings households than it does on those with higher income".

Modern social democracy has to revolve around progressive, not regressive, taxation. Income tax is at the heart of progressive taxation, but you might not have guessed it from Labour's period in office. For 12 years, the government refused to touch the top rate of tax -- until, that is, the financial crisis and ballooning national debt forced Alistair Darling to introduce a new top-rate tax of 50p on the 300,000 people who earn in excess of £150,000 per annum. And as I wrote back in October, in the magazine:

It is conveniently forgotten that Thatcher only cut the top rate of tax, from 60 per cent to the current 40 per cent, in 1988; for nine of her 11 years in power, the darling of the Tory right, the Mother Thatcherite, presided over a higher top rate of tax than the one now being introduced by the "socialist" Brown.

In fact, the basic rate was cut, not raised, during Labour's 13-year period in office to its current (low) level of 20p, a move paid for by the abolition of the 10p tax band on low earners -- which is thought to have contributed to the party's disastrous by-election defeat in Crewe and Nantwich in 2008.

So I'm disappointed to see Brown, Darling, Miliband et al pledging not to deviate from the old, outdated and cautious New Labour orthodoxy on income tax, while refusing to rule out a rise in regressive VAT. Have they learned nothing? The 50p top-rate tax has been hugely popular with voters; the abolition of the 10p rate has been unpopular and electorally damaging.

Times have changed. This is not the Seventies, nor even the Eighties. In the wake of the worst financial crisis in living memory, caused by bonus-hungry bankers and financiers, the public, in effect, wants the pips to squeak. Haunted by its demons and deferring to a right-wing media echo chamber, Labour -- or, should I say, "New Labour" -- has missed an open goal.

 

UPDATE: On the subject of progressive taxation, I forgot to add that the Lib Dems today launched a blistering but slightly disingenuous attack on Labour's "unfair" tax record, publishing an analysis of Treasury figures which shows that the amount of tax paid by the poorest has gone up over the past 13 years.

The Fabians' Sunder Katwala has issued a rejoinder here. And the economists Stuart Adam and Mike Brewer, from the Institute for Fiscal Studies, have responded thus:

The Liberal Democrats have, once again, claimed that the poor pay more of their income in tax than the rich, and that this gap has got larger under Labour. But, by ignoring the fact that the poor get most of this income from the state in benefit and tax credit payments, and by overstating the extent to which indirect taxes are paid by the poor, this comparison is meaningless at best and misleading at worst.

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