How progressive is this government?

The outcome of the CGT row may be an indicator.

My column in this week's magazine explores how "progressive" this new coalition government of "liberal Conservatives" and Liberal Democrats actually is. Progressive is, of course, a notoriously nebulous, woolly and, therefore, contested term.

My argument is that a progressive political philosophy has to be defined, at its core, by its attitude towards the poor and -- especially -- towards the gap between rich and poor, and the need to reduce that gap.

One of the more progressive measures suggested by the coalition government is the proposal to raise capital gains tax (CGT), currently set at 18 per cent on all gains above £10,100 a year, to a level closer to that of income tax -- potentially up to 40 or even 50 per cent.

To tax unearned income is essential to tackling inequalities in income and wealth. It is, therefore, an inherently progressive policy.

How else do do we know that it's progressive? Because David Davis and John Redwood are opposed to it.

But will the coalition buckle under pressure from the Thatcherite back benches? Vince Cable, the Business Secretary, has told BBC News that "it's not actually an argument between the coalition partners, as I understand it, it's an argument between a few Conservative backbenchers and others".

He also said:

It's very important that we have wealth taxed in the same way as income. At present it is quite wrong and it is an open invitation to tax avoidance to have people taxed at 40 per cent or potentially 50 per cent on their income, but only taxed at 18 per cent on capital gains. It leads to large-scale tax avoidance. So, for reasons of fairness and practicality, we have agreed that the capital gains tax system needs to be fundamentally reformed.

He's right, of course. But whether or not he -- and the other Liberal Democrats in this new government -- are able to stick to their guns on CGT, and resist the right-wingers, will be a crucial test of the coalition's progressive credentials.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.