Death and taxes

How will Labour respond to the coalition’s VAT rise?

Two things in life are inevitable, said Benjamin Franklin, death and taxes. The Conservatives campaigned against "Labour's death tax" and against "Labour's jobs tax". But Labour left it to the Lib Dems to campaign against the Tory VAT tax bombshell.

So how will Labour characterise the VAT rise that will bring an end to the New Year sales? They've got a little time to work it out, but it's likely that "death" will play a central role, as the tax rise is felt by everyone and Labour argues that the change is going to kill the recovery.

Ed Balls has a video on his website where he basically says, "I told you so." Last week he urged people to sign up to his campaign to stop the VAT tax rise -- a clever way to capture contact details for party members that he perhaps copied from Ed Miliband's campaign for a living wage and David Miliband's Movement for Change.

Apparently Balls argued that Labour should rule out a VAT increase before the last election, another argument he lost with Gordon Brown and Alistair Darling, who didn't want to box themselves in. Balls has certainly made the most of it and, positioning himself well as an active and effective opponent of the coalition.

But if Balls didn't wanted to rule out a VAT increase, which taxes did he want a Labour government to raise? The official Labour position is that the deficit should be cut using a 2:1 ratio of spending cuts and tax rises -- that's 67 per cent cuts and 33 per cent tax rises.

In opposition, the Tories talked about using an 80:20 ratio and came clean in the Budget about how the 20 per cent of taxes are going to be raised. We have to wait for the spending review, after the conclusion of Labour's leadership election, to find out about the 80 per cent spending cuts.

There is, of course, zero political incentive for an opposition to spell out the alternative tax rises that it would have implemented. However, calculations by Demos show how that the government could have used a 67:33 ratio and raised the necessary £17bn without raising VAT.

Think tanks don't have to get elected, but the package of increases in income tax, CGT on primary residences and taxing carbon is a reasonable, realistic and realpolitik alternative.

Despite being the self-proclaimed "turn-the-page candidate", Diane Abbott has so far had nothing to say about the opportunity to reform and restructure our tax system. If not now, when? Andy Burham says Labour got intoxicated by big business but hasn't developed that into a policy position on tax. What does he think of the cut in corporation tax, for example?

David Miliband's conversion to the Lib Dem mansion tax on houses worth £2m and Ed Miliband's moral argument for keeping the 50p top rate of income tax for good are the only tangible interventions that any of the candidates have made into tax-rise territory. But, if the five are to preserve their own credibility and the integrity of Labour's debate, these are unlikely to be the last.

Richard Darlington is head of the Open Left project at Demos.

Richard Darlington is Head of News at IPPR. Follow him on Twitter @RDarlo.

Getty Images.
Show Hide image

Why Theresa May won't exclude students from the net migration target

The Prime Minister believes the public would view the move as "a fix". 

In a letter to David Cameron shortly after the last general election, Philip Hammond demanded that students be excluded from the net migration target. The then foreign secretary, who was backed by George Osborne and Sajid Javid, wrote: "From a foreign policy point of view, Britain's role as a world class destination for international students is a highly significant element of our soft power offer. It's an issue that's consistently raised with me by our foreign counterparts." Universities and businesses have long argued that it is economically harmful to limit student numbers. But David Cameron, supported by Theresa May, refused to relent. 

Appearing before the Treasury select committee yesterday, Hammond reignited the issue. "As we approach the challenge of getting net migration figures down, it is in my view essential that we look at how we do this in a way that protects the vital interests of our economy," he said. He added that "It's not whether politicians think one thing or another, it's what the public believe and I think it would be useful to explore that quesrtion." A YouGov poll published earlier this year found that 57 per cent of the public support excluding students from the "tens of thousands" target.

Amber Rudd, the Home Secretary, has also pressured May to do so. But the Prime Minister not only rejected the proposal - she demanded a stricter regime. Rudd later announced in her conference speech that there would be "tougher rules for students on lower quality courses". 

The economic case for reform is that students aid growth. The political case is that it would make the net migration target (which has been missed for six years) easier to meet (long-term immigration for study was 164,000 in the most recent period). But in May's view, excluding students from the target would be regarded by the public as a "fix" and would harm the drive to reduce numbers. If an exemption is made for one group, others will inevitably demand similar treatment. 

Universities complain that their lobbying power has been reduced by the decision to transfer ministerial responsibility from the business department to education. Bill Rammell, the former higher education minister and the vice-chancellor of Bedfordshire, said in July: “We shouldn’t assume that Theresa May as prime minister will have the same restrictive view on overseas students that Theresa May the home secretary had”. Some Tory MPs hoped that the net migration target would be abolished altogether in a "Nixon goes to China" moment.

But rather than retreating, May has doubled-down. The Prime Minister regards permanently reduced migration as essential to her vision of a more ordered society. She believes the economic benefits of high immigration are both too negligible and too narrow. 

Her ambition is a forbidding one. Net migration has not been in the "tens of thousands" since 1997: when the EU had just 15 member states and the term "BRICS" had not even been coined. But as prime minister, May is determined to achieve what she could not as home secretary. 

George Eaton is political editor of the New Statesman.