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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.

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