The answer to Labour's woes? Tax cuts

Balls and Miliband should call for the basic rate of income tax to be slashed.

The bleak economic news of recent weeks seems to have created far more uncertainty within Labour ranks than on the government benches. For a start, this is because it has slowly dawned on the party that if it wins in 2015 it will become a government of austerity too. Hence all the talk of fiscal responsibility, from Ed Balls and Ed Miliband, as well as their 'critical friends' within the party.

The two Eds know, however, that political strategy must not be allowed to dictate economics. It would be disastrous if Labour were to decide that the only path to restoring its economic reputation is by hugging close to George Osborne's spending plans and fiscal rules. If the party follows that course it would be betraying a generation of British businesses and families.

For it's time to accept that the UK is in depression. Families with middle incomes will be poorer in 2015 than 2002, the country face at least seven years of austerity in the public finances, and it will take longer for GDP to return to pre-crash levels than in the 1930s. George Osborne's painful medicine was designed for a V-shaped recession not an L-shaped 'lost decade'.

The left should now feel duty-bound to argue that only a massive fiscal stimulus is proportionate to the scale of the crisis. For without government intervention a decade of low growth and soaring unemployment is inevitable. It is fine for Labour to promise a clear path to balanced budgets over the next decade, but only alongside a major fiscal intervention now.

To bring the politics into line with the economics, however, Labour needs a game-changer. For when the left argues for short-term Keynesian stimulus, neither the public nor the bond markets are convinced: they sense it is a ruse to defend every cherished corner of the welfare state, a strategy of permanent deficit not temporary stimulus. So to stimulate the economy now Labour should argue not for spending, but for tax cuts. If Labour sets out a plan to pump money into the economy through tax cuts, the party would undermine the charge of statism and no doubt cause some embarrassment for the tax-cutting right as well.

By contrast, there's little to gain from delaying spending cuts. The harder the party resists cuts today, the more will be left for it to do if it retakes power in 2015. So Labour's only spending commitments should be aimed at leveraging private investment or creating jobs for the unemployed; and even these must be fully-funded from new taxes on the wealthy to leave the long-term path of deficit reduction unchanged.

These should not be any tax cuts, however. They must be time-limited and only benefit the bottom 90 per cent of families. First, to ensure the package is progressive, Labour could propose a time-limited 'VAT cash-back' scheme, for low income households, to get the tills ringing. For a time-limited period the government would issue credits to offset VAT liability, paid to benefit and tax credit recipients who are the hardest hit and most likely to spend.

But to really defy political convention, Labour should go further and campaign for the most visible and symbolic tax cut possible. For two years only and with suitable claw-backs from higher-rate taxpayers, Balls and Miliband should call for the basic rate of income tax to be slashed. Only then would people sit up and take notice, perhaps reappraising Labour for the first time in years, and forcing the Tories onto the wrong side of the argument.

Some people on the left will recoil at the thought of tax cuts as the welfare state is threatened, and it's true that none of the options are pretty. But if the left really wants to argue for economic stimulus as a counter to the self-defeating vortex of austerity, it must side-step the statist trap that has been set for us.

Time-limited tax cuts are the middle way between economic despair and the charge of deficit denial.

Andrew Harrop is the general secretary of the Fabian Society

Andrew Harrop is general secretary of the Fabian Society.

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"Labour are as pro-Brexit as the Tories": what do Sinn Fein's MPs really want from Westminster?

Its seven MPs are much less sympathetic to Corbyn's party than popularly imagined, and won't ever take their seats.

Should the Conservative minority government fall, what is Jeremy Corbyn’s route to power? The counterfactual as popularly understood goes like this: Corbyn would pick up the phone to his old pal Gerry Adams and convince Sinn Fein’s seven MPs to abandon the habit of a century and take their seats.

There are countless reasons why this would never happen, most of them obvious. One is more surprising. Despite Corbyn’s longstanding links with the republican cause, the Labour party is not all that popular among a new intake, which is preoccupied with one thing above all else: Brexit.

No wonder. Sinn Fein’s long game is an all-Ireland one, and the party believe the UK’s departure from the EU will hasten reunification. In the meantime, however, its priority is a Brexit deal that gives Northern Ireland – where 56 per cent of voters backed remain – designated status within the EU.

Pioneered by the moderate nationalist Social Democratic and Labour Party as an antidote to Brexit, designated status would allow the six counties in the North to continue to enjoy the EU’s four freedoms. But the idea is anathema to unionists and the UK government, and Sinn Fein sees little evidence that the Westminster establishment will make it work – not even Labour.

“They are as pro-Brexit as the Conservatives are,” says Mid Ulster MP Francie Molloy. “We’re anti-Brexit. We want to see the right of the people in the North who voted to remain in Europe respected.”

Simmering resentment over what the party perceives to have been broken promises on Tony Blair’s part – especially over legal protection for the Irish language, a key stumbling block obstructing the resumption of power-sharing – makes the already implausible deal even less likely.

“The Irish language act was something that Blair agreed to,” says Molloy. “So when people talk about us taking our seats, they don’t realise we would be backing a Labour government that wouldn’t be living up to its commitments either, and would be just as pro-Brexit as the Conservatives are."

That criticism may well surprise a lay audience whose working assumption is that Adams and Corbyn work hand in glove. But it is perhaps the best illustration of Sinn Fein’s parliamentary priorities: its seven MPs will not in any circumstances take their seats but use their Westminster presence to lobby ministers and MPs of all stripes while running constituency offices at home (they are unsalaried, but claim expenses).

Crucially, its MPs believe abstentionism strengthens, rather than weakens their negotiating hand: by their logic other parties need not and do not fear them given the fact they do not have voting power.

They will use their leverage to agitate for special status above all else. “Special status is the biggest issue that we are lobbying for,” says Molloy. “We feel that is the best way of securing and retaining EU membership. But if we get a referendum on Irish unity and the people vote for that, then the North will automatically join the EU.”

But that wasn’t always the received wisdom. That assurance was in fact secured by Mark Durkan, the former deputy first minister and SDLP MP beaten by Sinn Fein last week, after an exchange with Brexit secretary David Davis at the leaving the EU select committee. The defeat of the three SDLP MPs – two of them by Sinn Fein – means there will be no Irish nationalist voice in the commons while Brexit is negotiated.

Surely that’s bad news for Northern Irish voters? “I don’t think it is,” says Molloy. “The fact we took two seats off the SDLP this time proves abstentionism works. It shows they didn’t deliver by attending. We have a mandate for abstentionism. The people have now rejected attendance at Westminster, and rejected Westminster itself. We’ve never been tempted to take our seats at all. It is very important we live by our mandate.”

If they did, however, they would cut the Conservatives’ and Democratic Unionist Party’s working majority from 13 to a much more precarious six. But Molloy believes any alliance will be a fundamentally weak one and that all his party need do is wait. “I think it’ll be short-lived,” he says. “Every past arrangement between the British government and unionist parties has always ended in tears.”

But if the DUP get its way – the party has signed a confidence and supply deal which delivers extra cash for Northern Ireland – then it need not. Arlene Foster has spoken of her party’s desire to secure a good deal for the entire country. Unsurprisingly, however, Sinn Fein does not buy the conciliatory rhetoric.

“They’ve never really tried to get a good deal for everybody,” says Michelle Gildernew, who won the hyper-marginal of Fermanagh and South Tyrone back from the Ulster Unionists last week. “The assembly and executive [which Sinn Fein and the DUP ran together] weren’t working for a lot of groups – whether that was the LGBT community, the Irish language community, or women...they might say they’re going to work for everybody, but we’ll judge them by their actions, not their words.”

Molloy agrees, and expresses concern that local politicians won’t be able to scrutinise new spending. “The executive needs to be up and running to implement that, and to ensure a fair distribution. If there’s new money coming into the North, we welcome that, but it has to be done through the executive.”

On current evidence, the call for local ministers to scrutinise the Conservatives’ deal with the DUP is wishful thinking – Northern Ireland has been without an executive since February, when the late Martin McGuinness resigned as deputy first minister and triggered a snap election.

The talks since have been defined by intransigence and sluggishness. James Brokenshire, the Northern Ireland secretary, has had to postpone the talks deadline on four separate occasions, and has been criticised by nationalists for his perceived closeness to the DUP.

The final deadline for the restoration of an executive is 29 June 2017. Sinn Fein has called for Brokenshire to recuse himself in favour of a neutral chair. “His hands are tied now, completely,” says Molloy. “The Conservative party were always questionable on where they stood – they’ve always been unionists. The issue now is whether they can act neutrally as a guarantor to the Good Friday Agreement.”

He believes that question is already settled. “Legally, they have to act to ensure that nothing happens to damage that agreement – but we’ve already breached it through Brexit. There was no consultation. The people of the North voted to remain and it hasn’t been recognised. It totally undermines the consent principle.”

Just how they and Brokenshire interpret that principle – the part of the Good Friday Agreement that specifies the constitutional status of the North can only change by consent of its people – will be key to whether they can achieve their ultimate goal: Irish unity.

Molloy and Gildernew say the fact that 11 of Northern Ireland’s 18 constituencies voted to remain in the EU is enough for Brokenshire to call one within the next five years (though polling consistently shows that a clear majority of the province’s electorate, including a substantial minority of nationalists, would vote to stay in the UK). They are confident they can win, though, failing that, Molloy envisages it as the first in several referenda on unification.

But beneath the optimism lies the knowledge that the British government are unlikely to heed their calls. And, willingly absent from the Westminster chamber, they say the UK government’s discussions about Brexit are illegitimate. They see their real powerbase as elsewhere: in Dublin’s Dail Eireann, where Sinn Fein is the third largest party, and the chancelleries of Europe.

“That’s where most of the negotiation will actually happen,” says Molloy. “The EU27 will make the decisions. They won’t be made in Westminster, because the British have already set out what they’re doing: they’re leaving.”

But with seven MPs already lobbying ministers and a united Ireland unlikely to happen in the immediate future, Sinn Fein itself won’t be disappearing anytime soon.

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.

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