Labour's bold budget

Analysis of the 2009 Budget from the <em>New Statesman's</em> Political Correspondent

Today’s eye-catching announcement by the Chancellor Alistair Darling of a new top rate of 50 per cent for earnings over £150,000 is a bold confirmation that Labour has changed the rules of the game. It is impossible to know whether Gordon Brown would have allowed such a move - or, even, its forerunner of 45 per cent during the pre-Budget report of last autumn - in the absence of the global financial crisis which began in earnest last year. Less likely still is that Tony Blair would have sanctioned a policy which will anger the right as much as it pleases the left.

But in the current climate hypotheses based on the pre-recession anti-tax consensus are redundant. After the collapse of revenue from the City and from housing, the Treasury is badly in need of funds. By targeting the richest in society, based as Darling said on the values of “fairness” and social justice, the government has at once appeased those in his party who seek fresh clarity and wrong-footed the Conservatives.

David Cameron was bullish – hectoring – during his Budget response. But he and the shadow chancellor George Osborne must decide – and quickly – whether they back the idea that Britain’s best off should shoulder the recession’s burden, or whether they fall into Brown’s trap and allow themselves to be portrayed as the party of the wealthy going into next year’s general election.

Judging by the Conservatives' insistence on sticking to the exclusive and regressive policy of abolishing inheritance for estates worth less than £1 million, it is unlikely Cameron will take the “modernising” step of backing the government’s position. It was Cameron and Osborne, after all, who last year abandoned their commitment to match Labour’s spending plans, in a move which the Business Secretary Peter Mandelson has told friends was Osborne “dropping his anchor in the wrong place”.

Yet again Brown has managed to clarify the division between Labour and Conservatives; that of cuts versus investment, a mantra both he and Darling repeated during Prime Minister’s Questions and the Budget statement today.

Darling could, of course, have gone further. It is worth remembering that half of UK's taxpayers earn less than £23,000 a year, and just one in ten earns more than £40,000. Our tax system is not truly progressive, and some on the Compass left – who called for a “super tax” of 50 per cent on earnings over £100,000 – will accuse the government of tinkering at the edges.

But today Darling has surprised his own MPs by allowing Labour to regain the initiative after the horrors of the Damian McBride affair, and put the party on the front-foot for the first time since Easter. MPs leaving the Commons chamber today had a spring in their step as the line to take in their constituencies – that Labour is the party for the many and not the few – is clearer than it has been for years.

The £1 billion boost for the housing market coupled with a new fund for council accommodation, along with the £2 billion youth employment programme, are added bonuses that will please the electorate as much as Labour MPs.

The flip-side of this is the £15 billion in “efficiency savings” announced today. Of course Labour activists never like to see their party advocate cuts, and ambitious younger Cabinet ministers with an eye on the leadership will be weary of advocating this course of action. But with the national debt spiralling in coming years, it is left to the party’s elder statesmen – Darling, Brown and Mandelson – to make the necessary cuts in an attempt to set Britain on course to balance its books.

But there is further thinking behind the move. Mandelson, whose influence is at its height since “smeargate”, is said to believe that the only way to present the 2010 election, as in 2001 and 2005, of being a choice between Labour investment versus Conservative cuts, is for Labour to be rigourously tough on spending cuts where they are necessary. Unlike the Conservatives, Labour will seek to protect the basic public services – such as early education – and eventually be able to accuse the opposition of being ready to cut those basics after Labour has itself made what cuts it can. This is a significant if embryonic shift away from the traditional approach to the parties’ dividing lines advocated by Balls, and – previously at least – Brown. But if the balance can be achieved, the two strategies need not be mutually exclusive.

James Macintyre is political correspondent for the New Statesman.