Miliband’s mansion tax retoxifies the Tory brand – and portrays the Lib Dems as helpless hostages

The Tories' opposition to a mansion tax puts them on the wrong side of the new divide in British politics.

George Osborne knows better than most how tax pledges can wrong-foot a government. It was his promise at the 2007 Conservative conference to raise the inheritance-tax threshold to £1m, funded by an annual levy of £25,000 on non-domiciled taxpayers, that spooked Gordon Brown into calling off an early election and earned Osborne his reputation as his party’s sharpest political brain. Labour MPs still wince at the memory of the subsequent “magpie Budget” in which Alistair Darling, under orders from Brown, sought to mimic Osborne’s proposals.

Five and a half years later, it is the Tories who have been blindsided by Labour’s version of Osborne’s gambit. Like the shadow chancellor in 2007, Ed Miliband twinned a popular tax cut (a 10p rate of income tax) with a popular tax rise (a “mansion tax”) and positioned himself on the side of the middle classes. In the Labour camp, there is satisfaction at how the speech has succeeded in defining the pre-Budget terms of debate. It is a sign of Miliband’s enhanced stature that his proposals are now being discussed on the assumption that there is a good chance of them becoming law. The tax pledge has reassured those MPs previously troubled by the party’s lack of emblematic policies. As one frontbencher told me, “It passes the doorstep test.”

It was the Conservative MP Robert Halfon who originally proposed a reintroduced 10p tax rate as an artful piece of Tory detoxification. When I met him in his Commons office the day before Miliband’s speech, he lamented how Labour’s “brilliant” campaign against the abolition of the 50p tax rate had defined the Tories as “a party only interested in cutting taxes for millionaires”. Polling shows that just 9 per cent of the public believe the Conservatives best represent the interests of low-paid public-sector workers, while just 14 per cent believe they best represent their private-sector counterparts. By bringing back the 10p rate on income above the personal allowance and by funding it through the revenue generated by the 45p rate, Halfon argued that the Conservatives could prove that they believed in “tax cuts for the many, not just the few”.

The proposal won the support of key Osborne allies, including his former chief of staff Matthew Hancock, and was earmarked by the Treasury for inclusion in the 2014 Budget. Yet following Miliband’s deft act of political plagiarism, it is now off the table. Unlike Brown in 2007, Osborne has no intention of dancing to the opposition’s tune. Instead, he has sought to give the coalition’s policy of raising the personal allowance a harder edge by branding it as a “zero per cent tax rate”. This, he said, would be “more attractive at an election than a 10 per cent tax rate”. Rather than introducing a new tax band – a measure that would sit uneasily with his commitment to a simplified tax system – Osborne is more likely to seek to increase the personal allowance beyond the original target of £10,000.

A far greater problem than the loss of the 10p tax rate is the coalescing of Labour and the Liberal Democrats around a mansion tax. Of the three main parties, only the Tories now believe that a family in a three-bedroom house in Tower Hamlets should pay the same rate of property tax as an oligarch in a Kensington palace. Those voters who select what James O’Shaughnessy, David Cam­eron’s former director of policy, calls the “dreaded posh family in front of a mansion” when asked to choose the picture that best represents the Tories have had all their prejudices confirmed.

The irony is that it was Osborne – who is now leading the charge against a new property tax – who agreed to introduce two higher council tax bands on houses worth more than £1m ahead of last year’s Autumn Statement before being overruled by Cam­eron. It later emerged that the Tories had surreptitiously written to their wealthy donors soliciting funds to campaign against a “homes tax”, a fact that Miliband gleefully cites as proof that the Prime Minister “stands up for the wrong people”. The Labour leader intends to increase the Tories’ discomfort by using an opposition day debate to force a Commons vote on a mansion tax. In order to maximise the chances of support from Nick Clegg’s party, the motion is not expected to include a reference to the 10p tax rate.

As Miliband hoped, his appropriation of the measure has already forced the Lib Dems into even more aggressive differentiation. Clegg accuses his coalition partners of “turning a blind eye to the super-wealthy” and of defending the interests of “people in very large mansions”. For Labour, such interventions have a dual purpose; they retoxify the Conservative brand while reinforcing the impression of the Lib Dems as the helpless hostages of a Tory clique.

Ever since the Thatcher era, British politics has been governed by the belief that the left won the culture war and the right won the economic war. Yet increasingly it feels as if the reverse is now the case. The left is winning the debate on the need for greater financial regulation and taxation of the wealthy, while the right is winning the debate on the need for a new social conservatism to heal Britain’s “broken society”. In their opposition to a mansion tax, the Tories have positioned themselves on the wrong side of this divide. Until they do otherwise, that picture of the “dreaded posh family” will continue to define them.

Ed Miliband and Swedish Social Democratic leader Stefan Lofven talk after a visit at the Royal Institute of Technology in Stockholm, Sweden. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

This article first appeared in the 25 February 2013 issue of the New Statesman, The cheap food delusion

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The Autumn Statement proved it – we need a real alternative to austerity, now

Theresa May’s Tories have missed their chance to rescue the British economy.

After six wasted years of failed Conservative austerity measures, Philip Hammond had the opportunity last month in the Autumn Statement to change course and put in place the economic policies that would deliver greater prosperity, and make sure it was fairly shared.

Instead, he chose to continue with cuts to public services and in-work benefits while failing to deliver the scale of investment needed to secure future prosperity. The sense of betrayal is palpable.

The headline figures are grim. An analysis by the Institute for Fiscal Studies shows that real wages will not recover their 2008 levels even after 2020. The Tories are overseeing a lost decade in earnings that is, in the words Paul Johnson, the director of the IFS, “dreadful” and unprecedented in modern British history.

Meanwhile, the Treasury’s own analysis shows the cuts falling hardest on the poorest 30 per cent of the population. The Office for Budget Responsibility has reported that it expects a £122bn worsening in the public finances over the next five years. Of this, less than half – £59bn – is due to the Tories’ shambolic handling of Brexit. Most of the rest is thanks to their mishandling of the domestic economy.

 

Time to invest

The Tories may think that those people who are “just about managing” are an electoral demographic, but for Labour they are our friends, neighbours and the people we represent. People in all walks of life needed something better from this government, but the Autumn Statement was a betrayal of the hopes that they tried to raise beforehand.

Because the Tories cut when they should have invested, we now have a fundamentally weak economy that is unprepared for the challenges of Brexit. Low investment has meant that instead of installing new machinery, or building the new infrastructure that would support productive high-wage jobs, we have an economy that is more and more dependent on low-productivity, low-paid work. Every hour worked in the US, Germany or France produces on average a third more than an hour of work here.

Labour has different priorities. We will deliver the necessary investment in infrastructure and research funding, and back it up with an industrial strategy that can sustain well-paid, secure jobs in the industries of the future such as renewables. We will fight for Britain’s continued tariff-free access to the single market. We will reverse the tax giveaways to the mega-rich and the giant companies, instead using the money to make sure the NHS and our education system are properly funded. In 2020 we will introduce a real living wage, expected to be £10 an hour, to make sure every job pays a wage you can actually live on. And we will rebuild and transform our economy so no one and no community is left behind.

 

May’s missing alternative

This week, the Bank of England governor, Mark Carney, gave an important speech in which he hit the proverbial nail on the head. He was completely right to point out that societies need to redistribute the gains from trade and technology, and to educate and empower their citizens. We are going through a lost decade of earnings growth, as Carney highlights, and the crisis of productivity will not be solved without major government investment, backed up by an industrial strategy that can deliver growth.

Labour in government is committed to tackling the challenges of rising inequality, low wage growth, and driving up Britain’s productivity growth. But it is becoming clearer each day since Theresa May became Prime Minister that she, like her predecessor, has no credible solutions to the challenges our economy faces.

 

Crisis in Italy

The Italian people have decisively rejected the changes to their constitution proposed by Prime Minister Matteo Renzi, with nearly 60 per cent voting No. The Italian economy has not grown for close to two decades. A succession of governments has attempted to introduce free-market policies, including slashing pensions and undermining rights at work, but these have had little impact.

Renzi wanted extra powers to push through more free-market reforms, but he has now resigned after encountering opposition from across the Italian political spectrum. The absence of growth has left Italian banks with €360bn of loans that are not being repaid. Usually, these debts would be written off, but Italian banks lack the reserves to be able to absorb the losses. They need outside assistance to survive.

 

Bail in or bail out

The oldest bank in the world, Monte dei Paschi di Siena, needs €5bn before the end of the year if it is to avoid collapse. Renzi had arranged a financing deal but this is now under threat. Under new EU rules, governments are not allowed to bail out banks, like in the 2008 crisis. This is intended to protect taxpayers. Instead, bank investors are supposed to take a loss through a “bail-in”.

Unusually, however, Italian bank investors are not only big financial institutions such as insurance companies, but ordinary households. One-third of all Italian bank bonds are held by households, so a bail-in would hit them hard. And should Italy’s banks fail, the danger is that investors will pull money out of banks across Europe, causing further failures. British banks have been reducing their investments in Italy, but concerned UK regulators have asked recently for details of their exposure.

John McDonnell is the shadow chancellor


John McDonnell is Labour MP for Hayes and Harlington and has been shadow chancellor since September 2015. 

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump