Labour and the Tories are both avoiding the tax debate we need

The repetitive and needlessly venomous exchanges over the 50p rate distract from the long-term question of how we should pay for the services that we value in an era of austerity.

Ed Balls’s confirmation that Labour would restore the 50p top rate of income tax has gone down badly with the small number of people who would be eligible to pay. It isn’t very popular with conservative commentators either. The two sets no doubt intersect on the venn diagram of people who think austerity is a much better idea when it affects someone else.

None of this is very surprising. The economic and political arguments are pretty much the same as they were when George Osborne axed the rate – and it was all but inevitable that Labour would pledge to restore it. The attack on a “Tory tax cut for millionaires” probes a serious weakness in the Conservative brand, but its effectiveness would be diminished by a queasy caveat to the effect that “we hate it but we wouldn’t reverse it.” So reverse it Labour will, if they get the chance.

One thing Labour has failed to do in the days since the announcement was made is put any pressure on the Tories and Lib Dems to talk about their own tax rises this parliament – the VAT hike leaps out as a broken Conservative pre-election promise and a regressive measure – and the near certainty that there is more to come after 2015.

Osborne insists he can balance the books without raising any more taxes, simply by stripping yet more cash out of the welfare budget instead. (And he is confident that voters are sufficiently hostile to benefit spending to make cuts in that direction an attractive proposition.) But most economists and policy wonks who have looked at the fiscal projections and scanned the post-election landscape think any incoming government will be raising taxes and cutting spending.

So really the Balls announcement ought to be an opportunity to discuss with a bit of candour how money should be raised. If, as the critics insist, the 50p rate is ineffective and counter-productive, what kind of taxes are legitimate and just?

None but the flattest and lowest possible, say the libertarians. But let’s suppose for the sake of argument that an incoming government isn’t rolling in surprisingly luxuriant revenues – that growth disappoints – yet still ministers want to provide universal healthcare, education, a police force, some military capability, investment in infrastructure and a basic guarantee that elderly people will not be abandoned to penury and starvation.

Those, after all, will be Labour and Tory manifesto commitments and they will have to be funded. Even if you accept the view that the optimum direction is always towards lower taxes, there is still a debate to be had about widening the tax base and winning consent for government to impose levies and spend on our collective behalf from time to time.

In my column in the magazine last week, I mentioned the intriguing example of the special “business rate supplement” that helps meet the costs of Crossrail. Those who set it up say the companies that stand to benefit from the new train service were more than happy to subsidise its construction. “A rare example of taxpayers asking to pay more taxes,” was how one architect of the scheme described it to me. Labour’s policy review team are looking closely at this kind of approach – allowing local authorities more fiscal freedom if the focus is on boosting local services and infrastructure.

In a very different corner of the policy field, Danny Finkelstein, Times columnist, Conservative peer, and casual advisor to the Chancellor, recently floated the idea of a dedicated NHS tax. The idea is that British voters will only be persuaded of the case for drastic reform of the health service when they are confronted with the reality of how much the current funding model costs them and how inexorably that burden will rise. (The Times article is behind a paywall, so here’s a free discussion of the same issue from Nick Pearce’s IPPR blog.)

The appearance of this notion under Lord Finkelstein’s byline all but guarantees that it will be under some level of consideration in the Treasury. What this and Labour’s local infrastructure thinking have in common is a recognition that traditional models of consent for tax rises have broken down.

Whitehall has always hated hypothecation – the pegging of specific revenue streams to particular services. But in a climate where politicians and officials are simply not trusted with public money, some new devices will be needed to reassure people, whether as private households or businesses, that it is worthwhile handing a portion of their earnings over to state agencies so they can effect good works.

The repetitive and needlessly venomous exchanges over the 50p rate have shown that British politicians like arguments about taxes that reinforce existing prejudices about their opponents – Labour as neo-Bolshevik confiscators of wealth; Tories as self-serving plutocrats defending their entrenched privileges. There are all sorts of questions to be asked about the kind of taxation that supports growth and enterprise, adequately and sustainably funds public services, is not too onerous and conforms to voters’ natural sense of fairness. Sadly, that isn’t the debate we are going to have in the run-up to the next general election. 

Ed Balls and George Osborne attend the State Opening of Parliament on May 8, 2013. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Why Labour's dismal poll ratings won't harm Jeremy Corbyn's re-election chances

Members didn't vote for him on electoral grounds and believe his opponents would fare no better.

On the day of Theresa May's coronation as Conservative leader, a Labour MP texted me: "Can you imagine how big the Tory lead will be?!" We need imagine no more. An ICM poll yesterday gave the Tories a 16-point lead over Labour, their biggest since October 2009, while YouGov put them 12 ahead. The latter showed that 2.7 million people who voted for the opposition in 2015 believe that Theresa May would make a better prime minister than Jeremy Corbyn (she leads among all voters by 52-18).

One might expect these subterranean ratings to reduce Corbyn's chances of victory in the Labour leadership contest. But any effect is likely to be negligible. Corbyn was not elected last summer because members regarded him as best-placed to win a general election (polling showed Andy Burnham ahead on that front) but because his views aligned with theirs on austerity, immigration and foreign policy. Some explicitly stated that they regarded the next election as lost in advance and thought it better to devote themselves to the long-term task of movement building (a sentiment that current polling will only encourage). Their backing for Corbyn was not conditional on improved performance among the public. The surge in party membership from 200,000 last year to 515,000 is far more worthy of note. 

To the extent to which electoral considerations influence their judgement, Corbyn's supporters do not blame the Labour leader for his party's parlous position. He inherited an outfit that had lost two general elections, neither on a hard-left policy platform. From the start, Corbyn has been opposed by the majority of Labour MPs; the latest polls follow 81 per cent voting no confidence in him. It is this disunity, rather than Corbyn's leadership, that many members regard as the cause of the party's malady. Alongside this, data is cherry picked in order to paint a more rosy picture. It was widely claimed yesterday that Labour was polling level with the Tories until the challenge against Corbyn. In reality, the party has trailed by an average of eight points this year, only matching he Conservatives in a sole Survation survey.

But it is Labour's disunity, rather than Corbyn, that most members hold responsible. MPs contend that division is necessary to ensure the selection of a more electable figure. The problem for them is that members believe they would do little, if any, better. A YouGov poll published on 19 July found that just 8 per cent believed Smith was "likely to lead Labour to victory at the next general election", compared to 24 per cent for Corbyn.

The former shadow work and pensions secretary hopes to eradicate this gap as the campaign progresses. He has made the claim that he combines Corbyn's radicalism with superior electability his defining offer. But as Burnham's fate showed, being seen as a winner is no guarantee of success. Despite his insistence to the contrary, many fear that Smith would too willingly trade principle for power. As YouGov's Marcus Roberts told me: "One of the big reasons candidates like Tessa Jowell and Andy Burnham struggled last summer was that they put too much emphasis on winning. When you say 'winning' to the PLP they think of landslides. But when you say 'winning' to today's membership they often think it implies some kind of moral compromise." When Corbyn supporters hear the words "Labour government" many think first of the Iraq war, top-up fees and privatisation, rather than the minimum wage, tax credits and public sector investment.

It was the overwhelming desire for a break with the politics of New Labour that delivered Corbyn victory. It is the fear of its return that ensures his survival. The hitherto low-profile Smith was swiftly framed by his opponents as a Big Pharma lobbyist (he was formerly Pfizer's head of policy) and an NHS privatiser (he suggested in 2006 that firms could provide “valuable services”). His decision to make Trident renewal and patriotism dividing lines with Corbyn are unlikely to help him overcome this disadvantage (though he belatedly unveiled 20 left-wing policies this morning).

Short of Corbyn dramatically reneging on his life-long stances, it is hard to conceive of circumstances in which the current Labour selectorate would turn against him. For this reason, if you want to predict the outcome, the polls are not the place to look.

George Eaton is political editor of the New Statesman.