Leader: Far tougher choices are needed on tax and spend

Neither the tax rises proposed by Labour, nor the benefits cuts proposed by the Tories would make a significant dent in the deficit.

The 2010 general election was defined by a conspiracy of silence between the main parties. For fear of the electoral consequences, neither Labour nor the Conservatives spelled out to voters what austerity would entail in practice. While vowing to halve the deficit, Gordon Brown never acknowledged the scale of spending cuts that would be needed to meet this pledge. The Tories, who promised to eliminate the structural deficit in a single parliament, were no better. The weekend before the election, David Cameron declared that any future cabinet minister who proposed “front-line reductions” in services would be “sent straight back to their department to go away and think again”. During the campaign, he said that his party had “absolutely no plans” to raise VAT, that he “wouldn’t means-test” child benefit, that Sure Start centres would not be closed and that the Education Maintenance Allowance would remain in place. Each one of these promises was broken before the year was out.

This year has begun with both the Tories and Labour declaring that they are prepared to make the “tough choices” required to reduce the deficit – which the government forecasts will be £111bn this year – in the next parliament. George Osborne has promised to implement £25bn of further spending cuts, including £12bn from welfare, in the two years after the next general election. Ed Balls has announced that Labour will seek to achieve a current budget surplus by the end of the next parliament and will reintroduce the 50p income-tax rate to help with this task. Both men wish to be seen as fiscal disciplinarians, taking difficult but necessary decisions in the national interest. Yet neither can credibly claim this mantle.

There is little that is brave about cutting benefits for the poor or raising taxes on the rich, policies that have the overwhelming support of the public. Voters, unsurprisingly, are most in favour of austerity when it does not affect them. Just 1.5 per cent of taxpayers have earnings above the £150,000 threshold at which the 50p tax rate would be introduced and a similarly small proportion of households is affected by measures such as the benefit cap. For this reason, none of the policies recently announced by Mr Balls and Mr Osborne would make a significant dent in the deficit. Rather, their logic is almost entirely political. The Tories are seeking to frame Labour as the party of welfare, Labour to frame the Tories as the party of the wealthy. One can hardly blame politicians for playing politics but the danger is that this ideological skirmish denies the country the open debate it needs about its fiscal choices.

Despite the return of consistent growth, the scale of austerity required after 2015, owing to the persistence of the structural deficit (which stands at 3.6 per cent of GDP), has not lessened. The Institute for Fiscal Studies has estimated that £12bn of further tax rises or welfare cuts will be needed merely to maintain departmental spending cuts at their current level. While Mr Osborne has declared his willingness to make welfare reductions of this size, he has notably refused to specify any beyond the abolition of housing benefit for the under-25s, a measure that would raise at most £1.2bn, and likely less after exemptions for the disabled and other vulnerable groups. Beyond the tax rises announced by Labour, most of which are to fund new spending programmes, Mr Balls has offered to remove winter fuel payments from the wealthiest 5 per cent of pensioners, a cut that would save just £100m.

For the sake of democracy as well as good government, we need a far wider debate about the services the state should fund and the taxes it should levy to pay for them. Both parties should consider significantly deeper cuts to a defence budget that remains the fourth largest in the world. At a time when property values are rising far faster than incomes, they should also look to increase the taxation of high-value estates, including steeper rates of stamp duty and the imposition of capital gains tax on first properties. Other imaginative options include the introduction of a land value tax and a higher rate of VAT on luxury items. But given that it seems the limits of departmental cuts will soon be reached, the parties ultimately may need to discuss openly the possibility of raising the only taxes that reap reliably large revenues: the basic rate of income tax, National Insurance and VAT. That would be a properly “tough choice”.
 

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

This article first appeared in the 29 January 2014 issue of the New Statesman, The seven per cent problem

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10 times Nicola Sturgeon nailed what it's like to be a Remain voter post-Brexit

Scotland's First Minister didn't mince her words.

While Westminster flounders, up in Holyrood, First Minister Nicola Sturgeon has busied herself trying to find a way for Scotland to stay in the European Union

And in a speech on Monday, she laid out the options.

The Scottish Nationalist acknowledged the option of independence would not be straightforward, but she added: “It may well be that the option that offers us the greatest certainty, stability and the maximum control over our own destiny, is that of independence.”

She also hinted at a more measured stance, where Scotland could “retain ties and keep open channels” with the EU while other countries within the UK “pursue different outcomes”. 

And she praised the new PM Theresa May’s commitment to wait for a UK-wide agreement before triggering Article 50.

But Sturgeon’s wide-ranging speech also revisited her memories of Brexit, and the days of chaos that followed. Here are some of the best bits.

1. On the referendum

I am the last person you will hear criticising the principle of referenda. But proposing a referendum when you believe in the constitutional change it offers is one thing. Proposing - as David Cameron did - a referendum even though he opposed the change on offer is quite another. 

2. On the result

I told the Scottish Parliament a few days later that I was “disappointed and concerned” by the result. I have to admit that was parliamentary language for a much stronger feeling.

3. On the Leave campaign

I felt, and still feel, contempt for a Leave campaign that had lied and given succour to the racism and intolerance of the far right.

4. On leadership

It seemed abundantly clear to me that people - even many of those who had voted to Leave - were going to wake up feeling very anxious and uncertain. It was therefore the job of politicians, not to pretend that we instantly had all the answers, but to give a sense of direction. To try to create some order out of the chaos. That’s what I was determined to try to do for Scotland. I assumed that UK politicians would do likewise. I was wrong. 

5. On EU nationals

I felt then – and still feel very strongly today - that we must give them as much reassurance as possible. It is wrong that the UK government has not yet given a guarantee of continued residence to those who have built lives, careers and families here in the UK.

6. On karma

You tend to reap what you have sown over many years. It shouldn’t have come as a surprise to politicians who have spent years denigrating the EU and pandering to the myths about free movement, that some voters simply did not believe them when they suddenly started extolling the virtues of both.

7. On teenage voters

I think it was wrong in principle to deny EU nationals and 16 & 17 year olds the right to vote. But, as well as being wrong in principle, it was also tactically foolish. 

8. On slogans

While “Brexit means Brexit” is intended to sound like a strong statement of intent it is, in truth, just a soundbite that masks a lack of any clear sense of direction.

9. On Scotland

Some will say that we also voted to stay in the UK, so we must accept the UK wide verdict. But in 2014, we voted to stay part of a UK that was a member of the EU - indeed, we were told then that protecting our EU membership was one of the main reasons to vote against independence.

10. On taking back control

To end up in a position, which is highly possible, where we have to abide by all the rules of the single market and pay to be part of it, but have no say whatsoever in what the rules are, would not be taking back control, to coin a phrase we’ve heard more than once recently- it would be giving up control.