The real Labour divide over the 50p tax rate

Is it a temporary tax or a permanent one?

In an attempt to counter Labour's populist (and popular) pledge to reintroduce the 50p tax rate, the Tories have been quoting Lord Myners' rather colourful denunciation of the policy. The former City minister (from 2008-10) said of Ed Balls's announcement: "The economic logic behind his thinking would not get him a pass at GCSE economics", adding that "We need to encourage productive enterprise and effort rather than resort to predatory taxation. It is not clear how this is going to help the UK economy compete with the world's growth economies. The UK already has an income tax system that is more progressive than most of our international competitors."

But in opposing the policy, Myners is very much the exception that proves the rule. Almost all in Labour recognise that the 50p pledge is a smart way of proving that the party is committed to fair deficit reduction and of framing the Tories as the party of the rich. Alistair Darling, for instance, said on Sky News this morning: "I think in the context, when I increased the top rate of tax to 50p I did it on a temporary basis, I made it very clear that I didn’t see that as being a long-term position but the deficit reduction has taken far longer than anybody would want and when you talk about reducing the deficit, there are quite substantial cuts that are slated to come in after the next election and it just seems to me that we need to be fair about this so that people with the broadest shoulders carry their fair share of the burden."

But it's worth highlighting a more subtle but significant divide within the party. In his speech at the Fabian Society conference yesterday and in his apperance on The Andrew Marr Show this morning, Ed Balls said several times that the 50p rate would only remain in place "while we get the deficit down". This is designed to present the move as a temporary, pragmatic measure, rather than as a permanent feature of the tax system. Balls, who is more conscious than some in the party of the need to avoid appearing anti-business, emphasised: "I've had very many businesspeople say to me over the last year or so, they say: 'We want to get the top rate of tax down' – well, of course they do. I want lower tax rates".

But while Balls has adopted this pragmatic stance, there are many in Labour who are committed to a top rate of 50p as a matter of principle. Back in June 2010, when he was running for the Labour leadership, Ed Miliband put himself in this camp when he said:

I would keep the 50p rate permanently. It's not just about reducing the deficit, it's about fairness in our society and that's why I'd keep the 50p tax rate, not just for a parliament.

He has not repeated this declaration since but many suspect that it remains his private view. What is not in doubt is that a significant number of the party's MPs believe that the 50p rate is an essential means of redistributing income to reduce inequality, not merely of reducing the deficit.

As for whether Labour would scrap the 50p rate once deficit reduction is complete, it's worth remembering Milton Friedman's line that "Nothing is so permanent as a temporary government programme". Income tax itself was introduced in 1799 as a temporary measure to help fund the fight against Napoleon. Two hundred and fifteen years later, it is still with us.

Update: In response to this post, a Labour spokesman told me that "what is permanent is our commitment to fairness in taxation" and that "the 50p rate is specifically tied to deficit reduction". The same source added that the party would have "more to say" in the coming months about reducing tax avoidance, suggesting that it is looking at means of ensuring that it maximises revenue from the new rate.

Ed Miliband and Ed Balls at the Labour conference in Brighton last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Getty Images.
Show Hide image

Scottish Labour's defeat to the Tories confirms a political transformation

The defining divide is no longer between left and right but between unionist and nationalist.

It was Scotland where Labour's recovery was supposed to begin. Jeremy Corbyn's allies predicted that his brand of left-wing, anti-austerity politics would dent the SNP's hegemony. After becoming leader, Corbyn pledged that winning north of the border would be one of his greatest priorities. 

But in the first major elections of his leadership, it has proved to be Labour's greatest failure. A result that was long thought unthinkable has come to pass: the Conservatives have finished second (winning 31 seats). For the first time since the 1910 election, Labour has finished third (winning 24). Scottish Labour leader Kezia Dugdale stood on a left-wing platform, outflanking the SNP on tax (pledging to raise the top rate to 50p and increase the basic rate by 1p), promising to spend more on public services and opposing the renewal of Trident. But rather than advancing, the party merely retreated.

Its fate confirms how Scottish politics has been realigned. The defining divide is no longer between left and right but between unionist and nationalist. With the SNP as the only major pro-independence party, the Tories, led by the pugnacious Ruth Davidson, framed themselves as the pro-UK alternative - and prospered. In contrast, Dugdale refused to rule out supporting a second referendum and suggested that MPs and MSPs would be free to campaign for secession. The result was that Scottish Labour was left looking dangerously irrelevant. "Identity politics. Labour doesn't get it," a shadow minister told me. Its socialist pitch counted for little in a country that remains ideologically closer to England than thought. The SNP has lost its majority (denying it a mandate for a second referendum) - an outcome that the electoral system was always designed to make impossible. But its rule remains unthreatened. 

Corbyn's critics will seek to pin the baleful result on him. "We turned left and followed Jeremy's politics in Scotland, which far from solving our problems, pushed us into third," a senior opponent told me. But others will contend that a still more left-wing leader, such as Neil Findlay, is needed. Dugdale is personally supportive of Trident and was critical of Corbyn before his election. Should she be displaced, the party will be forced to elect its sixth leader in less than five years. But no one is so short-sighted as to believe that one person can revive the party's fortunes. Some Corbyn critics believe that a UK-wide recovery is a precondition of recovery north of the border. At this juncture, they say, SNP defectors would look anew at the party as they contemplate the role that Scottish MPs could play in a Westminster government. But under Corbyn, having become the first opposition to lose local election seats since 1985, it is yet further from power. 

In Scotland, the question now haunting Labour is not merely how it recovers - but whether it ever can. 

George Eaton is political editor of the New Statesman.