What does Labour offer on tax now? Photo: Getty Images
Show Hide image

Don't be fooled. The country needs and wants a honest debate about tax

Labour's chastening defeat has led some to claim the party is abandoning its commitments on tax. But that's a myth.

Has Labour, as Janan Ganesh claimed recently, ‘quietly given up on that which used to define it’? The article – and the wider argument – was based on wrongheaded assumptions about Labour – and taxation more generally.

By arguing that Labour’s focus on taxing ‘The Rich’ was insufficient in either generating enough revenue or honouring the principle of solidarity’, he suggests that Labour has turned away from its – apparently - high tax roots. According to Ganesh, ‘voters do not wish to pay more tax and do not assume that the tax they already pay is a proxy measure of their goodness as people’.

But Ganesh is wrong: the dividing lines on tax and redistribution between the parties remain clear, and it is the Labour party that has stayed on the right side of the debate.

Firstly, the pervasive narrative of Labour as the party of high taxes must be better understood for what it is: mythology. The article refers to Labour’s offer in 1992 as a classic example of self-righteousness over higher taxes, a pervasive political myth on the right. Yet, its manifesto was full of sound and perceptive tax proposals: who knew that the Conservatives’ celebrated personal allowance extensions had their roots in Labour’s 1992 manifesto which pledged to ‘take 740,000 taxpayers out of taxation altogether’? Furthermore, it promised to leave the basic and higher rates of income tax unchanged, and to abolish the iniquitous ceiling on National Insurance, which continues to this day (where earnings under £815 a week pay 12% in NICs while earnings over £815 pay only 2% in NICs). Mythology is of course persuasive and important: but these tax policies expose the hollow scaremongering that inaccurately overshadows Labour’s economic credibility.

Secondly, Ganesh interprets the taxing of bank bonuses, increasing the top rate of income tax, and the introduction of a ‘mansion’ tax as ‘petty politics’, echoing accusations from the Telegraph of Labour’s politics of ‘pure class envy’: yet, this analysis demonstrates how far the political right underestimates the significance (and popularity) of taxing wealth.

Labour’s election tax proposals were designed to promote exactly the ‘universalism and solidarity’ that Ganesh suggests it has abandoned. Taxing wealth properly addresses the UK’s chronic inequality, and Labour’s proposals attempted to grapple with the question of fairness in the system (the moral question of how we tax) alongside the dominant concern of revenue raising (the economic question of how much we tax). While Conservatives might dream of becoming the ‘workers’ party’ in ‘taking people out of tax’ through personal allowance extensions, the policy has further entrenched inequality in the system, with the reform disproportionately benefitting the wealthiest. Meanwhile, the Equality Trust has shown that while the wealthiest 10% of taxpayers pay 35p in every pound of their income in all forms of tax, for the poorest 10%, this figure is 43p. As such, the inherent, institutionalised injustices of the tax system require a radical overhaul with a focus on entrenched wealth: this, via examples such as a tax on property wealth, was exactly Labour’s offer last month.

Ganesh is partly right when he says that ‘by international standards, Britain is not overtaxed’, as, unlike low and middle wages, entrenched and unearned wealth remains chronically under-taxed. And this is important not just for the warped caricature of a party that taxes for tax’s sake: it has huge economic consequences too. Indeed, the OECD has demonstrated that societal inequality erodes economic productivity, knocking an estimated 9% off cumulative growth in the UK between 1990 and 2010. Reforming the tax system in favour of fairness and distribution is in the interests of all those professing commitment to a strong economy. Indeed, Labour’s ‘mansion tax’ seems less far-fetched when compared to the International Monetary Fund’s promotion of a one-off wealth tax of 10% in developed countries to wipe out public debt. And while the politics of revenue raising matters here (with Labour’s mansion tax plans estimated to raise £1.2bn), the politics of fairness and distribution are morally crucial too.

Finally, Ganesh’s implicit assumption of the public’s disengagement with taxation is unfounded. Blindly presenting all tax as intrinsically ‘bad’ is to misunderstand people’s continued connection to it. Most people are not inherently against taxes if they are collected fairly, used transparently, and if all contribute a fair share - hence the public’s outrage at tax avoidance. And while the tax burdens on low to middle income earners clearly need to be lessened, parties of all stripes must rid themselves of the idea that talking tax is toxic.

Public attitudes research shows distinct support for taxes when linked to high quality public service, with significant support for the introduction of a high value property tax and even increases in personal taxation to fund the NHS. Furthermore, forthcoming Fabian Society research on public attitudes to taxation indicates the desire for a more transparent tax system, with greater information and honest debate about the tax people pay. Indeed, it was precisely this attitude that secured public confidence when Gordon Brown introduced the ‘penny increase’ in National Insurance Contributions to provide funding for the NHS (following discussion in the Fabian Society’s Commission on Taxation and Citizenship in 2000). All parties must do more to engage with this sort of open discussion on tax.

Mythologies surrounding Labour’s history and public attitudes continue to distance the party (and indeed all parties) from the brighter reality on tax, that the public can handle (and indeed desperately want) honest, open discussion on the subject. As the Institute for Fiscal Studies identified during the election, this sort of debate is chronically missing, whether it’s about how we tax, or how much we tax. And it would be wrong to let such scaremongering frighten progressive politicians from engaging with these debates over the next five years, debates which we all deserve to be part of.

Daisy Srblin is a Research Fellow at the Fabian Society and is working on a forthcoming publication on public attitudes to taxation, for publication in Summer 2015 as part of the Future of Tax project.

 

 

 

Photo: Getty
Show Hide image

Jeremy Corbyn may be a Eurosceptic, but he still appeals to the values of many Remainers

He reassures Labour MPs defending majorities in heavily pro-EU areas that things will be OK.

There are two facts about Brexit that everyone seems to forget every few weeks: the first is that Jeremy Corbyn is a Eurosceptic. The second is that the first fact doesn't really matter.

The Labour leader's hostility to the European project is back in the news after he told Andrew Marr that the United Kingdom's membership of the single market was inextricably linked with its EU membership, and added for good measure that the “wholesale importation” of people from Eastern and Central Europe had been used to “destroy” the conditions of workers, particularly in the construction industry.

As George Eaton observes on Twitter, Corbyn voted against the creation of the single market in 1986 (and the Maastricht Treaty, and the Lisbon Treaty, and so on and so on). It would be a bigger shock if the Labour leader weren't advocating for a hard exit from the European Union.

Here's why it doesn't matter: most Labour MPs agree with him. There is not a large number of Labour votes in the House of Commons that would switch from opposing single market membership to supporting it if Corbyn changed his mind. (Perhaps five or so from the frontbenches and the same again on the backbenches.)

There is a way that Corbyn matters: in reassuring Labour MPs defending majorities in heavily pro-Remain areas that things will be OK. Imagine for a moment the reaction among the liberal left if, say, Yvette Cooper or Stephen Kinnock talked about the “wholesale importation” of people or claimed that single market membership and EU membership were one and the same. Labour MPs in big cities and university towns would be a lot more nervous about bleeding votes to the Greens or the Liberal Democrats were they not led by a man who for all his longstanding Euroscepticism appeals to the values of so many Remain voters.

Corbyn matters because he provides electoral insurance against a position that Labour MPs are minded to follow anyway. And that, far more than the Labour leader's view on the Lisbon Treaty, is why securing a parliamentary majority for a soft exit from the European Union is so hard. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.