Not as progressive as he likes to make out. Photo: Getty Images
Show Hide image

How does Labour move on from tax and spend?

Voting against further increases to the personal allowance would expose George Osborne's rhetoric for what it is.

Last week saw publication of the Conservative Government’s first Finance Bill. It’s through the Finance Bill that the Tories will give legal form to the tax measures announced in their Summer Budget.

And they make an ignominious start. True, they never promised us a Rose Garden. But, I beg your pardon, the Conservative Manifesto did promise not to increase rates of income tax. And the very first clause of that very first Bill breaks that promise by busting the ‘Tax Lock’ to permit a 7.5 per cent increase in income tax paid on dividends.

Nor was this the only tax promise to fail to survive the nine weeks from General Election to Summer Budget. The Tories also pledged to “increase the annual tax charges paid by those with non-domiciled status, ensuring that they make a fair contribution to reducing the deficit.” But the Budget gave us no increase in the annual charges. Instead we have some fairly modest changes which will remove the benefit of the status from those unlikely to have been entitled to claim it in the first place.

But, “over-firm” though the Manifesto commitments may be revealed to be, and with a second reading today, the task before Labour is to work out before the Committee stages in September where it stands on the Finance Bill measures.  

I’ll offer some thoughts in the coming days.

And I’ll assume Labour wants to shrug off the clothing of tax and spend and ask, instead, how it might wear its new garb whilst enhancing Labour values?  To do so is to accept, for the time being at least, the Conservatives’ narrative around the ‘right’ size of the state. Revisiting that question can await another day.

The first measure Labour should oppose is the proposed rise in the personal allowance.

Cameron spoke last month on the need to end the merry-go-round of “people working on the minimum wage having that money taxed by the government and then the government giving them that money back – and more – in welfare.”

But raising the personal allowance is medicine that gets nowhere near where the trouble is. There are several reasons why this is so. But most important: however high you raise the personal allowance, employers still have to deduct tax on income – in the form of National Insurance contributions – and pay it over to government.

As things stand, someone on minimum wage could work 31 hours a week before she had to start paying income tax. But she could only work 23 hours before paying National Insurance contributions.

If you really want to end the “ridiculous merry-go-round” you don’t focus on income tax which kicks in at 32 hours but on National Insurance contributions which kick in at 24 hours.

It’s just the wrong solution.

Raising the personal allowance is terrible policy for other reasons too.

It’s regressive: the lowest earning 46 per cent of adults already earn too little to pay income tax. Raising the personal allowance does nothing to help them. Indeed, those who presently benefit most in cash terms are, as IFS has identified, the second richest decile in the income distribution.

With the lower half of the adult income distribution already outside income tax the scope for helping the poorest through the tax system is limited. Tax credits are the sharpest way to target help at those who need it most. If, for reasons of ideology, you’ve discarded them from your tool box you’re left with blunter instruments. But here are two.

Council tax is highly regressive. In 2013/14, even net of Council Tax Support, it represented a staggering 13.5 per cent of the earnings of the poorest 20 per cent of households and only 1.9 per cent of the richest (source ONS) (6.4 per cent/4.3 per cent/3.1 per cent for intermediate quintiles). The case for spending part of that £4bn a year cost of raising the personal allowance to £12,500 on reducing this unfairness makes itself.

Compelling, too, although better understood, is the argument, already made above, for raising the level at which workers become liable to pay National Insurance contributions. If you spend that £4bn on raising the point at which you start to pay 12 per cent National Insurance contributions you can benefit those in work who earn £8,060 and above, reaching much further down the income distribution curve. Then you really will start to get people off the roundabout.

Of course, whatever you propose, the reality is that the Tories will press ahead, regardless, with increasing the personal allowance. And it is far, far too early to begin to formulate manifesto policies for 2020. But even at this stage in the electoral cycle there is work to be done in exposing the reality of Osborne’s One Nation rhetoric: a suite of tax policies which do nothing for the poorest and distribute their fruits to those who need them least. 

Jolyon Maugham​ is a barrister who specialises in tax. He advised the Labour party on tax policy, and blogs regularly on taxation here.

Jolyon Maugham is a barrister who advised Ed Miliband on tax policy. He blogs at Waiting for Tax, and writes for the NS on tax and legal issues. 

Photo: Getty
Show Hide image

After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

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