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11 November 2019updated 12 Nov 2019 9:22am

Labour and the Liberal Democrats share a common problem: a lack of honesty about tax

Both parties have identified the problem wih the UK’s paltry adult education system. Neither have a solution that is up to the challenge. 

By Stephen Bush

One of the United Kingdom’s biggest problems is that we are really bad at educating our citizens. We do education up until the age of 21 or so pretty well by global standards – but we are incredibly bad at updating the skills and qualifications of people after they graduate from university.

This is a big problem, both for the personal fufilment of British people and for our overall economic performance. It will become more acute as we live longer, too. Fortunately, both the Liberal Democrats and Labour are proposing policies to tackle the problem. Unfortunately, both have large flaws.

The Liberal Democrats are proposing an inelegantly-named scheme: “skills wallets”. Every adult will receive three dollops of funding from the government to spend on adult education – £4,000 at 25, £3,000 at 40 and another £3,000 at 55 – funded by increasing corporation tax from 19 per cent to 20 per cent (the Conservatives plan a cut to 17 per cent), with both employers and individuals encouraged to top up the fund.

I really like what this policy is trying to do. The Liberal Democrats tend to like hypothecating tax rises to specific policies to make them more palatable for the electorate – the penny on income tax for education that they had under Paddy Ashdown, the penny on income tax they have for health spending now – but there’s also a pleasing symmetry in recognising that while individuals benefit from being able to study new things over the course of their lives, businesses make huge benefits too from the scheme, and taxing them accordingly.

But there are some big problems: the first is that the reality is, as it stands, these amounts of money are just too low. You couldn’t take time out of the workplace to reskill yourself with these sums and they wouldn’t, on their own, fund a great deal of upskilling. We expect British workers to save for their pensions and the average British person still aspires to own a home one day – is it reasonable to expect, or particularly plausible, that they will also make up the difference to their “skills wallets”? In addition, while there’s an intellectually satisfying case for the corporation tax rise, given that the policy (rightly) presupposes that businesses will top up the skills wallet, it seems a bit shortsighted to do both. It would make more sense coupled with a broader set of changes to how we tax business profits to incentivise topping up schemes like this one rather than trying to double-dip from the same pot.

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Labour activists and MPs have taken a great deal of delight in pointing out that this is a lot worse than their proposal, which is to make adult education free at the point of use. And this would be true, if the Labour party had any serious plan to roll out free adult education at the scale proposed by the Liberal Democrat “skills wallet” wheeze. But the reality is that Labour’s plans presuppose that the uptake of further education will remain incredibly low – in 2017, they allocated just a little over £2bn to make adult education free at the point of use. While Labour does not hypothecate exactly which tax rise will pay for what, which makes sense from a policy perspective – it’s hard to say with certainty how much a tax change will raise until you actually do it – their proposal is to increase corporation tax to 26 per cent (its 2011 level) and to increase income tax for people earning above £80,000.

Labourites are right to say that the £10,000 per adult proposed by the Liberal Democrats is inadequate – however, given that their 2017 proposals come in at a cool £38.16 per adult, while their souped-up 2019 proposals clock in at £57.24 they should probably attend to the mote in their own eye first.

What both these policies have in common is a reluctance to confront British voters with tough choices on tax. You cannot commit to a balanced budget on day-to-day spending, as both Labour and the Liberal Democrats have done, and fund the serious level of adult education the United Kingdom requires solely with taxes on big business and the rich. You have to at least begin to unpick some of the broad-based tax cuts overseen by the Conservatives since 2010. That is personally painful for the Liberal Democrats, as one of the cuts that needs undoing is their own beloved increase in the income tax threshold (now £12,500) and politically risky for Labour. John McDonnell is almost certainly right to be cautious about talking too much about tax rises.

But the fact remains: you cannot meet the scale of ambition required to have a country for the many solely funded by taxes on the few. Not if you want to be able to give the many more than 60 quid to spend on education, at any rate.

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