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15 September 2021

The biggest risk for Labour is taking no risks

Starmer should commit openly and enthusiastically to taxing, borrowing and spending in the name of justice.

By Paul Mason

“The Labour right don’t want free social care and the shadow Treasury team don’t want to pay for it.” That’s how one weary Labour backbencher explained Keir Starmer’s seeming paralysis over the government’s social care plan last week.

Labour opposed the 1.25 per cent National Insurance (NI) increase and rightly slammed the government for failing to propose a long-term solution to the care crisis. But frontbenchers were sent into the studios without an alternative. “Those with the broadest shoulders will pay” was the euphemistic formula, with hints from Starmer himself of new taxes on capital gains and on dividends. 

But amid the winks and metaphors there was no concrete commitment to a policy that Labour’s National Executive Committee (NEC) rubber-stamped in November 2019: free personal care for the over-65s, paid for by taxing capital gains and dividends at the same rate as income and raising around £14bn. 

Contrast that to the commitments made at the Trades Union Congress (TUC) this week and the shape of Labour’s policy dilemma is clear. At the TUC, Starmer promised that the party would raise the minimum wage to £10 an hour, ban zero-hours contracts and “fire and rehire” policies, and increase statutory sick pay and extend it to all workers.

This is the “dignity of labour” agenda, promoted by shadow chancellor Rachel Reeves and former policy review head Jon Cruddas MP, made flesh. In its first, major, non-Covid-related policy move, Labour has targeted help at low-paid workers in the private sector and answered the demands of the trade unions representing those workers. 

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If enacted, unlike with the free social care strategy, the costs would be borne directly by private sector employers, largely unmediated through government tax and spending. It would put money straight into the pockets of workers and significantly enhance their job security. This is, in other words, basic Labourism – and should be applauded. 

But in a society facing climate crisis, demographic ageing, widening inequality, culture wars and national fragmentation, “basic Labourism” is not enough: not enough to win elections, and not enough to effect strategic social change once you do so. 

It’s the strategic stuff that matters and Labour’s refusal to meet Johnson’s social care gambit with a strategic answer of its own is telling. It signals there is still no coherent political philosophy guiding Starmer, leaving the project to default regularly to the sum of its parts.

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On social care, for example, there is a strong tradition on the Labour right of preferring contributory benefits such as unemployment benefit or Jobseeker’s Allowance to universal benefits. It was shaped by the work-related health and social security system the party grew up alongside in the early 20th century.

Though the link between NI contributions and cash benefits has been severely eroded, and removed entirely for healthcare access, parts of the Labour right have repeatedly suggested a return to the principle of “getting out what you’ve paid in”. In the mid-2000s, the ultra-Blairite wing even wanted to turn the NHS into a social insurance system. In 2019 the Fabian Society suggested returning Jobseeker’s Allowance to the status of a non-means-tested benefit, allowing those who’ve paid NI for longer to take home more while they are unemployed.

Counterposed to this is the social-democratic principle of universal access, with services free at the point of use, of equal quality across the country, and paid for through general taxation. That was a principle Nye Bevan had to enforce at the creation of the NHS, not just against resistance from GPs and foundation hospitals, but from the right of his own party, led by cabinet minister Herbert Morrison.

Social democracy, in short, treats the recipients of public services as citizens first, workers second, and insists that service standards in a poverty-stricken former industrial town need to be just as good as those in a big, wealthy and vibrant city. It does so because it has a universal theory of justice, not one evolved from the principles of trade unionism.

Labour, as a party, has always operated in a state of tension between these Labourist and social democratic traditions. And when the problem was only how to make its tax and spending policies progressive and socially just, and manage a financially stable economy, that tension was manageable. 

But the big and existential crises of the world demand hard choices. Social care is in crisis because the population is ageing, due to greater longevity and falling birth rates, while the tax-paying cohorts are shrinking. To pay for a fully comprehensive and free social care system would mean finding significant new sources of taxation among the rich, corporations and global finance, plus a state-backed insurance scheme.

Not even Corbynism, in the two manifestos of 2017 and 2019, came anywhere close to designing such a comprehensive solution – because it would cost a lot more than the £14bn-a-year John McDonnell’s team allocated to free personal care.

Yet comprehensive social care is just one of the strategic calls on the fiscal priorities of a future Labour government. The NHS itself, to meet rising healthcare costs, needs a huge funding uplift. Defence – in a world where Russia, not al-Qaeda is seen as the major threat – needs its perennial black hole filling.

And to completely decarbonise the British economy by 2040 – the emerging target of the left and environmental groups, as the possibility of doing so by 2030 evaporates – would require significantly more than the £250bn Labour promised to borrow and spend in 2019.

So there is no avoiding it: Labour will need both to borrow more than the Tories and to raise more in taxes. The one major tax rise acceptable to potential Labour voters – a rise in corporation tax from 19 per cent to 25 per cent – has already been stolen by Rishi Sunak.

[see also: Why increasing corporation tax is less progressive than you think]

In Labour’s 2017 and 2019 manifestoes, corporation tax was the major revenue raiser: by raising the rate to 25 per cent and then taxing multinational tech companies at a “unitary” rate, McDonnell calculated he could raise £30bn a year. After that you’re left with capital gains and dividends raising £14bn, and a financial transaction tax raising (notionally) £9bn. If you rule out raising VAT, as McDonnell did because it is regressive, all the other spending pledges have to be met through changes that raise single-figure sums. Even McDonnell’s proposed income tax rises for higher earners would have recouped only £5.4bn a year.

Labour’s shadow Treasury team knows that, unless Sunak tries to cancel the corporation tax rise, it has very little left to play with. The party’s 2017 aim of raising £49bn extra in taxes looks like the politically acceptable limit. Everything else, including the decarbonisation programme, will have to be paid for by borrowing to invest. 

But this is why Labour needs to have a philosophical argument with voters now: about the need for universal service provision, the justice of progressive taxation, the inevitability of wealth taxes and the value proposition behind borrowing to invest.

That it cannot bring itself to do so betrays a potentially fatal hesitancy over principles. All the more so because the Tories’ core principles have been shattered.

By raising corporation tax and then NI, the Johnson government has left the small-state, anti-tax wing of Conservatism in despair. What do we stand for if not low taxes?, asked the Telegraph last Sunday (12 September). “People don’t like paying taxes. They vote Conservative to cut them. Lose that definitional issue, that edge over the Leftist leviathan, and all hope is lost.” 

Johnson’s social care debacle was the moment British politics began to revolve around who should be taxed and how a higher tax take should be prioritised – not whether to shrink or grow the state. In this new world Labour can win the argument not just over fairness but, paradoxically, over value for money.

Universal services, with clear service standards and targets, are the best value for money. A rapid decarbonisation plan paid for by borrowing, leaving a renewed green transport system and housing stock as its legacy, should be much easier to sell than a Tory bodge-job paid for through taxation.

So while nobody is asking Labour to commit to concrete spending and borrowing figures now, it should make its principles clear. The test for the party at its coming conference is whether it can commit openly and enthusiastically to what should be its USP: to tax, borrow and spend in the name of social, environmental and economic justice.

[see also: How to pay for a Green New Deal]