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15 September 2021

The Tories’ regressive social care plan gives Labour the space for a radical alternative

As the Tories ape New Labour by taxing work rather than wealth, Keir Starmer’s party must show that it understands the new economic realities.

By James Meadway

Early polling after the Conservatives’ manifesto-busting National Insurance contributions (NICs) increase shows what some of us suspected would happen: not only was the tax hike broadly unpopular, but Labour has now snuck into a polling lead against the Tories for the first time since January this year. Against the urgings of some commentators, and to the surprise of many supporters, Labour took exactly the right line of outright opposition to a tax rise that, in combination with the planned Universal Credit (UC) cuts, would see 2.5 million of the lowest paid workers facing a £1,290 loss in their income.

Ahead of the Tories’ first in-person party conference in two years, Rishi Sunak has handed the Labour leadership a political gift that is likely to keep on giving. The Conservatives have broken a manifesto promise, trashed their (undeserved) reputation for keeping taxes low, and not even convinced voters they will fund the NHS properly.

It’s not hard to see how they got here. The scheme betrays classic Treasury thinking: penny-pinching, overcomplicated, politically inept, short-termist and regressive. Reports that the department is reasserting itself after Dominic Cummings’s exit last December should be music to Labour’s ears. More cunning Treasury-led plans like this one – pushing ahead with the £20 UC cut, for example, or insisting on new spending cuts in October’s spending review – will do an excellent job of clearing the path back to power for the opposition. This isn’t the early 2010s anymore. Public attitudes to public spending have changed dramatically. If the Tories want to make life easier for Labour, they should carry on letting 1 Horse Guards set the agenda.

Johnson, at least, recognises this much, noisily maintaining that he opposes austerity. The sharper Tories, away from the yahoos and ideologues on the back benches (or indeed from the Chancellor, one eye on his elevation to prime minister, playing up to them), are also alert to the unpopularity of spending cuts – at least in the most visible parts of the system. The UC cut will land heaviest in those former Labour seats that flipped to the Conservatives in 2019. A freshly convened Northern Research Group of Red Wall back-bench Tories is already making its feelings known.

One auspicious poll hardly guarantees election victory. (Jeremy Corbyn consistently led polls for much of the year after the 2017 election.) But there are good reasons to think this is a significant moment, in two different directions: first, as the care sector has made very clear since Tuesday, the announcement doesn’t even come close to “fixing” social care “once and for all”, as Johnson promised he would in his first speech as Prime Minister. Most of the funding will initially go to the NHS, leaving social care with £1.8bn a year – well below the £12.5bn the Health Foundation has estimated is needed to get back to 2010-11 levels of provision.

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Second, it has helped initiate an argument about taxation and the economy that is likely to become increasingly salient in the years ahead. It’s obvious that the debate around the economy has shifted to the left: No 10 was letting it be known that the NICs hike was a repeat of 2002’s 1p increase in National Insurance, overseen by Gordon Brown to provide extra funds to the NHS.

During its time in power, New Labour did redistribute, restraining skyrocketing income inequality. But its combination of being relaxed about the wealth of the super rich, while making heavy use of existing income taxes meant this was a peculiar form of redistribution. Those at the bottom were helped and public spending lifted, but the transfer of resources was not so much from the very top, but from the upper-middle range of the income distribution: comfortably off, perhaps, but as the 2000s wore on, obviously not the central economic problem.

It was only after the financial crisis of 2007-08, and the subsequent imposition of austerity here and across much of the globe, that the real problem of wealth inequality came to the fore. The publication of Thomas Piketty’s Capital in the 21st Century was a critical moment, laying out in grinding detail the extraordinary return to Gilded Age levels of wealth inequality across developed economies like the UK’s. Piketty, too, proposed a clear formula explaining why this happened: that as economic growth fell behind the returns on wealth, those who owned wealth did far better than those – the majority – who had to work and so rely on growth.

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The growth prospects for the next few years look bleak. We are unlikely to recover the rates of the 2000s, let alone those of the postwar “golden age”. Without a fast-growing pie expanding the size of every slice, we will have to rely more on wealth redistribution than in the past. But this means that, even if the Tories are now aping New Labour from two decades ago – taxing work, rather than wealth – Labour has to adapt to the new economic realities. Shadow chancellor Rachel Reeves’s punchy and effective intervention in the parliamentary debate highlighted the unearned incomes untouched by the Tory NICs hike. But can the party now turn its back on those long-distant New Labour years and come forward with an effective plan for wealth taxation?

[See also: How the freak economics of the Thatcher years warped the boomers’ view on tax and house prices]

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