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16 November 2022

Leader: The Labour dilemma

If Keir Starmer is to lead a transformative government of the kind the UK needs, he must be more imaginative.

By New Statesman

The Labour Party, Harold Wilson once observed, is “like a stagecoach. If you rattle along at great speed everybody is too exhilarated or seasick to cause any trouble. But if you stop, everybody gets out and argues about where to go next.”

On the surface, Keir Starmer’s Labour is rattling along. Despite the replacement as prime minster of the hapless Liz Truss with the more popular Rishi Sunak, the ­opposition still leads the Conservatives by around 20 points. The austerity announced by Jeremy Hunt in the Autumn Statement on 17 November – tax rises for almost all voters and spending cuts to most government departments – may seem unlikely to improve matters.

When George Osborne imposed cuts in 2010 he had a false but effective alibi: the 2008 financial crisis and the recent record of Gordon Brown’s administration. But this time, after Ms Truss’s calamitous mini-Budget, Labour can plausibly argue that the Conservatives have only themselves to blame.

[See also: What will Jeremy Hunt unveil in his Autumn Statement today?]

A new age of austerity, however, does not only pose dilemmas for the Tories. In contrast to Mr Osborne, who relied heavily on spending cuts, Mr Hunt was expected to announce significant tax rises, including an increase in the windfall tax on oil and gas companies from 25 per cent to 35 per cent, a reduction in the 45p rate threshold from £150,000 to £125,000 and a rise in corporation tax from 19 per cent to 25 per cent.

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The Chancellor’s aim is not only to reduce the UK’s national debt and appease the markets, but to lay a trap for Labour. Every time the opposition deviates from the Tories’ fiscal plans – “the baseline” – it will be challenged to explain where the money will come from to pay for Labour’s investment in public services: more borrowing, more taxes or more spending cuts?

So far, Labour has been naturally wary of announcing tax policies. The best ideas may be stolen by the Conservatives, while others may be obsolete by the time of the next general election in 2024. Rachel Reeves, the shadow chancellor, has so far committed to abolishing non-dom tax status and imposing a higher windfall tax on the profits of oil and gas companies, and has backed a global minimum rate of corporation tax – measures that affect the wealthiest. But soon the party will be compelled to make more radical choices and to be much bolder.

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The United Kingdom, as we argued last week, is being forced to confront the reality that it can no longer expect European-style public services and US-style taxation. An ageing population, the climate crisis, the impoverishment of the public realm and higher expectations among voters are all imposing new spending pressures.

Labour could, as some shadow cabinet ministers privately argue, limit its ambitions and narrow the room for Conservative attack. But if it wishes to lead a transformative government of the kind the UK needs, it must be more imaginative. Higher taxes on income – at a time of falling living standards – offer little potential. Even the reintroduction of the 50p top rate, abolished by Mr Osborne in 2012, would raise far less revenue than some believe. But there are alternatives: equalising the tax rates on capital gains with those on income, as the former Tory chancellor Nigel Lawson did in 1988, would raise around £16bn a year.

Since the 1970s, house prices have risen by 166 per cent across the country and by 513 per cent in London. And yet for decades politicians have refused to tax this windfall. Even now the council tax bands are based on property valuations set in 1991, though this will surely change. A type of land value tax, which would target unearned income, could raise as much as £20bn a year.

These are some of the measures Labour will need to contemplate if it aspires not only to form a government but to reverse years of economic stagnation. As Andrew Marr writes on page 16, Labour should also embrace constitutional reform, such as the replacement of the House of Lords with an elected senate – progressive change in straitened times.

After a decade of austerity and the Brexit debacle, the UK is a case study in dysfunction: a fragile multinational state with the worst access to healthcare in Europe, the third-highest childcare costs in the developed world and a severe shortage of affordable housing. If Labour is to change this, it must be more than just credible – it must be radical too.

[See also: Morgan McSweeney – Labour’s power broker]

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This article appears in the 16 Nov 2022 issue of the New Statesman, The state we’re in