Labour’s 1992 shadow budget revisited?

Like every ordinary Labour party member, I am working towards the election of a majority Labour government in 2015. And like most responsible citizens, I would like to see the fiscal deficit brought down and a tax system where everyone ‘pays their fair share’.

There can be nothing fair about today’s taxpayers or our grandchildren being asked to find over £50bn in annual debt interest payments, which is about the same amount, incidentally, that we spend on schools, colleges and universities combined. The deficit must come down.

So you would be forgiven for thinking that I might also be emphatically in favour of restoring the 50p top rate of income tax on those earning over £150,000. After all, the recent announcement by Ed Balls is undoubtedly popular: over 60 per cent of the general public polled by the Mail on Sunday, support the idea. This feels to many like the party’s big moment, a clear dividing line between the Conservatives that have delivered tax cuts to millionaires while introducing the callous bedroom tax. Meanwhile, it is Ed Miliband who has articulated a clear vision of how Labour will take on broken markets and fatcat excesses in the boardroom.

But when is a popular policy also the right thing to do? It was one of America’s founding fathers, Benjamin Franklin, who first chastised politicians: ‘remember not only to say the right thing in the right place, but far more difficult still, to leave unsaid the wrong thing at the tempting moment.’

The reintroduction of the 50p rate is the wrong thing, however tempting it may be to seize the political moment.

Watching the shadow chancellor deliver his speech in a university lecture theatre on Saturday afternoon brought back memories of the party’s approach in the run up to the 1992 general election. In those days we were desperately trying to shake off the image of being a party of protest. Voters were fed up with Thatcherism. The economy was in a deep recession. The broad-based social movements that sprang up to axe the poll tax and support Live Aid spoke to a silent majority of British people who had rejected the brash capitalism of the 1980s. The ‘time for a change’ message consistently showed that Labour was ahead in the opinion polls.

Emboldened by the tide of support, John Smith and his shadow team went onto the steps of the Treasury and held aloft Labour’s shadow budget. Yet, what is easy to forget about those times – and at our peril in today’s internal party discussions – is that the economic message that hard-working families would on average be £311 per annum better-off under Labour, was drowned out by the fact that top rate taxpayers would, on average, be £150 a month worse off. In other words, the vast majority of voters who were simply not affected at all by our tax plans still fell for the Tory ‘tax bombshell’ lie. By polling day, the fear was firmly planted in enough voters’ minds that Labour just couldn’t be trusted on tax (and, by implication, management of the economy).

Of course, the election in 2015 will not be a rerun of 1992. The post-financial crisis and the taxpayer bailouts of rich bankers’ have genuinely struck a cord with the electorate. We can’t simply return to ‘business as usual’. And there’s no doubt that Labour in government will have to work hard to restore trust in broken markets while taking difficult decisions on public spending.

The real danger is that what on the face of it, in isolation, seems like a good thing to promise, in fact turns out in the long run to be both bad politics and lousy economics. It is bad politics because the narrative in the run-up to the general election will be ruthlessly seized upon by our opponents: ‘Labour is anti-enterprise, anti-business and anti-growth.’ It is bad economics, because if Labour is truly about a race to the top as an alternative economic vision to the Tories – with their global race to the bottom – then we must be brutally honest with ourselves that high marginal tax rates will not deliver a prosperous, fair and dynamic economy.

Instead of falling for the failed policies of President Hollande in France, we need to remember our own one nation roots. There are other centre-left policy choices that should come before the gesture politics of the 50 per cent rate. For example: taxing unearned wealth on short-term share holdings; and property speculation driving up house prices in central London; increasing inheritance tax on estates over £1m, or introducing a mansion tax; ending free bus passes, TV licences and winter fuel payments for rich pensioners. These are the things Labour should prioritise above taxing the incomes of people who go out to work, however well paid they may be.

The fact that the top one per cent of earners already account for 30 per cent of income tax revenues, suggests that the better-off are already paying their fair share. Labour is a serious party of power. We must not fall for the illusory populism of some tribal policies that were cast in the protest days of the 1980s.

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Tom Bewick is a member of Hove constituency Labour party

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Comments: 3...

  1. On January 28, 2014 at 3:52 pm PaulfromYorkshire responded with... #

    Hollande has a 75% top tax rate. Balls is pr0posing 50%. Lord Gus McDonnell says the OBR recommends 48% top tax rate. 50% sounds pretty smart in round numbers doesn’t it?

  2. On January 29, 2014 at 12:02 pm RAnjeh responded with... #

    My thoughts exactly.

  3. On February 1, 2014 at 12:23 am john p reid responded with... #

    ditto

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