Labour’s support for Hammond’s tax cuts sounds reasonable—at least, until you think what £900m could buy. But longer term, the party is boxing itself inby Chaminda Jayanetti / November 2, 2018 / Leave a comment
Halloween means fancy dress, but Labour may have taken things a bit too far with their full-on Cage-Travolta face-swap this week.
John McDonnell and supporters of Jeremy Corbyn—though not, given his performance at PMQs, Corbyn himself—lined up to say Labour would accept the government’s decision to cut taxes for those earning more than £46,000 a year, in an attempt not to scare off upper-middle earners in target seats at the next election.
Meanwhile, Labour centrists and Corbyn-sceptics, who once defined themselves by their ability to connect with middle-class swing voters in a way Corbyn supposedly never would, attacked the leadership’s position, accusing the party of backing a move that only helped the better off and did nothing for the poor.
Labour’s infamous 2015 “Labstention,” in which the party’s centrists watered down their opposition to Tory benefit cuts while Corbyn and McDonnell opposed them, is now reprinted with the colours reversed. The leftists now sound centrist, the centrists now sound leftist, and a fresh-faced outsider might struggle to tell which is which.
It is true that Labour’s stance carries an electoral logic, given that the party won unexpected but crucial support from higher earning Remain voters at last year’s election.
Limiting income tax rises to those earning more than £80,000—the party’s current policy—also helps quarantine tax rises sufficiently up the income scale as to avoid a 1992-style ‘tax bombshell’, when Labour’s plans to raise income tax to fund public services helped wreck their election campaign.
McDonnell’s stance is also entirely in keeping with the party manifesto, which accepted the Tory tax cut plans. All Philip Hammond did in his Budget was bring that forward‚and unless Labour won a general election pretty soon, they’d be in no position to reverse it.
In addition, Labour isn’t planning a giveaway for the richest. Even accepting Hammond’s tax cuts, Labour would still raise income tax substantially on those earning more than £80,000.
And unlike the benefit cuts that underpinned the 2015 Labstention, these tax cuts won’t actually harm anyone, in and of themselves.
But that’s where things get tricky. Tax measures don’t exist “in and of themselves.” They are part of a matrix of tax and spending decisions. And money that’s going to one place, isn’t going to another.
The tax cuts aren’t a big revenue-loser—they aren’t forecast to cost the government more than £900m in any given year, which in the grand scheme of government spending is substantive, but not substantial.
How much do the income tax cuts in #Budget2018 cost? From 2020 onwards, roughly half goes on raising the personal allowance for 30 million people, with the other half going on raising the higher rate threshold for under 5 million individuals earning over £50,000 pic.twitter.com/y9X7o72IRV
— ResolutionFoundation (@resfoundation) November 1, 2018
It is, however, considerably more than it would cost to reopen the Independent Living Fund, which provided life-changing support to severely disabled people until David Cameron and George Osborne unceremoniously shut it down.
It could additionally just about fund the cuts to Council Tax Benefit introduced under the coalition, which led to cuts to benefits and rising council tax debts for many people on the lowest incomes. Neither of these were mentioned in the 2017 Labour manifesto.
In politics, every decision is a choice. And given that Labour has chosen to commit to running balanced budgets over a five-year timeframe (other than during recessions), and has chosen to limit income tax rises to the very highest earners, that risks making choices that would betray what the party, and Corbyn and McDonnell in particular, are supposed to stand for.
There are billions of pounds of devastating benefit cuts which Labour has not yet found the money to reverse, nor in some cases has even addressed. Its NHS spending plans aren’t really adequate. Some of its spending plans depend on the buoyancy of risky bank borrowing and private education to fund them, creating an awkward structural dependency for a leadership whose political project would logically involve a reduction in both.
Labour is boxing itself in on tax. The low hanging fruit was exhausted by the manifesto. The party has already pledged to pickpocket the rich and is relying on optimistic returns from financial transaction taxes and cutting tax avoidance to make the numbers add up. A mooted land value tax has been heavily watered down.
Where is the money going to come from? Will Labour make the logical but politically risky argument that economic growth can pick up the slack? Will it simply acquiesce to a pile of austerity cuts and hope that, as happened last year, a combination of Tory campaign disasters and some intense shilling from Corbyn’s charlatan media ‘outriders’ prevents most people noticing?
And Labour has also shown the Tories that it can be bullied on tax. The government now knows it can pledge to cut taxes for the middle classes and dare Labour to either risk a ‘tax bombshell’ or jeopardise its own spending plans.
Just imagine Hammond pledging a council tax freeze in the next Tory manifesto. Labour would be right to oppose it—but doing so would be politically risky. Yet not doing so would cost councils much-needed funding.
Labour’s leadership struggles to find a consistent line on anything. It’s easy to imagine it being tied up in knots midway through an election campaign. The root problem is that Labour’s electoral coalition is wide but thin—an ice sheet, not an iceberg. It is fragile and liable to fragment at any time, anywhere.
Keeping everyone on board is a huge challenge without an economic crisis. The biggest single hindrance is the leader’s unpopularity. That’s also something the party could fix.
But it won’t. Face-swaps are one thing. Body-swaps are quite another.