Corbyn’s fiscal policy: sound economics, difficult timing

"If Labour loses the election, its persistent lack of fiscal credibility will be a contributing factor. Its fiscal policies, per se, will not be. This country is crying out for a progressive tax system in which the wealthy minority pull their weight in paying contributions."

“You don’t understand how much I actually want to vote Labour,” my friend said. “I don’t even think an £80,000 tax threshold would be a bad thing in the ideal world. But it’s just never going to work.”

 My friend is a southern, middle-class professional of a liberal disposition who has voted Conservative ever since our first election in 2010. He is exactly the sort of voter coveted by Labour in the Blair and Brown years, part of a comparatively small section of the population whose economic pragmatism and cultural affluence has decided every UK election since at least 1979. It was for the sake of this archetypal swing voter that, in the lead-up to the 1997 election, Labour promised to retain the outgoing government’s level of income tax and keep the national debt below 40% of GDP.

 Twenty years on, the leak and subsequent publication of the party’s 2017 manifesto was met with predictable derision from media commentators. (The London Evening Standard ran with “Comrade Corbyn waves the red flag”, which might easily have been substituted with “Breaking news: former Tory chancellor, now editor, attacks Labour”.) Central to the charges of atavistic socialism were Labour’s pledges on fiscal policy. Corbyn and McDonnell had committed a cardinal sin of modern British politics: going into an election planning to raise taxes.

 Just for a moment, commit another act of political unorthodoxy and step outside the cell of paranoid frenzy that today passes as our fourth estate. For the most part, Labour has made the same pledge the Tories made in 2015: no increases in income tax or personal national insurance contributions over the course of the next parliament. The only difference is that Labour’s pledge applies to 95% rather than 100% of earners, with the excluded 5% being those paid over £80,000 per year. This wealthy group is instead met with a modest call “to contribute more in tax to help fund our public services”. The party would also return corporation tax to a normal level for developed countries while creating a lower rate to support small businesses.

 At a time of rising inequality and both cyclical and structural pressure on the UK’s public services, not to mention the economic vandalism of a hard Brexit, these hardly seem like extreme suggestions. On the contrary, the Conservatives’ tax record since 2010 has been nothing less than fiscally irresponsible. Cutting the top rate of income tax to 45% and corporation tax to 19%, and placing a moratorium on virtually all tax rises from 2015 to 2020, has the potential to crush the government’s revenue-base in the medium-term. Neither was the tired debate about the onshoring and offshoring of tax liabilities done any favours by Cameron’s implication in the Panama Papers last year. The question of optimal tax levels in an era of mobile capital is a pressing one, but it is surely not best tackled by a party ideologically opposed to tax itself.

 There is some degree of irony here. The combination of prolonged austerity and anti-establishment populism means that there is now the highest support in decades for a truly progressive tax system. The greatest evidence of this is the recent transformation at the top of the Conservative Party, with the Cameron-Osborne neoliberals jettisoned in favour of May’s national protectionists. Certain policies – an energy price cap, worker representation on company boards – have been pilfered from Labour’s back-catalogue while Labour itself is set for a landslide defeat.

 If Labour loses the election, its persistent lack of fiscal credibility will be a contributing factor. Its fiscal policies, per se, will not be. This country is crying out for a progressive tax system in which the wealthy minority pull their weight in paying contributions. There is still much work to do (particularly on the neglected subject of land value) but such a system, proposed by a credible leadership, would appear as straightforward common sense to swing voters like my friend. Whoever rises to the top job after 9 June should bear that in mind as they re-sculpt the party.

 

James Bartholomeusz is a Young Fabians member

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