A hard-working – and Labour-voting – friend of mine is absolutely clear what
she will do if Gordon Brown brings in the new top rate of tax of 45p in the
pound, announced in the prebudget report. She will negotiate with her
company a “salary sacrifice”, ie, a large wage cut balanced by additional
pension contributions. Alternatively, she will work a three-day or four-day
week. Anything but pay more income tax.
My friend is no hatchet-faced capitalist but a compassionate social democrat
who gives freely of her time as well as her money to charity. The economic
climate has, however, soured the pleasures of her executive job. It’s an
uphill struggle. Why work so hard for the Revenue’s benefit? She is also
convinced the state is throwing her taxes away on bogus jobs and wasteful
programmes.
Another Labour-voting retail executive gave me a tired smile on returning late
from the office to my neighbourhood the other night. She had just completed
the arduous job of adjusting down by 2.5% the Vat on 350 items in the chain
of high-street shops she manages. “Two and a half per cent! Who’s going to
buy more because of a miserable cut like that? What is Brown playing at?” I
put the government’s case to her that the cut was not intended primarily to
fuel a Christmas boom but to put more money in our pockets over a 12-month
period and ease the pain for small business. She snorted in derision.
The latest opinion polls confirm my anecdotal evidence. The pre-budget report
was supposed to be the culmination of Brown’s recent fightback. His reward
was a perhaps exaggerated 15-point Tory lead (Guardian/ICM); 74% of people
said they wouldn’t spend more because of the Vat cut (21% said they would
spend less), while only 22% said they agreed with the government’s argument
that it is important to boost the economy now, even if it means more
borrowing and taxes later. The Vat cut is in danger of falling between two
stools. It offends the provident while failing to provide enough incentive
for consumers to spend.
The prime minister can console himself by basking in the applause of Roy
Hattersley and other old Labour stalwarts who cheer plans to soak the rich.
In fairness, not all of their enthusiasm derives from class envy. It is a
perfectly legitimate view that the well-off should pay more, especially at a
time of crisis.
Equally, libertarians and traditional Conservatives regard as immoral any
attempt by the state to grab up to half an individual’s income, though the
opposition daren’t say so in the current climate. “It’s a trap with a neon
sign saying ‘trap’ hanging over it,” says a senior Tory. There is also a
purely pragmatic view that high taxes just don’t work.
Many voters will want to make those wealthy bankers and hedge-fund dealers pay
for their greed and stupidity over the past decade. Then they may pause for
thought. According to the unaligned Institute for Fiscal Studies, taxes on
the rich “raise approximately nothing”, partly for the reasons my first
friend outlined above. Penal taxation may place us at a competitive
disadvantage with other countries. So perhaps not so clever a move after all
– as Tony Blair realised more than a decade ago when he stamped on Brown’s
proposal to impose a 50p tax rate.
Nobody knows how this recession will work out, brief or long, deep or shallow.
No one can be sure of the remedy either. Brown is confident he has the
answers, but what is certain is that in the public mind a revitalised shadow
chancellor, George Osborne, won the argument on government profligacy in the
house last week and on the BBC’s Question Time on Thursday. The hangover has
come after years of bingeing billions on public services in return for
insufficient improvements. We have no more money.
“The unexploded device is the National Insurance increase, which affects the
majority of taxpayers,” says an influential Labour MP who fears that it
won’t be just the rich who will be in revolt. Improvement to services for
years to come will arise only from using tetchy taxpayers’ money more
wisely.
We may be entering a new political era in Britain: the return of the state.
Not state socialism, not intrusive government, but activist government that
protects ordinary people from the chill winds of globalisation and shores up
the financial system.
Across the Atlantic, Obama’s economic team, inherited from President Clinton,
is not about to hoist the Red Flag on the White House either, but it will
intervene to keep the economy humming. Over here, the new Tories would like
the state to underwrite corporate lending. Brown will gladly compete with
them on this territory, but his record on public-service reform is poor.
Inside the government there is a small group that not only advocates activist
government but also public-service reform. We used to call it new Labour.
Once mighty and still vocal, it has drifted away from the mainstream.
On Wednesday I attended a fascinating discussion hosted by the centrist
Progress magazine, a prelude to a lively Saturday conference, with cabinet
ministers and thinkers in attendance. Was new Labour dead? Had the Tories
stolen the mantle of reform? Their answers were, as you’d expect, no and no.
Grudgingly, some admitted that Michael Gove, the Tory education spokesman,
had outflanked them on school reform. There was also some grumbling about
the media’s sour response to Alistair Darling’s pre-budget report,
specifically the 45p band. Perhaps our editors had put us up to it.
Under Blair, new Labour thought it of vital symbolic importance to find room
for the rich in its big tent. Now they must go. But new Labour lives, the
loyalists protested. Liam Byrne, a bright cabinet minister recently given
the job of coordinating government from No 10, will launch a paper in
January outlining the government’s thinking on public-service reform. Yet it
needs Brown to put his muscle where his mouth is. That will be a first.
In the recent government reshuffle, public-service reformers weren’t sacked or
demoted. Instead they were bought off with delightful jobs that indulge
their pet interests, just as in the old days an awkward cabinet colleague
was sent off to become viceroy of India.
John Hutton, a military history buff, was moved to defence to marginalise him.
Lord Adonis, the force behind the academy schools programme, has been been
given a train set to play with at transport, though there is no money in the
kitty to pay for the high-speed railway links he advocates. Only James
Purnell ploughs a lonely furrow for reform at work and pensions.
But Peter Mandelson, architect of new Labour, is back, you say. That old Mandy
Magic was always spin and organisation, not policy innovation. Once he was
“intensely relaxed about people getting filthy rich”. Now Mandelson says he
is relaxed about Gordon taxing them. Not back in cabinet is a genuine policy
innovator, who chaired the Progress event on Wednesday and still has new
ideas up his sleeve, Alan Milburn, the former health secretary. He created
foundation hospitals in the teeth of chancellor Brown’s opposition.
One Tory admirer of the Blair style defines new Labour thus: “It is always
restless, looking for new ways to convince. It doesn’t just please business;
it finds new ways of pleasing business. It doesn’t just start a city
academies programme; it finds new ways of extending academies. Gordon,
though, is happy to sit on the Blairite settlement.”
The PM is looking forward to his titanic battle with Cameron and Osborne on
the economy in the months ahead. Without calling on the aid of the best and
brightest of new Labour, his government will have no other sense of
direction. If Barack Obama can lean on his party predecessor Bill Clinton’s
old team for his key administration figures, why can’t Brown call upon
Blair’s? Mandelson, for one, would agree.
