Tax rich and tell voters you can spend £20bn, Labour told by think-tank

Fabian Society says manifesto pledge is ‘credible’

A blueprint for a future Labour government to spend at least £20bn a year more than the Conservatives, financed by tax rises for higher earners, is published today.

A commission set up by the Labour-affiliated Fabian Society proposes that Labour may need to cut £5bn off the welfare budget but that raising overall spending by 1 per cent more than inflation from 2016 is “realistic, credible and consistent with deficit reduction”. It recommends a boost to capital projects such as housebuilding.

Last night Labour sources insisted the year-long review was the work of the think-tank, not the party leadership. But its broad approach is understood to reflect Ed Miliband’s thinking. Labour has ruled out a rise in borrowing for day-to-day spending but left the door open to borrowing for investment. At his party’s conference last month, Mr Miliband pledged to double the number of houses built to 200,000 a year by 2020.

If Labour adopts the strategy recommended by the commission, it would open up a clear dividing line between the two main parties at the 2015 election. George Osborne, the Chancellor, has promised to “run a surplus” from 2015-20 to leave room for tax cuts.

The Fabians’ commission on spending choices over the next 20 years concludes: “Spending as a share of national income will probably need to rise a little over this period to avoid harm to the economy or key public services; as will tax revenues if we are also to gradually reduce the national debt.” It says: “We do not support broad-based tax rises when general living standards are still declining but tax increases targeting higher income groups could make a significant contribution. One option would be to examine reform of pension tax relief, where there are potentially large savings that would affect only those on higher incomes.”

Although there is no specific proposal, restricting tax relief on pensions contributions to the 20p basic rate would save an estimated £5.5bn a year. People paying the 40p rate would lose out.

The commission says “tight restraint” will be needed over the next decade and recommends that the growth in spending on pensions and healthcare be curbed to protect “future-oriented” budgets such as skills and capital investment. “Flat” real spending for health, social care, education and economic budgets would require a 3.5 per cent annual cut for all other departments.

If the £5bn cuts in welfare prove necessary, the Fabians suggest ending the “triple lock” under which the basic state pension rises by inflation, earnings or 2.5 per cent, whichever is highest; means-testing winter fuel payments and free TV licences for pensioners; extending recent disability reforms to older people and making some benefits to the disabled taxable. A significant rise in the minimum wage might save £500m of government spending, says the report.

Andrew Harrop, the Fabians’ general secretary, said: “Politicians are never keen to talk about tax but if the choice is between national debt rising even further, falling standards in public services or very gradual rises in taxes, this is a conversation we need to have. While living standards remain under pressure we reject broad-based tax rises, but we think high income groups could pay a little more.”

Lord (John) McFall, the commission’s chairman, and former chairman of the Commons Treasury Select Committee, said: “As the economy recovers, we can and must avoid a further round of savage spending cuts. This will be possible if rising tax revenues are ploughed into public services and if high income groups are asked to pay a little more.”

Labour has pledged to stick within the Coalition’s spending limits for 2015-16 but left its options open after that. Ed Balls, the shadow Chancellor, said last month that Labour would make a decision on capital spending near the election. He wants the Office for Budget Responsibility to audit Labour’s tax and spending plans but the move has been blocked by Mr Osborne.

Tax and spend: Fabians’ blueprint

* A 1 per cent overall rise in public spending from 2016

* “Modest” tax rises for high earners, possibly including cut in tax relief on pension contributions

* £5bn of welfare cuts, including curbs on basic state pension and disability benefits

* £20bn a year of higher spending targeted on building projects and skills

* Significant rise  in national minimum wage

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksA special investigation by Andy McSmith
Louis van Gaal
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Arts and Entertainment
Jay Z has placed a bet on streaming being the future for music and videos
Arts and Entertainment
Festival-goers soak up the atmosphere at Glastonbury
  • Get to the point
2015 General Election

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Project Implementation Executive

£18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Chiropractic Assistant

£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

Recruitment Genius: Digital Account Executive - Midlands

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Web Developer

£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own