Steve Richards: Labour have forgotten how to box clever on 'tax and spend'

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Labour has fallen into a "tax and spend" trap for the first time since Gordon Brown took charge of the party's economic policy in 1992. The entrapment explains the widening of the Conservatives' lead and is, for Labour, extremely dangerous. The single issue of "tax and spend" determines the outcome of elections in Britain, often unfairly but always decisively.

The story of Brown's version of New Labour can be told by the two National Insurance rises he has introduced, the first in his Budget in 2002 to pay for increases in the NHS, and the second that is currently shaping the early part of the election campaign. The first was announced after painstaking, nerve-shredding preparation. To their great credit Brown and his entourage had concluded the only way that Britain's spending on health could reach the EU average was to put the argument openly for a tax rise. This was a massive decision for a group of people who had worked on the assumption after Labour's defeat in 1992 that they could never win again by making a candid case for tax rises. While proclaiming his boldness Tony Blair was terrified of the political consequences of the move even though he had made the commitment to increase spending to European levels without knowing how to pay for it.

I recall Ed Balls, then Brown's senior adviser in the Treasury, briefing journalists at the Labour conference in 2001, his hands shaking as he hinted that they were contemplating a tax rise to meet the gap in funding. What followed was stunning politics, the commissioning of a report on funding options, winning the broad debate about the need to put up taxes to pay for the NHS and then the specific proposals, tentatively made in the pre-Budget report and announced finally in the following Budget. Polls suggested the Budget was popular even with Conservative voters who were sensible enough to realise that more civilised public services could not come from thin air. This was Brown in command and on top of his game.

The second rise in National Insurance, the one that has come to dominate the early stages of the election campaign, is a different matter. There was none of the preparatory political work in advance of the announcement. Instead senior Treasury officials were strongly opposed to the policy, preferring a rise in VAT. Possibly Alistair Darling did so too, although his willingness to go along with the alternative increase counters the glowing reports of his newly dominant assertiveness. Whatever the private doubts of various ministers the proposed increase was announced last autumn and re-announced this spring without the media and public opinion being squared in advance. The announcement came amidst other ministerial messages of almost unremitting gloom: "The spending cuts would be deeper than those of the 1980s. There was virtually no room for anything other than cutting the deficit. Oh yes, and by the way most of you will pay more tax".

Darling has won plaudits in much of the media for his straight approach and there is no question that he is a public figure of unambiguous integrity. But this is partly where Labour has fallen into a trap. Their opponents are playing to win and integrity is not their only consideration.

When Balls suggested he would have a few additional pounds to invest in education last autumn an army of commentators declared that this was an outrage. Every spare penny they insisted should go towards re-paying the deficit. This was also the line taken by David Cameron and George Osborne. In their different ways Cameron, Osborne and Darling basked in the praise of all those hailing noble prudence. But then Cameron and Osborne popped up with their imprudent proposal to lose a few billion pounds by not implementing much of the National Insurance increase. Instead of being dismissed for their recklessness they were hailed by the same commentators almost as political geniuses.

The story of Cameron and Osborne in opposition can also be told by their two tax cuts, the proposal to abolish inheritance tax and now this one. The inheritance tax cut announced in 2007 contradicted the previous prevailing narrative about the need for economic stability rather than tax cuts. Nonetheless it blew apart Labour's fragile poll lead, Brown did not call an election and has never been ahead since. Now they announce, in effect, another tax cut to be paid for out of efficiency savings and they stride ahead in the polls.

Labour would not have been allowed to get away with contradictory proposals or ones that did not seem to add up. But that is why for them it is necessary always to box clever in relation to "tax and spend". Any move requires acts of epic politics and meticulous planning. There are no quick routes to popularity as there has been twice now for the Conservative leadership. But instead of boxing clever they dig deeper into the trap.

There is no point arguing that businesses have been deceived. It serves only to make these superficially authoritative figures more partisan. More importantly, a pre-election tax rise is likely to damage a party unless voters can see clearly some benefit for the pain being planned in the near future. If Labour had ruled out a rise in VAT for the lifetime of the parliament before Cameron and Osborne had played their National Insurance trick that might have placed the Conservatives on the defensive and at least given voters the sense that there would be something in return for their financial sacrifice. Instead prudence came first again and Labour's leadership went, after much internal debate, for the responsible message that no government can rule out tax rises. In spite of being responsible they have managed to antagonise business leaders and, polls suggest, quite a few more voters. This is not clever.

Yesterday, in the last Prime Minister's Question Time of this strange, ghostly parliament Brown sought to link the planned rise in National Insurance with improvements to public services, but the connection comes late, rather like his advocacy for constitutional reform in a speech yesterday. Brown's first big statement as Prime Minister was on the same subject in July 2007. He could have gone much further then but lost interest even in the rag bag of proposals he did propose. An election campaign is not the place to start this debate.

Labour made much of constitutional reform in the 1997 campaign partly because it was not proposing to spend any additional money on public services, another campaign shaped by "tax and spend", but in a different way. Because Labour had nothing to say on spending it highlighted other issues. For all his excessive caution Brown was boxing clever on the issue that decides elections. He and Balls had plans to rehabilitate "tax and spend" but they were not going to spell them out too openly at that point. By the 2001 election they were contemplating their National Insurance rise but did not reveal their thoughts during the campaign, although Brown went to considerable lengths to prevent his more fearful colleagues from ruling out such an increase.

Now Labour seeks a fourth term pledging a future rise in advance of the election, promising deeper cuts than Thatcher and alienating business leaders. It will need to rediscover the old strategic clear thinking very quickly to get out of this near fatal trap. 'Four Tax Changes And A Funeral' is not the epitaph Brown would necessarily seek at the start of the campaign.

s.richards@independent.co.uk

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