Leading Article: Labour's fantasy of fiscal reform

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The Independent Online
GORDON BROWN, the Shadow Chancellor, is mining a vein of discontent when he speaks of making taxation fairer. As Bill Clinton discovered during the last US presidential campaign, carefully flighted promises to sting the rich appeal to middle-class voters hurt by recession. In the UK, those facing higher fuel bills may feel a warm glow at the thought of high- earners having to make sacrifices.

In these days of fiscal deficits, such policies may also seem more credible than commitments to reduce taxes. The Tory failure to curb the cost of the state has made tax-cutting promises look at best unrealistic, at worst foolhardy.

The Liberal Democrats seem to share Labour's attraction to the new populism. Tomorrow they are expected to unveil plans to raise the top tax rate to as much as 60p in the pound for those earning over pounds 100,000 a year. Yet voters should be wary. The politics of resentment may have superficial appeal. But in practical terms, the sums raised would be small in comparison with those needed to make a real difference to the average tax bill. Raising taxation at the top tends to encourage evasion and the flight of the wealthy, while leaving most of us with largely unchanged demands from the Inland Revenue.

The 'fairness agenda' put forward by Mr Brown is mainly cosmetic. Tax loopholes would be closed: that means attacking offshore trusts, tax exiles working in Britain, foreign companies escaping UK corporation tax and the high profits of utilities.

This programme sounds impressive, but much of it involves tightening the tax system in complex ways that the Inland Revenue is already examining. Last week, Mr Brown heralded plans to alter the taxation of share options, yet even here there are no easy targets: unrealised paper profits which attract the most garish headlines cannot legitimately be taxed. There may be a case for subjecting realised profits to income rather than capital gains tax, but again little extra revenue would result. Bank charges, another popular target, have also come under Mr Brown's scrutiny. In reality, he promises little more than to make statutory the existing voluntary banking code.

In short, Mr Brown is flannelling. Labour has a legitimate mission to seek greater equality of opportunity and even fairer outcomes. But when it comes to fiscal reform, its options are limited. Politicians of all hues can only wrestle to set spending priorities, while attempting to make the tax system as straightforward and palatable as possible. They should be judged on progress in that direction rather than on their populist rhetoric.