Labour's campaign is dominated by tax plans – we shouldn't forget the Tories' broken financial promises

The Office for Budget Responsibility predicts that taxes will rise to their highest level for 30 years by 2021-22, yet it is unclear how the hole in the public finances will be filled

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The Independent Online

After Labour's pledge today to hike corporation tax from 19 to 26 per cent to boost education spending, at least we have a clear choice on personal and business taxation rather than the man-for-man marking at previous general elections.

Labour’s move to reverse the Conservatives’ cuts in corporation tax, levied on company profits, will be portrayed as anti-business, anti-investment and job-destroying. But business should pay its fair share towards public services, and everyone knows taxes will need to rise after this election to maintain adequate spending on health, social care and schools. Corporation tax cuts since 2010 have cost £12.4bn a year even though, as one senior Whitehall official admitted, “there was no great clamour from business for it.”

Although Labour will dominate the headlines mentioning tax at this election, we should remember that the Tories are in a tax pickle of their own making. Philip Hammond, the Chancellor, is desperate to wriggle out of the straitjacket imposed by the Cameron-Osborne regime, who made a last-minute, back-of-an-envelope pledge at the 2015 election not to rise income tax, national insurance or VAT. They expected to remain in coalition with the Liberal Democrats and intended to blame the likely tax rises on them.

The trouble is that there is never a good time to unmake such silly pledges; it is difficult to do so in the heat of election battle. Theresa May promises not to raise VAT (the Tories have form, having raised it after the 1979 and 2010 elections despite saying they would not). But May refuses to rule out a rise in national insurance to give her Chancellor some room for manoeuvre.

The rules of the political game say Labour will suffer from its pledge to raise income tax for people earning more than £80,000 a year. But Corbyn is not playing by the old rules. Traditionally, both Labour and the Tories aimed to get over the magic 40 per cent of the vote mark. Ed Miliband was accused of running a controversial “35 per cent strategy” – mobilising Labour’s traditional vote to become the largest party in a hung parliament.

Corbyn’s tax plans suggest he is running a 30 per cent strategy to shore up Labour's core vote, and hold on to his job even if his party suffers a heavy defeat. If he matches the 30 per cent won by Miliband, he will claim that as a mandate to continue his project.

By targeting the top five per cent of taxpayers, Labour hopes to win votes from the remaining 95 per cent. Yet Labour has suffered at previous elections from an “aspirational effect”. It wasn’t only people who would be hit by a Labour tax rise who rejected the party; it was also those who aspired to earn enough in future to be caught. Such scars from the 1992 election led Tony Blair and Gordon Brown to promise no change to income tax rates at the 1997 contest, and to stick to very tight Tory spending plans for two years. They then had to resort to stealth taxes such as national insurance to find money for the NHS. The Tories followed suit on stealth taxes. Now the Office for Budget Responsibility predicts that taxes will rise to their highest level for 30 years by 2021-22, yet it is unclear how the hole in the public finances will be filled.

General Election polls and projections: May 10

The Tories will trumpet their low-tax credentials but may want to keep their plans opaque, which points to a possible rise in national insurance. Labour deserves credit for being more open about its plans to raise income, corporation and capital gains tax. It points out that the £80,000 mark is relatively high up the income scale, beyond the aspirations of many voters.

However, to win support, next week’s Labour manifesto will need to tackle the party’s credibility gap. It is open to the charge of spending the same revenue over and over again, and will need to junk some previously-floated policies to ensure a carefully-costed programme.

Even if it does that, it will not be easy for Labour to re-forge the coalition of working and middle class supporters it needs to even get close to power. This has been shattered by the Brexit vote and because too many voters do not regard Corbyn as a credible prime minister.

Labour’s tax plans, and its promise of a £10-an-hour national minimum wage, should appeal to working class voters but Corbyn Labour trails Miliband Labour's ratings among the bottom DE social group two years ago. One reason is that, according to the opinion polls, more people who voted Ukip in 2015 will vote Tory rather than Ukip this time.

Corbyn must claim he can win but knows he is swimming against the tide. A civil war for control of Labour will begin on 9 June, with Corbyn refusing to quit and his critics challenging him again, with a leadership contest probably concluding at the party conference in September. As one Corbynista candidate put it: “It’s not about 8 June now, it’s about 23 September.”