Not surprisingly, Ed Balls’ announcement that he would restore the top rate of tax to 50p captured the headlines. Even so, the pledge is less important than the rest of the speech, delivered last weekend, in which he committed the next Labour government to run a surplus by the end of the parliament.
The proposed tax rise tells us less than some critics have suggested. It does not symbolise the start of a relentless focus on tax increases in advance of the election. Ed Miliband and Balls are not about to embark on an act of political suicide. Both have fought four elections in which they have navigated the hazardous politics of “tax and spend”. They know the dangers, one of which is the impression that they would tax thousands of pounds away from those on middle incomes. They will not propose a single tax rise that risks being unpopular with the wider electorate. Indeed, in his first conversation with Miliband after being made Shadow Chancellor, Balls said, to his leader’s surprise, that they must start deciding on tax cuts.
The hysterical reaction of Conservative-supporting newspapers to the 50p tax rate is precisely the same as when Alastair Darling announced the same measure in his 2009 Budget. The polls now are also the same. They suggest that this is a popular tax rise. David Cameron did not choose to raise the policy in his interview on Today yesterday morning. Originally, Balls was going to make the pledge in his party-conference speech last September, but took it out so that Miliband’s proposed energy-price freeze could command the stage. On this, at least, he saw no point in delaying an announcement until nearer the election.
Balls links the tax rise to his deficit-reduction strategy, arguing that, while there is a deficit, he will need to raise more revenue from the highest earners. Newspapers might hate it, but the policy and its connection with deficit reduction is a challenge for Cameron/Osborne rather than a gift. George Osborne has won the early rounds of the “deficit” pre-election game in that it has become a debate where there is little room for nuance or rational explanation. But the Chancellor is deceiving himself if he thinks that Miliband and Balls will fall into the traps that arise from his artful framing of the narrative.
Michael Heseltine declared in the run-up to the 1997 election that Labour’s economic policies were not “Brown’s but Balls”. It was a good joke, and to some extent accurate. Then Labour cut off the UK’s regular, mad pre-election “tax and spend” debate and just about left space for it to improve public services if it won. This is nightmarish terrain for any Labour leadership in opposition, but Miliband and Balls will not allow the Conservative leadership credibly to fight a 1992-style “tax bombshell” election. I would not be surprised if Balls proposes some tax cuts as well as a few rises that are bomb-proofed in terms of their wider popularity. When Osborne presents his bill, later this year, binding the next parliament to wiping out the deficit – a move aimed solely at trapping his opponents – Labour will almost certainly not vote against and might vote for.
Inevitably, when tiptoeing on such treacherous terrain, there are huge tactical and practical dangers for Miliband and Balls. The duo will be under constant pressure to “apologise” for Labour’s public spending record – a favourite theme of interviewers and columnists and an act of contrition also advocated by some in the shadow cabinet. They would be mad to succumb. The deficit did not cause the calamitous financial crash. The crash caused the deficit. As part of his tactically astute moves, Osborne turned a banking crisis into one about past public spending. As Miliband and Balls do not believe they spent recklessly, they would be perverse to pretend that they did in the hope this will help them. It would not.
More practically there are big risks that, as they make their defensive moves, they cut off the scope to increase much-needed spending in some areas if they win, although Balls is smartly keeping various doors slightly ajar as he did in 1997. More widely, “tax and spend” is a policy area that Labour can hope to neutralise at best. They will never command a pre-election lead on this issue in opposition. They did not even do so when Tony Blair walked on water. This is why Miliband’s big theme about failing markets is significant tactically. Without it, every interview would be on the crazy terrain, the one that bears little relation to reality: How much will that tax increase raise? What will that cut pay for?
The personal ratings of Miliband and Balls are poor. I doubt if they will improve very much before the election. But in the same way that the diaries of Labour’s cabinet ministers from the 1970s show how they greatly underestimated Margaret Thatcher, Cameron and Osborne place too much faith in their complacent misreading of Labour’s duo at the top.
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