Inside Westminster

The secrets of what Labour will tax

Ideas being discussed in Labour circles include a ‘tax swap’ to cut national insurance and raise income tax rates, writes Andrew Grice

Saturday 21 January 2023 09:43 GMT
Starmer is determined not to hand ammunition to the Tories
Starmer is determined not to hand ammunition to the Tories (AFP via Getty Images)

Two factors will constrain Keir Starmer when Labour finalises the key planks of its general election manifesto this summer ahead of the party’s annual conference in October. With the timing of the election in the Tories’ favour, Labour wants to be in election mode a year from now.

Firstly, a self-imposed fiscal straitjacket due to the state of the public finances and the need to maintain Labour’s hard-won economic credibility. Liz Truss has made the party’s task harder; it could not risk an arm-wrestling contest with the financial markets.

Secondly, Starmer is determined not to hand ammunition to the Tories. Instead of the £90bn a year increase in day-to-day spending by 2024 in Jeremy Corbyn’s 2019 manifesto, Labour is likely to propose a more modest rise of between £10bn and £20bn.

I’m told that one idea is for the manifesto to focus on specific but limited pledges to be implemented in the first two years of a Labour government. There will be more earmarked tax rises like the already announced move to spend the £3bn raised by abolishing non-dom tax status to train more doctors, nurses and midwives.

Starmer will put a premium on “low or no cost measures” – such as regulatory change to allow more onshore wind and solar power and devolving decision-making from Whitehall in the hope of boosting local economies.

This will give the Tories fewer targets and mean Labour needs to promise only limited tax rises. The Tories have already announced some of the big ticket tax rises Labour could have imposed, such as on corporation tax and a windfall tax on energy companies. With the tax burden at its highest level for 70 years, the Tories might have defused their traditional “tax bombshell” warning about Labour. However, ministers intend to announce some tax cuts before the election and promise more in the Tory manifesto in the hope of branding Labour a high tax party.

Shadow cabinet members hope finding the holy grail of economic growth would enable a Starmer government to spend more on public services after two years. But there’s no guarantee and some Labour figures admit privately that further tax rises might be needed in the medium term for the NHS, social care and tackling poverty.

Ideas being discussed in Labour circles include a “tax swap” to cut national insurance and raise income tax rates (which would help younger adults); higher taxes for high-income pensioners; new taxes on land and property and a Canadian-style system of employment insurance to ensure higher benefits for the jobless and sick, which the Labour-affiliated Fabian Society is expected to propose in March.

Labour’s tight fiscal rules will mean some of its “aspirations” will not be worked up until Labour is in government. Indeed, Starmer has talked of a two-term, 10-year horizon.

Although the Tories are bound to accuse Labour of having a “hidden agenda,” both main parties have previously used their manifesto to signal a “direction of travel” in some areas and then finalised the detail when they have the civil service at their disposal and a clearer picture of the public finances.

Labour’s pre-election timetable is tight. It has pledged £28bn a year for a green prosperity fund. Although some shadow cabinet members fret about the cost, the case has been strengthened by huge green subsidies announced between the US and EU.

But in many areas, Labour’s policies are not yet cooked. Tomorrow, 10 shadow ministers, led by Rachel Reeves, the shadow chancellor, will come under pressure to give more clues about them at the Fabian Society’s “pathway to power” conference in London. “We hope this opens up a year of Labour policy debate and honing of its offer; 2023 is crunch time,” Andrew Harrop, the society’s general secretary, told me. He believes the 500 people attending will give the frontbenchers a “serious interrogation” of their plans. “It will probably expose where there is more work to do. There are some areas where the party has not said very much.”

Harrop added: “The party is thinking really hard about what big changes you can make that don’t involve lots of spending. There are some areas where it may cost a lot of money, but it might not have to be spent in the first one or two years of a Labour government.”

He gave the example of social care reform, on which the Fabians are advising Labour. “They will have some costed policies and earmarked tax rises to pay for them but it’s clearly not going to be a Jeremy Corbyn-scale manifesto. It will be more like the [Tony Blair] 1997 pledge card and a taste of what’s to come rather than Labour being in a position to give full costings on everything it might do over five years,” Harrop said.

There is no shortage of ideas inside the Labour Party and the Tories are wrong to accuse it of having “no policies”. I think Starmer would prove a more radical prime minister than he looks like being now. After all, he has to win first.

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