Ed Balls, shadow chancellor

When Gordon Brown increased Britain’s top rate of income tax in the dismal twilight of his premiership, it was not without anxiety in his own party. Guardians of New Labour – Lord Mandelson, then business secretary, at their apex – worried about the leftward spasm, and even some admirers of the idea warned that it would rile major employers in the run-up to a general election.

Four years later, and two since the Conservative-led coalition government cut Mr Brown’s 50p rate to 45p, Labour vows to restore the rise. And this time there is little dissent. Grumbles emanate from the party’s donors and few remaining emissaries to the world of business – that funny place where people take risks and create the wealth that others redistribute – but these underwhelm.

The problem is not that Labour is divided over 50p. The problem is that it is not. Here is a party of increasingly homogenous worldview, so denuded of an influential rightwing that a tax rise which would once have been laughed out of the room now arouses desk-banging rapture, with no one of note around to file a minority report. The reverse parallel with the Conservatives, once riven over Europe but now monolithically eurosceptic, suggests itself.

Economically, a tax rise on mobile talent is an odd response to the competitive challenge posed by other parts of the world. Fiscally, there is scant evidence that it raises much money. Morally, we cross a troubling watershed when the state takes half of a citizen’s earned income. Anyone about to brush aside these objections should remember that even Ed Balls, the shadow chancellor and nobody’s idea of a libertarian, wants the 50p rate to be a transient measure.

At this point, the Westminster convention is to wink knowingly, tap the side of one’s nose and observe that, whatever its substantive flaws, the policy makes for smart politics. This is not obvious. True, 50p polls deliriously well. But so much of politics is governed by a quirk, a ghost in the machine, that even the canniest practitioners struggle to understand. A policy can be popular on its own terms and still wound a party by confirming voters’ suspicions about its character. This is partly why the Conservatives have not won an election since 1992 despite saying any number of crowd-pleasing things on immigration, welfare and Europe. Each tough gesture only entrenched the Tories’ reputation as sour, overprivileged misanthropes.

Labour’s equivalent reputation is for unreliable stewardship of the economy. If the party fails to win next year’s general election it will not be because voters doubt its zeal to tax the rich but because they fear for the recovery. The Tories will say that Labour’s first instinct is to borrow and its second to tax – and that neither is good for the economy.

But what they say matters less than the public utterances of business. Labour is relaxed about criticism from the CBI and chief executives. Tories are apparently falling into a “trap” by invoking these grievances.

This passes for insight in a world where everybody is a researcher or campaigner but, in the country, each swing voter either works for a business or has a loved one who does. Whatever their scabrous resentment against fat cats, it is hard to hear someone who employs thousands call a policy a job-killer without feeling a pang of worry.

The oddity here is that no serving Labour politician of any rank has shown more grasp of this reality during his career than Mr Balls, who used his time as the Treasury’s eminence grise to court business and draw up a capital gains tax regime to make any Thatcherite drool. That was Labour at its boldest, always tempting new voters with counter-intuitive policies, always refuting rather than confirming the worst suspicions about itself. Even now, Mr Balls insists that Labour is not hostile to business but, in politics, merely having to deny such a slur is a bad sign. “I am not a crook,” said Richard Nixon, and the world suspected he was. “We are not anti-business,” says Labour, and a nation nervously reaches for its wallet.

If taxing the rich really makes unambiguous electoral sense, Labour would be proposing a top rate of 60p, 70p, or higher. That they are not, and have waited two years to confirm they will even go back up to 50p, suggests that even they know this kind of politics yields diminishing returns – precisely because it can radiate a certain insouciance about the economy.

A general election is not about two competing answers to the same question – say, “how should the deficit be cut?”. It is about two competing attempts to set the question. The Conservatives want the question in 2015 to be: “Who do you trust to run the economy?” Labour would rather it was: “Who will favour ordinary people like you?” One is macroeconomic, the other is distributional. If Labour can put theirs at the centre of the election, 50p makes sense. If they cannot – and governments have the edge in defining the terms of an election – it is not a policy that will date well.

janan.ganesh@ft.com

Twitter: @JananGanesh

——————————————-

Letter in response to this column:

System founded on inequality will break down / From Lord Kinnock

Get alerts on Labour Party UK when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article