Labour has a good chance of gaining a majority next year. But if Ed Miliband wants to be a bold and transformational Prime Minister there is more to do.
Richard Carr is a lecturer at the Labour History Research Unit at Anglia Ruskin University
Let’s start 2014 positively. Labour is in with a good shot of gaining a majority in May next year, is just about odds-on to form a minority administration or govern with the Lib Dems, and has filled some of the policy vacuum that was so gaping this time last year.
The electoral map is favourable to Labour and, given the party lost office under four years ago, things could be much, much worse.
George Lansbury or Michael Foot would have killed to be in Ed Miliband’s position right now.
But as growth returns major questions remain. 2014 can be a year of opportunity, yet there are several policy areas where the party can be hit, and where fudging the issue can no longer be – if it ever was – enough.
Firstly, Labour has certainly talked a good game on the cost living crisis. It has highlighted the demonstrable fact that the recovery is not being felt equally amongst all elements of our society. Yet just as the cost of living has risen up Labour’s agenda, its commitment to a VAT cut has been quietly shelved.
The energy bill freeze has garnered much coverage and initially polled well, but it remains vulnerable. Firstly, if collective switching schemes (including many of those pioneered by Labour councils) deliver the goods in lowering bills this may reduce the lure of a price freeze (debates over the cost of wholesale gas aside).
And secondly, it could arguably be blown out of the water should the Coalition go for a ‘VAT giveaway’ at the budget. A reduction from 20 per cent to 17 per cent (i.e. symbolically below the 17.5 per cent Labour had VAT at for many years) would cost up to £15bn, and George Osborne has hardly been keen on sweeping progressive measures.
But should he find some way to cost such a pledge (perhaps by sacrificing some deficit reduction and using the increased tax receipts from a growing economy) Labour would be slightly snookered.
Even if the chancellor’s ‘hard truths’ on future spending preclude such a move, Labour still needs to work out how to marry its emphasis on ‘cost of living’ with its decision to downplay the very tax cut that would form the top-line way of addressing this.
Could the party find the sums to restore the 50p tax band at a lower threshold to cost the return of the VAT cut pledge? Could Labour use some form of wealth taxation to pay for a bigger pledge on retro-fitting more homes?
Unless Labour is going to go in an ahistoric direction and hit the working poor, at some point the fear of harming wealth creators (more Tory territory anyway) and the need to talk to the squeezed middle will have to collide.
Nevertheless, away from the cost of living there is also the issue of where and how to tax the financial sector. Taxing the banks would undoubtedly be popular, but here again Labour is not placed as best they might be.
On the one hand, they have consistently criticised the government for the underperforming bank levy raising £800m less than expected in two successive years. But on the other, they have linked that self-same tax to cost their pledge on extending childcare provision.
At present, Labour are pledging to raise about £11bn a year from the banks (£2.5bn through the tax on bonuses, £3bn through the bank levy, and perhaps £5.5bn from corporation tax and stamp duty if growth continues).
But because of the £5bn a year VAT exemption the financial sector enjoys, and the £5bn the government pays on the annual interest payments of the bailout money alone (let alone paying down the principal), one might suggest we can no longer be so relaxed about the City growing filthy rich.
A clear alternative is to match the 11 EU partners moving ahead with a financial transaction tax. For all the scare mongering whipped up by the financial lobby, HMRC data shows that our current mini-FTT – the stamp duty reserve tax on shares – collects 99 per cent of the revenue it is supposed to.
Compared to the ‘tax gap’ of VAT (10 per cent of total revenues, or over £11bn) or corporation tax (also around 10 per cent, or almost £5bn) in 2011/12, we can probably afford to forgo the £20m that stamp duty on shares failed to pick up.
The debate on the FTT is a very odd one – with opponents pretending there is no precedent for such levies rather than debate the actual record (other than the absurd outlier of Sweden in the 1980s). But the FTT is not akin to a tax on quidditch, the tax exists, and raises £2-3bn per annum in this country and over $40bn globally.
Rolling out our present stamp duty to assets like bonds and derivatives would be a comparatively moderate step that could yield up to £20bn per annum – ten times the proposed mansion tax. And if centre-right leaders like Merkel and Rajoy can do it in Europe then the cover is there. The banking sector may be 5 per cent of GDP, but it is not the whole shebang.
The need for revenue raising measures like the FTT can be seen through the example of the British Investment Bank. The rationale for the BIB is fundamentally a good one which takes us back to the theory of the Macmillan Committee of 1931 and the successful postwar institutions in Germany and the Nordic countries.
It supports small business, gets credit moving, and, strategically, can hardly be tarred with the brush that the party intends to take the nation back to the 1970s. But it has one major problem – capitalising a new bank costs a lot of money, and Labour have not made it clear how this cost would be met.
£40bn over four years – as proposed for the BIB by IPPR – is a huge sum to raise on the capital markets, and the fact that this sum would nominally lie off balance sheet does not preclude the Conservatives using this figure in some hypothetical ‘Labour still wants to borrow’ attack advert.
Labour needs to set out how much money the BIB will need, where it will come from and, preferably, to keep the sum to be borrowed at the lowest possible level.
Whilst, however, the BIB is intended to help create jobs – no doubt a noble endeavour in and of itself – those jobs still need to be well paid.
Lastly then, Labour’s middle position on the living wage needs to be hardened one way or the other. Encouraging companies to introduce it through local government procurement procedures or twitter badgering doesn’t seem particularly ‘TV debate ready’.
Enshrining the living wage into law would save HMRC money – at least £3bn a year – through declining benefits and increased tax receipts. Using this money to compensate firms for their increased wage bills would seem a natural fit – and could be done indirectly through going further on reducing business rates, or through cuts to payroll tax or employers’ national insurance contribution.
With Merkel’s centre-right coalition in Germany introducing a minimum wage that is 10 per cent higher than the current UK level (£7.07 compared to £6.31) there is again cover to be bold here.
Over 2014/15 Labour should be prepared for a lot of mud to be slung. And at the same time, the nominally positive aspects of the government’s record will be presented in absolutist terms.
Lower deficit. Lower unemployment. More jobs. Raising the personal allowance. An economy growing once again. Cameron’s PMQs answers will basically be phoned in for the next eighteen months.
Unless Labour gets its message on point – less like a consumer watchdog and more like a potential party of government – this will start to hit home as Tory donations start being pumped into the marginals.
Labour is well placed as we approach the final bend, but if Ed Miliband wants to be a bold and transformational Prime Minister there is more to do.
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