Labour’s online ‘alternative to a conference’ saw debates on taxing wealth, business taxes and job protection programmes, but little in the way of policy development, as the new leadership plays it safe and focuses its efforts on holding the government to account.
Party conference season has a very different look and feel this year, as Labour, the Liberal Democrats and the Conservatives adapt their annual gatherings to the new normal of the Coronavirus pandemic.
In a change to the usual running order, it was the Labour Party’s turn to go first this year, with an online event for members – badged as ‘Labour Connected’ – the first for the party’s new leader, Sir Keir Starmer.
Following the party’s worst General Election performance since 1935, Starmer and his new frontbench team are in a phase of post-election reflection and recovery. Labour has pivoted its approach away from new policy development towards a strategy focused on holding the present Conservative government to account and presenting itself as a credible government-in-waiting. The party sees itself as being at the start of this process, meaning that this was a gathering light on new policy specifics.
Nevertheless, across four days of debate and discussion on the fringes of the event, we were able to see the first shoots of what future Labour tax policy may look like. These included:
- A focus away from immediate tax rises towards protecting the tax base and supporting sustainable economic recovery (although some future tax rises cannot be ruled out)
- Reforming the tax system, with an emphasis on business taxes, tackling tax avoidance, improving tax transparency and reviewing the system of tax reliefs
- Finding a better balance between the taxation of income and wealth
- Strengthening the rights of the self-employed and supporting a stronger safety net for the less well-off
You can read our full report on tax and related discussion at the Labour conference below.
Virtual conference, virtually no policy?
This year – as with the other major party conferences – Labour’s conference (badged as ‘Labour Connected’) took place online in response to the ongoing coronavirus restrictions. Conference attendees were able to take part in a series of virtual policy discussions and fringe events over the course of three days, but there were no formal votes on party policy.
This absence of policy votes disappointed some members. Activist group Labour for a Green New Deal described Labour Connected as ‘top-down’, ‘anti-democratic’ and ‘toothless’.
This is not only down to the pandemic. The TUC conference the previous week and the Liberal Democrat conference the following week both included votes on policy proposals (the Conservatives do not vote on policy in any case). It is notable also that there was an absence of new policy announcements by Labour spokespeople, though the timing of the event just a few months after a general election and the election of a new leader – and with normal politics disrupted by Covid-19 – will have been a factor in this. Such proposals as were announced related to the short-term response to the pandemic and its consequences (see below).
This appears to be part of a strategy to focus on scrutinising and attacking the Conservative government, rather than offering up targets for their opponents to shoot at. Website LabourList said in the run up to the conference that: “Shadow cabinet members have been clear that policymaking is not their top priority. Kate Green has reported that, when she was appointed [shadow education secretary], fellow frontbencher Steve Reed advised her: ‘Kate, your job is not to generate policy, it’s to get out there and attack the Tories.’” The same article quotes Bridget Phillipson, shadow chief secretary to the Treasury, as saying: “Making our own echo chamber larger is no substitute for knocking its walls down.”
However, notwithstanding the cautious approach to new policy announcements, there were still plenty of signals from the conference, and other recent events, as to the direction of tax and wider economic thinking from Labour’s new leadership and Treasury team.
No tax rises for now
Tax should not be increased while the economy is in its current, weakened state. That was the clear message from Labour spokespeople at the conference.
Keir Starmer set the tone in a BBC interview on the first day of conference when he told the interviewer, Andrew Marr, that: “I don’t think we should raise taxes at the moment.” He elaborated: “At the moment to cut taxes when we need to boost the economy I think won’t work. When we know the size of the debt, when we get towards 2024 we will be setting out our proposals looking at the size of the debt”.
Shadow chancellor Anneliese Dodds told a CIOT/Institute for Fiscal Studies (IFS) fringe debate on ‘Tax after the Pandemic’ that history shows that after a period of common sacrifice there is typically more support for progressive taxation but, unfortunately, the UK’s economy is currently so weak that even rumours of tax increases are damaging. Referring to media reports that the Chancellor was planning to increase taxes in the short-term and then announce cuts ahead of a 2024 general election, she said, “some of the hares that have been set running already around potential tax changes, especially if those tax changes came in the near term, so that there could then be cuts and a bit of a bonanza before the next general election, they’re actually leading to stronger concerns about the UK economy compared to others.”
Shadow exchequer secretary Wes Streeting was even more forceful, telling an Institute for Government event that it would be wrong to consider tax hikes on the eve of ‘the worst recession in 300 years’. Shadow chief secretary to the Treasury Bridget Phillipson reiterated that tax rises were ‘not the right approach at this time’. Former Chancellor and Prime Minister Gordon Brown, speaking at a conference fringe event, agreed that ‘now was not the time’ to be considering tax rises.
Will a time come for tax rises? Plenty of people at the conference offered the view that tax rises will be inevitable at some time in this Parliament, but Labour frontbenchers were conspicuously not among them. Beyond a general commitment to fairer / more progressive taxation (which of course need not automatically be higher) the current Labour leadership is keeping its tax options open and showing impressive discipline in keeping frontbenchers on message.
Reminder: At the general election just nine months ago – at which Anneliese Dodds was shadow tax minister and Keir Starmer a shadow cabinet member – Labour stood on a platform of tax increases totalling £83 billion a year by 2023-24.
Protecting jobs and the tax base is the current focus
The immediate response to the economic crisis caused by the coronavirus is the overwhelming focus of Labour’s Treasury team at present. One of the ways this is characterised is as ‘protecting the tax base’.
In her keynote address to the conference, Anneliese Dodds unveiled a three-point plan for the economy, bringing together government, business and the trade unions to identify sectors hardest hit by the pandemic. She summarised this as: recover jobs, retrain workers and rebuild business.
Accusing Rishi Sunak of allowing the ‘clock to run down’ on the furlough scheme, Dodds outlined plans for a Job Recovery Scheme that would enable businesses in key sectors to bring staff back to work on reduced hours, while the government picks up the tab for the remainder of the working week. Businesses would be incentivised to offer staff ‘high quality training’ with additional support for those investing in career development.
She also called for a Business Rebuilding Programme to provide targeted support to businesses worst affected by the pandemic. Participation would be conditional on meeting government targets – such as fair working practices and support for the transition to a net-zero economy. She also called on the government to bring forward £3 billion of funding earmarked for a National Skills Fund to be used to prevent a wave of unemployment. A nationwide ‘Retraining Strategy’ would help people whose hours have been cut to increase skills or retrain.
Some of these proposals resemble those announced just three days later by the Chancellor in his Winter Economy Plan. In particular the Job Support Scheme has similarities to Labour’s Job Recovery Scheme. Dodds welcomed the new scheme, though she characterised it as a ‘u-turn’ and picked up on a charge from the Resolution Foundation that the new scheme could make it cheaper for one worker to remain on full time than for two workers to move to part time — and therefore do less to reduce redundancies than hoped. She was critical of the lack of new training measures in the Chancellor’s statement.
Labour is also critical of the lack of support for those sectors hardest hit by the pandemic. Bridget Philipson argued at the conference that it wasn’t too late for the chancellor to step in to provide support for industries expected to struggle under the weight of further coronavirus restrictions, such as the creative industries, the hospitality sector and the aerospace industry. Darren Jones, chair of the Business, Energy and Industrial Strategy Select Committee, called for measures to try to bring forward research and development and investment spending.
The threat to tax revenues from a sustained economic slump was frequently highlighted by Labour spokespeople during the conference. Speaking at the CIOT/IFS debate, Dodds said politicians of all parties had to be focused on preserving the tax base: “People are losing their jobs, companies going to the wall, people constraining their spending. That means that [big revenue raisers such as income tax and VAT] are going to be squeezed down.” Asked at an Institute for Public Policy Research (IPPR) event whether there was a case to consider some tax changes ‘sooner to support economic recovery’, Dodds said that debates around the future of the tax system would outlive the pandemic, but action to protect the tax base was a more pressing priority. Bridget Phillipson made similar comments elsewhere on the fringe.
But in due course higher earners probably will have to pay more under a Starmer government
Notwithstanding the impressive conference discipline on not talking about tax rises during an economic crisis (see above), Keir Starmer made a number of tax commitments during the leadership election which we should presumably expect to be reflected in party policy in due course.
Specifically, Starmer’s ‘economic justice’ campaign pledge promised to: “Increase income tax for the top 5% of earners, reverse the Tories’ cuts in corporation tax and clamp down on tax avoidance, particularly of large corporations.”
Announcing the pledge at a leadership hustings in Cardiff in February, Starmer said: “Labour didn’t lose the last election because we promised to raise tax on the highest five per cent of earners or to make corporations pay their fair share of tax… If we want to rebalance our economy and invest in public services, it’s right that we ask those with the broadest shoulders – the top five per cent of earners – to pay more in tax. And we need to clamp down on tax avoidance – by companies and individuals – which costs the taxpayer billions.”
All three of the promises appeared to reiterate manifesto policies from last year’s election, when Labour promised income tax increases for those earning more than £80,000 a year and increasing corporation tax to 26% (with a 21% small profits rate). However in a Newsnight debate later in February, challenged specifically on whether he would repeat the 2019 election policy of a 45% rate for those earning more than £80,000 a year and 50% on those earning more than £125,000 a year, Starmer would not give such a commitment. His advisers briefed that losing the election meant policies needed to be re-examined.
Nevertheless, in an interview with the BBC’s Andrew Marr in April, shortly after his election as leader, Starmer repeated that it was "inevitable that we have to ask people who have more to pay more. The truth is at the moment, we don't yet know how big this challenge is going to be until we are through this crisis. When we are through, there is going to have to be a reckoning.” The safest conclusion from all this is that the direction of likely Labour policy – higher income tax for high earners – is clear but the details of who and how much are still under consideration (and may remain so for some time).
Also under consideration – a wealth tax
While it was not widely discussed at the conference, Labour does appear to be giving serious consideration to the adoption of a ‘wealth tax’ as party policy in due course.
Labour’s 2019 manifesto proposed increases to inheritance tax, an annual levy on second homes and taxing capital gains (and dividends) at income tax rates with a single allowance, but did not include a wealth tax as such. However, in his final few days as shadow chancellor, John McDonnell advocated a wealth tax as one of a series of measures to ‘rebuild our society post-Covid-19’.
His successor, Anneliese Dodds, was asked about this after a speech she gave in July. She replied that: “When it comes to wealth taxation...I think the government does need to look at this area.” She observed that for “the very very best off people quite a bit of their money coming in is derived from wealth [so] I think we do need to have that new settlement.”
Asked again about a wealth tax in a BBC interview a few days later, Dodds said the government should engage with academics proposing “a number of different mechanisms” for such a tax, but she offered the caveat that tax hikes for the richest “would only be needed if we’re not growing our way out of this crisis”. Keir Starmer, asked about a wealth tax in a radio interview around the same time, said Dodds had been right to say it should be amongst the issues that the party look at. When asked directly if he would support it, he was non-committal: “We are saying to the government look at the idea of the wealth tax...But, at this stage, four years before an election, I’m not going to start setting out [our] tax regime. We’ll have to look at it carefully and we will have a fully costed Labour manifesto in due course.”
Also in July, Shadow Financial Secretary Dan Carden confirmed that the academic work Labour is taking ”a real interest in” is the ‘Should the UK have a Wealth Tax?’ project being led by the University of Warwick’s CAGE Research Centre, the London School of Economics’ International Inequalities Institute and the Institute for Fiscal Studies. The project is being led by Arun Advani of CAGE, tax barrister Emma Chamberlain and Andy Summers of the LSE. Launched in July, a series of evidence papers are expected in October, including one from Emma Chamberlain on Defining the Tax Base and one from John Barnett and Edward Troup on Administration, Collection and Enforcement. A final report will be published in December.
As mentioned above there was little discussion of wealth taxes at the conference by Labour spokespeople, but there were calls from representatives of the trade union movement for a tougher approach to the taxation of wealth, with a particular focus on those who seek to hide their money offshore.
The Conservatives have seized on Labour’s openness to a wealth tax in their attack messaging. In an email sent out shortly after Starmer’s conference speech they said he was “suggesting a devastating new tax on homes and savings”.
Tax reform - reliefs continue to be a focus
As with a wealth tax, so more generally is Labour taking a cautious approach to committing to tax reforms. An ongoing focus, raised by Bridget Phillipson during debates on the Finance Bill, by Shadow Financial Secretary Dan Carden and Anneliese Dodds at a Labour Business discussion in July, and by Dodds at the conference, is the need for greater scrutiny of tax reliefs, in order to identify those which are not providing value for money and should be scrapped, or perhaps better targeted.
Dodds told the CIOT/IFS debate there is a lack of scrutiny as to whether reliefs achieve their objectives. Other countries do this much better, she said, citing India as an example. Dodds also linked reliefs to complexity, arguing that a lot of reliefs complicate the tax system. She reflected on recent Finance Bill debates where she challenged ‘clear loopholes’ such as those that allow overseas property developers to pay less tax.
Back in June, during the Finance Bill debate, Phillipson had argued for a broad review of tax reliefs to determine “exactly who is benefiting from the hundreds of tax reliefs that exist, whether they are fair, whether they represent good value for money, and whether they are securing the policy outcomes originally intended.” She argued that internal reviews, when they do occur, do not lead to an adequate level of scrutiny. She called for more parliamentary debate around tax reliefs, noting this had been called for by CIOT, IFS and the Institute for Government in their 2017 report Better Budgets - Making Tax Policy Better.
In a wider observation on the complexity of the tax system, Dodds suggested during the Labour Business discussion in July that the Office for Tax Simplification should not be restricted to giving recommendations that are revenue neutral, rather it should be able to suggest changes that generate more revenue for the public purse. (Labour Business is an affiliated society to the party which styles itself as ‘the bridge between the Labour Party and the business community’.)
Corporate taxation – yes to DST, no to broader tax rises for the time being
As indicated previously, Labour do not believe now is a sensible time to be increasing taxes, including those on business. However Keir Starmer’s leadership contest pledge to ‘reverse the Tories’ cuts in corporation tax’ still stands and seems likely to survive in some form to the party’s next manifesto.
One thing Labour points to in respect of corporation tax is, perhaps surprisingly, the distributional impacts. Anneliese Dodds, in a speech in July, explained: “we were saying to government, look at the unequal ownership of companies and of capital in the UK in terms of company ownership, share ownership, etc – these [CT cuts] are measures that are likely to be benefiting men more than they are women”.
Additionally Labour continues to strongly back the Digital Services Tax. When newspaper reports in August quoted government sources saying the DST was ’more trouble than it is worth’ and that ministers could scrap it to secure a favourable trade deal with the US, Anneliese Dodds wrote to the Chancellor urging him not to do so: “This government promised to make tech giants pay a fair share of tax to support our public services. Scrapping the digital services tax will do the opposite.”
At conference, the shadow chancellor told an IPPR event that the UK had to deliver a fairer tax system that didn’t prioritise ‘clicks over bricks’. She said Labour had a duty to ensure that the DST worked but also acknowledged that it was limited in its scope. She said that a global approach was essential to finding a solution that supported traditional bricks and mortar businesses.
At an event organised by the campaign group Claim the Future, former shadow chancellor John McDonnell asked Gordon Brown why the last Labour government had failed to support a Financial Transaction Tax. Brown said Labour in government had supported the tax, as had other European nations such as France and Germany, but the lack of support from the United States had made hopes of its introduction impossible. He told McDonnell that such a tax could only work with global buy-in. Without this, ‘money will just move around the world’.
Avoidance, evasion and transparency – Dodds accuses government of dragging its heels
During the leadership election, Keir Starmer announced his intention to ‘clamp down on tax avoidance’, particularly by large corporations such as Amazon and Virgin. Tackling avoidance and evasion, and increasing tax transparency, continued to be prominent in the party’s rhetoric at the online conference, though little was added on the specifics.
Shadow chancellor Anneliese Dodds told the conference that she had “spent my political career fighting international money laundering and tax evasion…Taking on the tax dodgers, going toe to toe with the tech giants, lifting the lid on shell companies and stopping speculators from driving up prices for ordinary people”. Dodds said that in contrast to former banker Rishi Sunak, she had helped to rein in the worst aspects of the global financial system while he “was profiting from a financial system that took huge risks and then passed them onto ordinary people”. At an event hosted by the IPPR think-tank, Dodds told attendees that there was ‘a lot we can do’ to ensure that the largest companies pay their fair share of tax. The shadow chancellor said that the present government had been ‘dragging its heels’ in efforts to bear down on tax avoidance. For example, she said that ministers should have introduced conditionality into the coronavirus support schemes, including provisions that businesses in receipt of such funds adhere to ‘good tax practice’ and do not use offshore tax structures.
Dodds suggested that a Labour government would work with British overseas territories and Crown Dependencies to improve tax transparency. She described herself as ‘a friend’ to many of these communities and would work with them to try to find a way forward for their tax systems without the ‘secrecy’ that presently exists.
A number of trade union speakers suggested that tougher action on tax avoiders should be a centrepiece of Labour’s tax offering. They said that the UK needed to copy European countries like France, Belgium and Denmark who, they argued, had taken much stronger action on tax avoidance than Britain.
On the fringe, Gordon Brown told John McDonnell that it was ‘scandalous’ that working people were being asked to pay full rates of tax while millionaires were able to ‘siphon off their earnings to tax havens’ and avoid contributing to public services. But Brown warned that in order to isolate this problem, global action was needed. He said that the former French president Nicolas Sarkozy had backed his plans in the late-2000s to tackle offshore tax evasion but that the plans had failed to achieve global support. It was a position that Mr Brown said had led the French president to reconsider his country’s membership of the G20.
At the CIOT/IFS debate Dodds reiterated Labour’s long-held concerns about the lack of resourcing of HMRC and also the perception of some taxpayers getting privileged treatment: “One area where people’s trust in the tax system is reduced is where they believe there is a different system that can be operated for those that have the resources to have individualised discussions with HMRC.”
Reminder: At last year’s election Labour published a 35-point ‘Fair Tax Programme’, promising to raise more than £6 billion a year with measures including an Offshore Property Company Levy, scrapping non-dom status and trebling the number of audits carried out by HMRC.
Self-employment – rights and security before any tax increase
In addition to the impact of Covid-19 on the self-employed, Labour has longer-term concerns around the growth in low paid, precarious self-employment. While open to equalising tax between the employed and self-employed this appears to be seen as conditional on self-employed people gaining equal rights and conditions to the employed.
At a Joseph Rowntree Foundation event at the conference, Anneliese Dodds highlighted the growth in low pay, low hours work. She told the event that one worker in nine was in insecure work before the pandemic had hit. While some have referred to a ‘self-employment miracle’, if you scratch the surface you find low paid, precarious work, ‘based on drudgery’, she said. Her frontbench colleague, Chi Onwurah, speaking at a Labour Business event, criticised what she called ‘a commoditisation of people’ that has been seen in the gig economy.
At the CIOT/IFS debate, Dodds said there was a need for a joined-up approach to the reform of taxation and employment rights. She complained about what she called the ‘lack of calibration’ between employment tax and employment law. She suggested politicians and officials should look at both systems in order to get a system where it is easier to differentiate who is self-employed and who is employed. She also argued for greater simplicity, saying we should be trying to end up with a situation where radically different tax outcomes for people doing the same work for the same wage (as set out by the IFS) were not possible.
Referring to the Chancellor’s strong hint earlier in the year that taxes for the self-employed might need to rise, Dodds explained: “The Chancellor said that he wants to have a new approach to taxing the self-employed as the quid pro quo for the self-employment income support scheme – of course, a support scheme which itself actually missed out many self-employed people and which is being discontinued soon. But surely in parallel with that must go more security. You must have a balance, you can’t just be saying that there will be additional taxation for the self-employed without buttressing their security as well.” Specifically she identified a need to deal with continuing issues around pensions, maternity and paternity pay, sick pay as well as ‘everything else that is bubbling up because of this crisis’.
Non-tax business policies – ‘the party of responsible business’
Labour continue to place a strong emphasis on ethical behaviour by business. The chair of Labour Business suggested that the society’s slogan of making Labour ‘the natural party for business’ should be qualified by making it ‘the natural party of business - but responsible business, business that puts the planet first’.
What does this mean in practice? The most obvious example is the suggestion (see above) that coronavirus economic support should have been made conditional on good tax practice, fair working conditions and a commitment to tackling climate change. At a Labour Business event in July, Anneliese Dodds cited Denmark as an example for this.
In August, Labour Business published a paper by two of its members arguing for a reformulation of the purpose of the company and a shift away from shareholder primacy to a more stakeholder-driven governance model. The paper, ‘Towards Democratic and Sustainable Business’, also makes the case for greater democracy in company governance and decision-making and the promotion of new corporate forms and governance structures. While the paper does not constitute Labour Business policy (let alone party policy) it does provide an indication of the direction of party thinking.
The procurement system is also being carefully looked at. At the July event, Dodds noted that the UK government currently includes in its procurement system some requirements around tax behaviour, but that there appeared to be no records on this. She added: “I’d be amazed if it’s being done properly, so clearly that’s something we’ll keep pushing on”. At a Labour Business event at the conference, Shadow Cabinet Office Minister Rachel Reeves said public procurement should be used to support smaller businesses and local businesses. Shadow International Trade Minister Bill Esterson (at the same event) described procurement as ‘the closest thing we have to a silver bullet for restarting our economy’.
Esterson also spoke at an event at the conference on encouraging entrepreneurs. He liked the idea - which he had heard floated – of targeting 100,000 entrepreneurs with a £10,000 grant (though he stressed he was not making a party policy commitment). He also praised the work of the Small Business Administration in the US, including its promotion of mentors, as a model to follow.
The future of work – a shorter working week, or not?
Labour’s 2019 manifesto included a commitment to introduce a four-day working week. This was debated at a number of fringe events at the conference.
At an event hosted by the New Economic Foundation (NEF), the organisation’s chief executive, Miatta Fahnbulleh, called for a shorter working week and retraining people for them to take up jobs in the ‘green economy’. Rather than allowing automation to lead to more precarity and increased regional inequality, she argued that its benefits could be harnessed to reduce working hours in the UK with no loss of pay, thus helping workers receive a greater share of the productivity benefits robots and machine learning can bring. NEF is part of an alliance building a new consensus that more free time is an ambition to bake into the rules of the economy – working with trade unions, researchers, and campaigners in the UK and across Europe.
At an IPPR event, it was suggested that the four-day working week policy had been popular among voters. But Anneliese Dodds urged caution. She said that many workers were fearful that a four-day week could be interpreted as a shorter working week that would result in a loss of hours and income. She suggested that there needed to be a ‘more sophisticated approach’ to communicating the policy and floated the suggestion of short-hours working, where workers are supported by government subsidy for the hours they aren’t working.
She also said that any discussion around the future of work needed to be complemented by the need to ensure workers retained control over their working lives and were not forced into more insecure forms of work, such as zero hours contracts and the platform (online) economy.
Dodds also said that the pandemic had led to a ‘re-evaluation’ of work and society’s priorities. She said that it had forced people to consider what they valued as being important to society, while also noting that for many who will have been exposed to unemployment for the first time during the pandemic, “they can see how threadbare our social safety nets are (after a decade of austerity)”.
Local taxes – business rates need reform, and council tax?
Business rates need ‘fundamental reform’ to create a regime that can deliver both fairness for business and a sustainable revenue stream for local government, Labour argues.
Anneliese Dodds told the CIOT/IFS conference debate that the business rates regime is not working for local authorities because it fails to deliver the revenues needed to fund local services and punishes businesses for investing. Dodds said: “For years we have seen those disincentive effects being dealt with by just plopping in additional reliefs. We need to have a much more fundamental approach to this and one where we can have more stability for funding local public services as well as more fairness and a level playing field for those businesses based on bricks rather than on clicks.”
During his leadership campaign, Keir Starmer pledged to ‘Push power, wealth and opportunity away from Whitehall’ but this does present challenges. The difficulty of marrying local democratic accountability with the mismatch between councils’ needs and revenue-raising capacity was explored by Dodds at the Labour Business event in July. She worried that lots of local authorities have very weak capacity to raise funds, while richer areas are more able to raise money, and that the absence in the UK of the smoothing mechanism that there is in more federal systems means that local services in poorer areas are being reduced.
Sarah Arnold of the New Economics Foundation, speaking at the same event, encouraged Labour to look at the ‘very sensible’ Danish system of local taxation. This splits property value into a land element and a property element and has different rates of taxation on both. The property element is retained locally to give a stream of local revenue. The land value is redistributed across the country. This would allow a more equitable system while giving local government a lever to incentivise businesses to invest, said Arnold.
Labour is not saying much about council tax at present. The party promised a review in 2017 but did not mention it in their 2019 manifesto. In July Dodds called it ‘effectively regressive’ but did not indicate that Labour had any particular plans to reform it.
Reminder: At last year’s election Labour proposed a review with the option of a land value tax on commercial landlords as an alternative to business rates.
Scottish Taxation – will Labour head into election proposing tax rise for higher earners?
With Scottish Parliament elections due next May, attention is turning to what tax policies the parties will be putting forward in their manifestos. For Scottish Labour, it is not clear, a key question being whether the tone will be set by Scottish leader Richard Leonard – who is regarded as being on the left of the party, and who survived a challenge to his leadership in recent weeks – or the more moderate leadership of the UK party and its Scottish party allies.
During the current (2016-21) term of the Scottish Parliament, the party has put forward plans to introduce a 50 pence ‘top rate’ of devolved Scottish income tax for the highest earners (under the SNP-led Scottish Government, it is 46p) but has remained largely silent on what it would do with other rates and bands of Scottish income tax and the other fully devolved taxes (Land and Buildings Transaction Tax and Scottish Landfill Tax).
There is an emerging consensus among the main Scottish political parties of the need to shift the burden of tax towards wealth. Under the present devolved tax system, the national tax levers available for these purposes remain reserved to the UK Parliament. One option readily available to Scotland’s politicians – although arguably politically unpalatable – is reform of Council Tax. Previous attempts to lay the groundwork for reform – in the Burt Review of 2006 and the 2015 Commission on Local Tax Reform – floundered in the face of a perceived lack of political ambition (and parliamentary arithmetic). But there is now a growing consensus both at the limits of the present Council Tax system and the need to bolster the tax revenues of local government in Scotland to suggest that this perennial political hobbyhorse may be due another airing in the 2021-26 parliamentary term. In the week following the Labour conference Johanna Baxter, the head of local government bargaining at the trade union Unison, warned that Scottish councils were facing close to a £1 billion shortfall in funding due to a combination of existing council budget cuts and shortfalls brought on by the pandemic. For its part, Scottish Labour has touted reforms in the past that could mix taxes on income and wealth as an alternative to the present system of Council Tax.
Richard Leonard did not give a speech at the Labour online conference. He did give a major policy speech in August, in which he argued for the Scottish Parliament to get more borrowing powers, and for Westminster to reallocate around £800 million per year from the current EU contribution to the Scottish Parliament’s budget, but tax was not mentioned.
Tackling poverty – abolishing universal credit, sceptical on universal basic income
Labour is calling for the scrapping of universal credit and, in the short-term, a series of urgent reforms to social security in response to Covid-19. Meanwhile a debate is raging within the party about whether to adopt a universal basic income (UBI).
In his leadership campaign, Keir Starmer pledged to ‘Abolish Universal Credit and end the Tories’ cruel sanctions regime.’ In an article in The House magazine in September his Shadow Work and Pensions Secretary Jonathan Reynolds said that “Labour believes Universal Credit should be scrapped and replaced with a system which offers a proper safety net and decent support to all.” However there are no details as yet of what Labour would put in its place.
Labour has set out ‘five urgent social security measures to provide immediate support to people affected by the coronavirus crisis’. These are: converting UC advances into grants instead of loans, ending the five-week wait; removing the £16,000 savings limit which disqualifies individuals from accessing UC; suspending the benefit cap; abolish the two-child limit in UC and Tax Credits; and uprating legacy benefits to match the increase in UC, while providing an immediate increase in Jobseeker’s Allowance and Employment Support Allowance.
At an event for The House magazine, Kate Bell of the TUC said that if the Chancellor froze benefits and public sector pay (as it was rumoured he was considering) this would be a ‘kick in the teeth’ to the key workers that had guided Britain through the worst of the pandemic. Shadow cabinet office minister Rachel Reeves had earlier spoken of the economic divisions that had emerged in society between the better off and those on the lowest incomes. She said key workers had been under appreciated and undervalued and that the UK’s social security system had been hollowed out by ten years of austerity and a reliance on outsourcing many of its aspects to private sector contractors.
At a New Economic Foundation event the NEF’s chief executive, Miatta Fahnbulleh, said the pandemic had illustrated an ‘inadequate social security net’ and a consensus had emerged among the public that ‘we cannot go back to where we were’. She argued for a minimum income guarantee (MIG). The MIG would provide an income floor for all working age adults for an initial three months, with the option to extend. It would be comprehensive, non-conditional, and non-means tested at the point of access. Not only would this avoid the stigma of claiming, but it would also ease the process. Those already on benefits would get an automatic top-up to bring the main element in the relevant benefit up to the level of £221 per person.
This proposal has some similarities to a Universal Basic Income (UBI), a concept increasingly popular on the political left (and among some elsewhere on the spectrum). Anneliese Dodds was asked about it at a Joseph Rowntree Foundation event and replied that the issue for her was that it means ‘so many different things to different people’. If it means removing some of the conditionality that can humiliate benefit recipients that is one thing, she said, but “[i]f we’re saying instead it’s a payment to every single person with no other form of social security I wouldn’t support that. People have different needs which cost different amounts.” If we’re not saying UBI would swallow up all other forms of social security then we need to think how we would pay for that system, she continued, saying her priority in this area is ‘to get universal credit reformed and get money into people’s pockets now.’
Elsewhere on the fringe Gordon Brown described UBI as a subsidy for the middle classes that would fail to tackle the root causes of poverty. The former prime minister gave a robust and passionate defence of the tax credit policy of the 1997-2010 Labour government, describing his approach as ‘progressive universalism’. He said it hadn’t been possible to start the National Minimum Wage at a higher level because of the need to secure the backing of businesses for the measure. This was why the tax credit system was introduced and used to grow the incomes of the lowest paid. He expressed frustration that post-2010 governments had reduced eligibility for tax credits, which he said had exacerbated increases in child and pensioner poverty.
Brexit – attacks on failing negotiations and preparations stepped up
The Labour leadership are trying to move the argument on Brexit on from Leave versus Remain to whether or not the government can get a deal, and a number of more detailed arguments around the Irish border, respect for international law and where powers brought back from EU level should lie.
At last year’s election, Labour’s manifesto said that the party would aim to negotiate a new Brexit deal based on principles including a permanent and comprehensive UK-wide customs union and close alignment with the Single Market. The new leadership has mostly steered clear of exactly what any deal with the EU should include, concentrating on the less divisive questions of whether a deal will be reached and whether the UK will be ready at the end of the transition period (31 December). Implicit in shadow ministers’ comments is that the government should be more willing to compromise in negotiations to secure a deal, but this is rarely spelt out.
In his leader’s speech to conference, Keir Starmer said that any failure to get a deal would be owned by the Prime Minister personally: “The grown-up way to deal with Brexit is to negotiate properly and get a deal… British business needs a deal. Working people need a deal. Our country needs a deal. And if the Prime Minister fails to get one, he will be failing Britain. If that happens, he’ll have nobody to blame but himself. And he will have to own that failure. It will be on him.” This was the only substantive reference to Brexit in a conference keynote speech.
The conference took place at the same time as the Internal Market Bill was going through the House of Commons. This Bill seeks to legislate to ensure the ‘smooth functioning of the UK internal market after the UK leaves the EU single market’. Labour have no problem with this principle but opposed the Bill at third reading (29 September) because of what Shadow Business Secretary Ed Miliband called ‘two profound flaws at the heart of the Bill’. The first of these is that it does not devolve returned powers sufficiently within the UK. The second is the damage the Bill does on international law, ‘breaking an international agreement they signed less than a year ago’. Labour argues this mechanism is not just wrong, but that it is unnecessary (the UK-EU protocol having mechanisms to deal with the issues in question) and in fact ‘a charade’.
Green new deal – does tax have a role to play?
In the leadership campaign earlier in the year Keir Starmer pledged to ‘Put the Green New Deal at the heart of everything we do’, adding that ‘There is no issue more important to our future than the climate emergency’. However, so far, the party does not seem to see a central role for taxation in achieving this.
The New Economics Foundation is leading a lot of the thinking on the left on this issue. At a fringe event, Miatta Fahnbulleh, NEF’s Chief Executive, said climate change is a bigger crisis than the pandemic. The think-tank published a paper in July on Building a Green Stimulus for Covid-19, which advocates a huge green infrastructure investment package. For now the authors of the paper are relaxed about increasing borrowing to fund it, though papers pre-dating the pandemic have said the Green New Deal should be funded partly through tackling tax evasion and avoidance.
Anneliese Dodds spoke at the NEF event and expressed enthusiasm at its work, especially on a green economy. She set NEF and other green economy champions the challenge of ‘showing that green jobs are out there’. Dodds also raised green investment at a Labour Business event, where she cited German investment in hydrogen technology as an example to follow. We should be putting environmental conditions on future economic support for business, she said.
Trade Unionists called for the Green New Deal to form the centrepiece of a new industrialisation strategy delivering highly skilled and well paid jobs. But they said this would not be achieved through the government’s determination to introduce free ports, which they said would be ‘zero rights zones’ for workers.
Reminder: A motion passed by Labour at their 2019 conference stated that the cost of decarbonisation would be ’borne by the wealthiest through progressive taxation, not working people and their families’.
Spending better - new leadership, new economic battlelines
The 2017 and 2019 general elections presented voters with vastly different choices on tax and the economy. The next election, when it comes, is likely to be fought more on the battleground of competence than that of ideology, if the new Labour leadership get their way. Spending better, rather than simply spending more, is the new mantra.
Illustrative of this was shadow chancellor Anneliese Dodds’ accusation, in her keynote speech to the conference, that the government had ‘wasted enormous amounts of public money’ in its approach to the pandemic, paying hundreds of millions of pounds for sub-standard equipment and planning to spend billions in ‘so-called job retention bonuses, to businesses who were going to bring staff back to work anyway’. She repeated this theme at the CIOT/IFS event, saying that, while welcoming the Chancellor’s spending to counter the impact of Covid-19: ’In my view there is a lot of spend that is not being targeted effectively‘.
Shadow chief secretary Bridget Phillipson also emphasised the importance of spending public money ‘wisely and well’. Shadow exchequer secretary Wes Streeting pointed out to an Institute for Government event that HMRC has described the job retention bonus scheme as having significant ‘deadweight costs’.
This emphasis on competence and tackling waste is intended to reassure voters that Labour can be trusted to manage the country’s finances effectively. The absence of this trust was identified by pollster Deborah Mattinson, at a fringe event, as one of ‘the five reasons Labour lost the red wall’. There was a belief, said Mattinson, quoting an attendee at one focus group, that ‘they slosh your money around’. Her view was that, to win the ‘red wall’ back, Labour has to apply discipline and prove it won’t waste voters’ hard-earned cash. (She also noted, interestingly, that target voters in these seats tend towards economic liberalism.)
This change of focus from Labour is not just the result of a more moderate leadership. It is surely also a recognition that, with government spending already soaring in response to the pandemic, a ‘Labour spending v Tory cuts’ narrative is not currently viable (though it might be again by the time of the next election).
In an analysis of Dodds’ keynote speech, ITV political editor Robert Peston observed that none of the main elements of the speech (supporting workers hit by Covid-19, retraining, avoiding companies going bust, tackling waste) represented what he called ‘clear red water’ with the government. This was ‘sort of inevitable’ he judged, given that Boris Johnson and Rishi Sunak “have spent more public money more rapidly in the past six months than any Labour government ever. And their splurge won’t be over till the virus is history.”
Reports on other party conferences will be published in due course