These are truly astonishing political times. A Conservative Shadow Chancellor is criticising a Labour Prime Minister for planning enormous working and middle-class tax cuts. Meanwhile, the combination of tax cuts with a big expansion in borrowing threatens a currency crisis, with sterling already having fallen by a quarter against the dollar in the last three months.
The UK’s many creditors, mainly Asian investors who have lent with confidence to our high rolling banks, are starting to get itchy feet. UK debt is now priced considerably higher than German debt and there is a real danger of currency speculation leading to a ‘rout’ of the pound as Will Hutton suggested in the Observer yesterday. Brown and Darling are rumoured to be at loggerheads over how big the cuts and borrowing package will be, with the Chancellor taking over the role of Prudence against a bullish Prime Minister.
Perhaps unsurprisingly, it is the Liberal Democrats who seem to be offering a more sensible solution to the current problem. They are also offering tax cuts to ‘working people’, 4p off the basic rate of income tax, but funding it through taxes on the very rich and green taxes, hence keeping the public debt, and hopefully currency speculation, in check.
The question is why on earth Labour is not making similar arguments. If there was ever an opportunity to make a robust economic case for a progressive, re-distributionary tax policy, this it. Labour has, of course, been redistributing “by stealth” since they came to power but have singularly failed to build a moral and political case for redistributive policies, a failure many on the Left have attributed to a deference to the City.
Well, any deference to the Masters of the Universe has now disintegrated and it’s time the government got serious about tax. Not least because of the well-documented development, under their stewardship, of a new cadre of ‘super rich’ who increasingly have nothing at all in common with the middle classes.
nef‘s Happy Planet Index showed a strong link between well-being and economic equality. Put simply, well-being is relative, so that countries with more polarised income and wealth distributions have lower well-being than those with more even distributions, even if they have higher average earnings.
So raising income tax for the highest earners and perhaps also examining a wealth and land tax (not to mention an even more politically palatable windfall tax on energy companies), combined with green taxes, could satisfy both uncertain creditors and voters. Gordon Brown has shown no reticence in abandoning his golden rules on fiscal policy in recent days; if he wants to save his reputation for prudence, it might be time to take an equally aggressive approach to progressive taxation.