When John Hutton decided to tell a Progress audience last month that ‘rather than questioning whether huge salaries are morally justified, we should celebrate the fact that people can be enormously successful in this country’, the business secretary cannot have been entirely surprised by the reaction he provoked. The ‘minister for fat cats is stuck in a Blairite time warp’ was perhaps one of the kinder denunciations. The subsequent debate was hardly illuminating, however, because it has effectively taken the place of a far more important one – about the levels of taxation and spending – that Labour urgently needs to have.
It’s understandable that Hutton’s remarks sparked strong emotions. But, as Labour blogger Luke Akehurst wrote in a piece for Progressonline, the business secretary deserves credit for reminding the party that ‘ordinary voters, whether they are rich or poor, do not have an antipathy to wealth creation, and do not want to see a cap on aspiration’.
Hutton’s comments have also not been made in a vacuum: for over a year now, senior Labour politicians – most notably during the deputy leadership contest – have lined up to attack signs of alleged excessive wealth, from the more substantive (the size of City bonuses) to the utterly trivial (remember that elevated debate about £10,000 handbags?) Ministers are, of course, perfectly free to express their moral distaste at such runaway riches, but their colleagues are also entitled to ask whether such pot shots send out the wrong message about Labour’s overall attitude towards aspiration and wealth.
The problem for those concerned about alleged excessive wealth, however, is that to discuss the only solution that really matters – higher taxation – is to break a taboo which has stayed more or less in place since the then iron shadow chancellor necessarily imposed it in the wake of Labour’s fourth successive defeat in 1992.
It’s now time to lift that taboo and have an open and honest discussion about Labour’s attitude towards tax and spend. Only by doing so, can we hope to avoid some of the confusion and incoherence which accompanied the government’s announcements last autumn on inheritance tax, non-doms and capital gains tax, which appeared to suffer from a lack of an overall strategic framework.
Any debate, however, must be firmly grounded in political realities. Since 1999 public spending has experienced its longest and largest growth since 1975, rising as a percentage of GDP from 37 per cent to 42 per cent. At the same time, the overall tax burden has risen to its highest level in 24 years. For most of its time in office, Labour has managed to win the public argument for its approach based on two central arguments: that public services had been largely under-invested in during the previous 18 years of Tory government and, crucially, that investment would be accompanied by reform.
Now, though, the increase in spending and resultant hike in the tax burden appear to be taking their toll. March’s YouGov survey found two-thirds of the public agreeing with the statement that taxes are too high and that government should tax less and spend less, and 60 per cent backing the idea that taxes can be cut without harming public services because ‘it is perfectly possible to run our public services more efficiently’.
The case for continuing radical public service reform is, therefore, imperative. But alone it is insufficient. Regaining trust in taxation and investment requires us above all to demand much greater transparency from the system. As Charles Clarke argued last month at the Progress-Compass debate on how Labour wins a fourth term, people will only be prepared to pay taxes if they are being spent on things people want, and spent efficiently.
Increasing the proportion of taxation hypothecated to particular purposes (remember that Gordon Brown successfully made the case for an increase in national insurance in 2002 on the basis that the extra revenue was funding rising health spending) is one possible answer. Higher green taxes, offset by tax cuts elsewhere and clearly linked to meeting Britain’s climate change obligations, are an obvious option for Labour to consider, as Stephen Hale makes clear in a contribution to a series of essays – How Do We Make the Case for Taxation? – published online by Progress last month.
Another is the case for greater co-payment, the concept which lay behind both reforms to university tuition fees and policies like the congestion charge in London. In both cases, the principle – that those who are able to pay more to fund a specific service should do so – could help make a case that is clear and easily intelligible to the public.
Finally, the nettle of local government financing needs to be grasped and a decisive move away from the discredited council tax adopted. A shift towards a more locally based system – with much greater opportunities for people to determine the level of tax and spending in their own communities – would do much to aid transparency.
Denunciations of City bonuses and executive pay may be morally satisfying, but ultimately somewhat pointless. More importantly, however, they are a poor substitute for a much more interesting, and consequential, debate that Labour can ill afford to put off.