Even without trying, if you live a life in politics you accrue a certain amount of political memorabilia. Most Labour activists’ homes have collections of signed whiskey bottles, framed photos, posters and US election stickers.
Amongst my collection is a set of ‘pledge mugs’ from the 1997 general election. The yellow one says ‘No Raises in Income Tax’. New Labour made a virtue out of this pledge to keep the top rate of tax at 40p. As one of the five pledges, it was at the heart of the campaign. Blair signed a big poster with the pledge. The manifesto stated ‘There will be no increase in the basic or top rates of income tax’ (as it did again in 2001 and 2005). It was a key part of the New Labour strategy which culminated in a 179-seat majority.

The tax pledge was partly about politics. The 1992 election had seen Kinnock and Smith blown to pieces by the Tories’ tax bombshell poster. The bastards even put one on a billboard at the end of Walworth Road so Labour staff had to walk past it every morning of the campaign. The image of Labour as a party which used taxes as a form of revenge on the rich, as an instrument of class warfare, was one of the reasons people, including low-income people, rejected us so comprehensively in the 1980s. The reconstruction after 1994 was about reassuring the public Labour had changed for the better, and it worked.
But the main reason for the tax policy was not about mugs, posters and pledges. It was economics. It was about competitive tax rates which would allow the UK economy to grow. In A Journey Tony Blair says ‘I wanted to preserve, in terms of competitive tax rates, the essential Thatcher/Howe/Lawson legacy. I wanted wealthy people to feel at home and welcomed in the UK so that they could bring more business, create more jobs and spread some of that wealth about.’ In 1997, Britain was ranked as the fifth most competitive tax regime by the World Economic Forum (today it’s 94th). Year after year of economic growth under New Labour, which paid for the new schools and hospitals, the extra nurses, teachers, doctors, classroom assistants, police and all the rest of the litany of Labour achievements, happened under a 40p tax rate. For all but the last month of Labour’s time in office we had a top rate no higher than 40p.

When the rate was increased to 50p for incomes over £150,000 in Alistair Darling’s last budget, in the midst of the financial meltdown, it was designed to be temporary and designed to help tackle the deficit. Or was it? Kitty Ussher, former Treasury minister, writing in the Wall Street Journal this month, suggests that the ‘50 top rate was also introduced because there were some Labour politicians that liked putting up income taxes on top earners as a point of principle, regardless of the economic cycle.’ Since 20 leading economists (including Labour supporters) wrote to the Financial Times earlier this month calling for the 50p rate to be reduced, there has been a growing chorus in its defence. Not from people who see it as a temporary measure to tackle the deficit, but those who view it as a tool of redistribution. That was the ringing argument at last week’s TUC, and will be again at Labour conference the week after next.

It’s a powerful argument. The rich should pay more. The bankers should be reined in (although only 23 per cent of top-rate tax payers are bankers or in finance. The rest are entrepreneurs, footballers, NHS managers and Adele). We should share the pain. It’s an argument which has won over most of the public, 99 per cent of whom don’t pay tax at the highest rate. The problem is – and it’s a planet-sized problem – that there is some doubt that the 50p rate raises any more money at all. It’s a matter of great dispute. The Institute for Fiscal Studies (IFS) says it may even cost the country money, as much as £500m a year, as the rich move they money abroad, put it into pensions, or hire expensive tax lawyers and accountants. Bankers are unpopular, but a tax which helps create an ‘avoidance industry’ and lines the pockets of lawyers and accountants, should be even more unpopular. The Swiss Migration Office reports that 383 UK banking and financial services bodies moved to Switzerland in 2010.

Alistair Darling writes in his memoir ‘the evidence shows that the higher the tax rate, the greater the risk of tax avoidance’. Of course, tax evasion is morally wrong, and illegal, which is why Gordon Brown came down so heavily on it when at No.11. But no-one, not Tony Benn, Dave Prentis, Dennis Skinner or even Owen Jones deliberately pay more tax than they have to. That’s not to say they don’t give money to good causes. The idea that there are gaping loopholes that it would be easy to fill is a nonsense. Have you ever dealt with the HMRC?

So at what point does the economics outweigh the politics for Labour? In the new year, the first analysis of tax returns will appear (most rich people do returns twice a year.) The evidence will start to stack up. If, and of course it is a big if, it seems that the tax is costing us money, can we really afford it? If the Noble-laureate Sir James Mirrlees’ estimates prove accurate that it costs us £500m a year, can we think of a better way to spend the money? On some new teachers, perhaps? And can’t we come up with a cannier tax policy than one that costs more than it makes? We should be taxing pollution, waste, foods that kill you, cigarettes and other social ‘bads’, not social ‘goods’ such as writing successful books and songs, transplanting hearts, lungs and livers, inventing new things that people like, starting businesses that people want to work for, and playing football like gods.

Policy must be based on evidence, not emotion. Our economic strategy must be based on what works, not envy or revenge. Our tax policy at the next election has to look clever, fair and effective. If it can be proved beyond doubt that a top-rate of 50p costs more than it brings in, no matter how galling, Labour should drop it like a hot potato.