Show caption ‘If Labour was to now oppose the Tories’ regressive income taxes, it would have to abandon its commitment to 95% of Britons.’ Photograph: John Super/AFP/Getty Images Opinion Labour isn’t being hypocritical on tax cuts – nor is it progressive enough Owen Jones The opposition is sticking to its pledge to freeze tax for 95% of Britons, but fixing a broken society requires greater resources Wed 31 Oct 2018 14.30 EDT Share on Facebook

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Is Labour in the grip of dangerous revolutionary extremists, or of triangulating supporters of rightwing Tory economics? Are its leaders fatally deficient in the art of politics, or excessively Machiavellian? Critics of the leadership seem to flit breathlessly between the two, as the brouhaha over the opposition’s response to the budget illustrates. When Jeremy Corbyn rose to power, he was portrayed as fatal to the party’s electoral prospects because his economic radicalism would repulse the mythical “Middle England”, and he was too politically inflexible to change. Now his leadership stands accused, by Yvette Cooper, of backing regressive Tory income tax cuts that will overwhelmingly benefit the well-off, and all for the sake of cynical electioneering.

There is, however, a more nuanced take. Has Corbyn’s Labour become the champion of Britain’s pampered, thriving, rich elite? No. Should they be more radical on tax? Absolutely.

It stretches credulity to believe Corbynism does not represent a decisive break with a once suffocating political consensus on tax. The founders of New Labour believed the party had suffered its shock 1992 defeat because of its overly ambitious tax plans. Under then shadow chancellor, John Smith, the party had proposed hiking the top rate of income tax from 40p to 50p, and the Tories zoned in on “Labour’s tax bombshell”.

Labour’s 1997 manifesto rejected “tax and spend” and pledged not to increase the top rate of tax so as to “reward effort”, endorsing the myth that the highest earners were synonymous with the hardest workers. In government, it slashed corporation tax from 33% to 28%, and hiked the inheritance tax threshold – benefiting only the affluent. Gordon Brown was initially feted by commentators when he cut the basic rate of tax from 22p to 20p, partly funded by scrapping the lower 10p rate. But he was forced into a humiliating retreat by a parliamentary rebellion, one of whose leaders was little-known backbencher John McDonnell.

‘The tax net will eventually have to be cast wider.’ John McDonnell and Jeremy Corbyn at Labour conference last year. Photograph: Stefan Rousseau/PA

The aversion to raising taxes on the rich led Labour down the catastrophically costly route of private finance initiatives to renovate public services, a cynical ruse that kept spending off the balance sheets but ended up saddling the country with more than £300bn worth of debt. And when Labour lost in 2015, the Labour right partly blamed Ed Miliband’s timid flirtation with progressive taxation. It branded the party as anti-“aspiration”.

In her own leadership pitch in 2015, Cooper pledged to slash corporation tax. Back then, the critics said the rise of Corbyn would prove electorally catastrophic as Labour would simply be doubling down on the reasons why the party had been defeated: too leftwing on the economy, social security and immigration. Such logic led the 2015 interregnum leadership to abstain on a welfare bill that hammered low-paid workers, and to back the stripping of child tax credits from families with more than two children. The Labour left, it was believed, would never win over those termed “aspirational” middle-income voters.

Labour’s tax plans last year were, then, an obvious break from the previous 25 years. Two new tax bands would be introduced for those earning more than £80,000 and £123,000 respectively; corporation tax would go up from 18% to 26%; and a financial transaction tax would be introduced. If £80,000 seems arbitrary, in a sense it was. But it gave it a neat line – those earning above this level were in the top 5%. The party could promise, therefore, not to hike taxes on 95% of people. Labour advisers believed they could not credibly rail against the worst squeeze in wages since the Napoleonic wars while also calling for those below the 5% richest Britons to take a further cut in income.

If Labour were to now oppose Philip Hammond’s regressive income-tax cuts announced this week, the party would have to commit to reversing them, and so go into the next election abandoning its commitment not to raise taxes for the 95%. And in any case, the most affluent Britons who benefit from Hammond’s early Christmas present will have that extra cash taxed were Labour’s targeted increases to come into play. So why walk into an obvious Tory trap?

None of this is to say that Labour’s current tax plans are bold enough. They are not. Labour’s proposed top rate of tax is 50%, more than 10 points lower than Sweden, which is a far more prosperous, fairer nation than our own. Labour’s proposed increase in corporation tax will still leave Britain with a rate four points lower than Germany’s. And when it comes to wealth taxes, Labour really is lacking in ambition. The party has not committed to a fully costed reverse of the Tories’ cuts to social security, and must come under pressure to do so. That must include more ambitious tax increases on those who have thrived since the 2008 crash.

Neither can the party indefinitely remain committed to freezing taxes on the bottom 95%. With an ageing population, and after years of the worst squeeze in NHS funding since its foundation, health and social care costs will spiral. When wages finally recover to their pre-crash levels and a sustained rise is restored, the tax net will eventually have to be cast wider.

Labour’s left flank showed at the last election that it is possible to build a coalition of low- and middle-income voters to defy the predictions of its bitterest critics. Last year’s manifesto broke a spell cast on British politics that said increasing taxes would lead to electoral ruin. Some of the Labour leadership’s critics on tax are being painfully disingenuous, but that should not mean its current tax plans are the limit of what is politically possible. Britain is a broken society, and it will require immense resources to be rebuilt.