By Cathy Cole
At first glance, it is an irony of the present political moment that the Shadow Chancellor, John McDonnell – who has openly spoken of overthrowing capitalism – is saying that a Labour government would not commit to overturning Philip Hammond’s regressive changes to personal income tax allowance and higher rate tax thresholds.
By contrast, a variety of more centrist figures (some of whom previously served as Ministers of the Blair/Brown years whose governments were too often, in the infamous words of Peter Mandelson, “intensely relaxed” about people getting filthy rich) have been dissenting from this stance, in an apparently belated conversion to the redistribution of wealth
So what’s going on here? Well, it’s not difficult to see the trap which the Tories are trying to set for Labour. They are implying that the only way that Labour can afford to put more money into desperately cash-strapped public services is to raise levels of personal taxation. The implication here is that people will be left feeling worse off under a Labour government. On the back of the financial crisis hitting real incomes, from which we’re still yet to recover as earnings growth remains at a 40-year low, such a prospect would make people think twice at the ballot box.
Of course, it’s a total lie. Labour can raise billions in extra resources for the Exchequer without even touching rates of personal taxation. We can reverse cuts to Corporation Tax. We can close the tax gap, making corporations pay tax on the profits they derive from UK corporations, and clamp down on tax avoidance and evasion. We could introduce a Financial Transactions Tax. We can do more to tax inherited wealth and capital gains.
But we don’t just boost the tax yield by raising the rates of tax on the wealthy and big corporations. We would take advantage of historically low interest rates to increase borrowing for capital investment, boosting growth in the economy – through substantial regional investment, boosting high-tech engineering jobs in socially useful areas like renewable energy, and regenerating our public services which would also benefit thousands of small and medium-size enterprises which supply them.
Plus we must remember that Labour can divert resources into key services by restructuring the economy, such that the State no longer subsidizes “in-work poverty” or the income of “buy-to-let” landlords via the benefits system. Equally, we can stop profitable leaking resources in the form of subsidies to share dividends, and instead reinvest in our infrastructure.
Looking at the bigger picture, McDonnell is quite right that the issue of personal tax allowances and thresholds are a tiny part of the picture, in comparison to a much more radical programme for restructuring our economy in the interests of the many and not the few.