Having been marginalised by Iraq, immigration and cash for honours, taxation is once again at the centre of the political debate. As Labour lick their wounds following the 10 pence fiasco and local election defeat, the case is being made for lower taxation to help people in times of economic downturn. An overall lessening of the tax burden may seem like a good thing for those on lower incomes, freeing up money to help pay the bills. The problem, however, is that if taxation is reduced, the services which lower income families rely on will be the first to suffer. Furthermore, lowering the basic rate of income tax helps the poorest least. The answer, therefore, is not to decrease tax but to make it fairer and more progressive.
The Mirrlees Review of the British tax system, published by the Institute for Fiscal Studies, shows how the tax credit and benefit system could be altered ‘to strengthen work incentives for people on low incomes, to increase simplicity and certainty for families, and to reduce fraud and administration costs to the taxpayer.’
Currently, by stopping some benefit payments completely, people moving from unemployment into low paid jobs are no better off. The new system proposed would combine all existing benefits for low-income families into a single programme. As a person’s income increases, their benefit payment would gradually decline. Thirty percent of the poorest workers would see their incomes increase by 4-5 percent, and 200,000 children would be removed from poverty. This would be paid for by a one percent rise in the basic rate and by decreasing child benefits for more wealthy families.
So long as Labour and the Liberal Democrats run scared of redistribution, they are leaving poorer voters with no alternative other than to vote for the Conservatives who, by alluding to possible cuts, are attracting the support of low-income working families. The Mirrlees Review concluded that to improve the incomes of the poorest workers the cost would have to be incurred by the ‘bulk’ of the population. The cost, however, could be distributed in such a way that the rich pay more. Yet, it is middle England that Gordon Brown and Labour seem determined to appeal to. The short-term gains of this strategy for Labour were obvious, but as times get harder they are losing their core electorate.
As Neal Lawson said in a message to Compass members: ‘There is now no point trying to pile up middle class support in southern seats if our core vote is deserting us and destroying our voting base.’ It is not just voters who are deserting Labour, either, as membership continues to fall and MPs become more disillusioned. Brown must now be bold and regain the initiative. By making the case for tax increases for the richest, or by tightening the loopholes which see them pay proportionately less tax, he could really help poorer workers and provide incentives for more people to work. Moreover, with 76 percent of the population concerned that the gap between the rich and the poor is too great, this would not only appeal to those on lower incomes but also the wider population, giving Labour the policies to dispel David Cameron’s claim that the Tories are now the party of the poor.
Lawson added: ‘From Northern Rock, to the credit crunch and the Governor of the Bank of England condemning City pay excesses – the moment is ripe for Brown and his Cabinet to assert a need and a willingness to put the interest of society first.’ Brown claims to be ‘listening’ and ‘feeling our pain’ but we do not need a listener, we need a leader, and to repair the damage done he must act now and act decisively. Don’t hold your breath.
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This post was written by Matt Genner