Reeves should raise taxes – she has nothing left to lose
Voters already think Reeves has broken her tax promises and would prefer tangible improvements to public services over adherence to the Labour manifesto, says Adam Drummond
After interrupting breakfast TV with a pitch-rolling speech about hard choices, Rachel Reeves is now apparently not planning to raise income taxes. The reason is that a more favourable economic forecast means that the fiscal black hole is smaller than previously thought.
I believe that the Chancellor should reconsider, for the following two reasons:
The first is that nobody elected Rachel Reeves to be George Osborne. While Labour’s manifesto promised not to raise income tax, VAT or employees’ national insurance contributions, the word on the cover was “change” and implicit promise of every Labour campaign is to improve public services and look after the vulnerable.
There are many reasons why Labour has lost votes since winning the election but two catalysing events were the Winter Fuel Payment announcement, and subsequent climbdown, and the welfare reform announcement and climbdown earlier this year.
These moments were not abstract disputes about fiscal rules. They cut to a deeper truth that Labour supporters expect a government that protects the basics of security, dignity and support – and reacts with real anger when those are seemingly chipped away.
In both cases the government tried to do things that went against their supporters’ view of what a Labour government ‘should’ do in order to save ultimately trivial amounts of money and sneak back within its fiscal rules.
Labour’s need to reconcile its tax pledge with the increased spending that an ageing population requires means that every minor change in circumstances means a crisis. A major change, such as the recent OBR productivity growth estimates, is a disaster.
The second reason I believe she should reconsider is that whether Labour breaks the spirit or the letter of their tax promise is largely a Westminster bubble issue, because in the minds of voters the government has already broken it.
A recent Public First poll showed that 51 per cent of the public thought Labour had broken its tax promise vs. only 21 per cent who thought they had kept it. This isn’t just a case of angry voters choosing the “dislike Labour” button either, by 41 per cent to 25 per cent they thought Labour had kept their promise about breakfast clubs and by 39 per cent to 26 per cent that they had kept their promise on VAT for private schools.
When we ask whether various taxes had gone up, down, or stayed the same, the response is almost always that Labour has raised them, including income tax and employees national insurance.
This poll also asked about scenarios in which Rachel Reeves announced different tax rises in the budget. While removing VAT on food or increasing the cap on council tax rises saw Labour’s vote share drop, raising the rate of income tax does hardly anything. In fact income tax was the only measure where as many voters said “right decision” as “wrong decision”.
No chance of being re-elected
What these findings suggest is that the electoral penalty Labour would pay for raising income tax is no worse than that they would pay for bigger changes to other taxes. It is also barely any worse than the one they are already paying for the state of the country without breaking the pledge.
As much as people decry politicians for breaking promises, Labour has no chance of being re-elected unless the state of the country is demonstrably better. As things stand today, poll after poll shows Reform winning with a decent majority.
Political courage is not about pushing through unpopular decisions. It is about recognising when the public has already moved on and is waiting for the government to follow. Right now, the country is more concerned with getting GP appointments, safe streets and repaired schools than with whether a pledge drawn up in opposition should be treated as a binding contract.
Raising income tax – carefully, transparently and with a clear plan for where the money will go – is the only route that gives Labour the freedom to show progress that people can feel in their daily lives.
The choice is simple. Either Labour governs with the fiscal space needed to repair a country on its knees, or it governs within constraints that guarantee failure. I hope the Chancellor chooses action over drift and give herself the tools to deliver the change she promised.
Adam Drummond is head of quantitative research at Public First