‘You aren’t listening to what I’m saying,’ said a rather rattled Lucy Powell, Labour’s election chief, whom the party put up for BBC Sunday Politics today. I suspect that, by now, she’ll have wished that we weren’t listening. Because in a commendable moment of candour, she admitted that the Labour Party intends to keep debt rising should it win power – and has no real deficit reduction strategy.
Ms Powell dispensed with Ed Balls tricksy language and told it how it is. Here she is, talking to BBC Sunday Politics (11 mins in, after complaining about a ‘Paxo-style interview’).
‘Andrew Neil: You would borrow more, wouldn’t you?
Andrew Neil: To bridge the deficit you have to borrow more. You’re going to borrow £30 billion a year simply to pay for public investment. That’s part of what you’re going to do – correct?
Lucy Powell: We are going to balance the books by the current expenditure by end of the Parliament.
Andrew Neil: And borrow £30 billion a year for public investment
Lucy Powell: We may we may use some investment borrowing for much-needed investment but not for day-to-day spending’
So Labour would not balance the books; the debt would rise ever-upwards. She was so annoyed at the beginning because she was asked what taxes Labour would introduce do to cut the deficit — and she started waffling about how Labour would magically increase people’s pay.
But she then went further than any other Labour figure in admitting that the 50p tax is the only one that would go towards deficit reduction (as opposed to funding extra spending projects). The killer quote is that the 50p tax is…
‘… the only tax that we have set out that will be increasing. But we are very clear that what we can do is increase the tax base.’
So Labour is wrong to boast about “fair tax rises” – Lucy Powell has just confirmed that it only proposes one tax rise.
Two points here.
1. If the 50p tax is Labour’s only tax to cut the deficit, how much will it raise? Even Labour’s laughably optimistic estimate is that will raise just £3 billion (the deficit this year is about £80bn). In reality, the amount raised by the 50p tax will be closer to zero. Here’s the Institute for Fiscal Studies:
‘…the best evidence we have still suggests that raising the top rate of tax would raise little revenue and make, at best, a marginal contribution to reducing the budget deficit an incoming government would face after the next election.’
Yet this negligible contribution from a populist 50p tax appears to be Labour’s deficit reduction programme – in its entirety. That is to say: the Labour Party has no deficit reduction strategy. Thanks to Lucy Powell’s candour, that now stands exposed.
2. Given that employment is at a record high, how can Labour claim it will ‘increase the tax base’? God knows that the UK economy has its problems, but lack of workers (or the ‘tax base’ as she calls it) is not one of them. Increasing the tax base ‘has not happened under the Tories’, she said. I beg to differ. The number of people working and paying tax has grown more under the Cameron than any recent Prime Minister:
In Lucy Powell’s words:-
“Most critically – this is absolutely why the Tories have failed to reduce the deficit – we will get ordinary working families paying taxes in and not drawing on the welfare state.”
She’s right – the Tories have missed their deficit target because fewer people are paying tax. But that’s because George Osborne has lifted so many people out of income tax altogether. It was his active decision: go slower on deficit reduction, but focus on getting people back to work. It was a spectacular success (see above graph). It was rather expensive; but I’d say a price worth paying.
Now, does Labour intend to stop this support for the low-paid, in hope of clawing more from ‘the tax base’? If so, we should be told.
Bottom line: Labour — a party with a 50/50 chance of running Britain on 8 May — has no plan to tackle the deficit. Sooner or later, the bond markets may start to take notice.