Friday, 21 April 2017

Labour Poised to Attack the Workers

Labour's General Election pitch is clear, an unrelenting attack on medium and large employers, and large tax rises for the rich. Jeremy Corbyn says that the big corporations and the rich need to fear a Labour Government. They certainly won't be in fear, as the biggest corporations will have resources to more than match any civil service department to mitigate the increased costs brought to them by a Labour Government. Those that need to be in genuine fear of a Corbyn led Labour Government are the workers up and down the UK. The workers on average wages, the workers who work hard every day to make ends meet, the workers who simply cannot afford a Labour government.

The Shadow Chancellor, John McDonell, has already indicated that the rich will be defined as those earning £70,000 or more a year. This is a nice salary for anyone but it's not a fat cat wage. £70,000 is your local school's head teacher, your local police superintendent and your own GP. What the ordinary workers need to fear is that this is only the starting point. A shallow minded and lazy tax and spend policy can only go so far. Previous Labour Governments have punitively targeted tax hikes to their definition of "the rich" to cover their spending plans only to discover that two things happen.

Firstly, the higher rate tax base is tiny and dwarfed by the basic rate tax base. There is little to be gained and everything to lose by targeting such a small section of society. The last time Labour attempted to tax their way out of economic crisis in 2008/09 it saw the bringing forward of a 45% rate for the highest earners and increasing it to 50%. They wanted to raise £2.5bn from this but behavioural changes of those being taxed, such as bringing forward income so it was paid before the rate came into effect, reduced the tax take so much that it actually reduced the tax take for these high earners by £1.8bn. (budget2012/excheq-income-tax-2042.pdf)  
The long term effect will always be speculative as the Conservatives were returned to power in coalition and the 50% rate was reduced to 45%. Although this move was attacked ferociously by Labour it resulted in a tax revenue increase of £8bn. Had Labour remained in power their previous form would have been to increase the tax rate ever higher. We know this because that's exactly what they did in the 1970's. On gaining power in 1974 the top rate was hiked from and already eye watering 75% to a stifling 83%.

This brings me on to the second consequence and one which all reasonable hard working average earners need to know. Even the most economically incompetent Labour Government can be made to understand that there is only so much which can be extracted from the high earners before they are incentivised enough to up sticks and take their money away from taxation. Whether this is by fair means or foul the result is the same, less tax paid into the exchequer.
Denis Healey always denied saying he'll "Squeeze the rich until the pips squeak" and there could be some truth to his denial. After failing to raise enough tax revenue at the higher rate, the Labour Government turned on the ordinary workers. With a far larger tax base the increase from 30% to 33% and then to an astonishing 35% basic rate brought in the revenue they needed. No matter how loud the rhetoric about going after the corporations, the rich, the elite, Labour Governments always  attack the very people they purport to represent. Even in recent history the last Labour Government attacked the very lowest earners by scrapping the lower rate of 10%.

The ones to fear most of all from a Corbyn Labour Government are the hard working average earners. Gestures like increases in minimum wage will be evaporated in the heat of a tax hike on those least able to afford it.

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