A key New Labour adviser who worked for Tony Blair and Gordon Brown in Downing Street says there is an “overwhelming economic and ethical case” for Keir Starmer’s party to impose higher taxes on wealth if it wins the general election.
Writing in the Observer Patrick Diamond, professor of public policy at Queen Mary University of London, and his colleague Colm Murphy, a lecturer in British politics, say a Labour government will need to look at radical ways to raise money, not least because the plans for higher economic growth that the party is relying on may never materialise.
Their comments will stoke the debate over Labour’s economic policies and its attitude to wealth creation after Starmer made an appeal to middle-class voters in an interview with the Times on Saturday, saying that his party’s “number one mission is wealth creation”.
Starmer said he thought it was a good thing for people to be “aspirational”, adding that his was no longer a “tribal” party. “I want it to be wide enough to accommodate people who would identify as Labour. They’d vote for Labour this time.”
Diamond – who worked for Blair between 2000 and 2005 and for Brown from 2008 to 2010 – and Murphy look beyond the election, however, to highlight what they believe is an answer to what will arguably be Labour’s biggest problem if it wins the election: how to rebuild and invest in the public realm while money is severely limited.
They argue that the shadow chancellor, Rachel Reeves, is right to put “fiscal constraint” at the heart of Labour’s economic policy and to avoid costly promises “in the heat of an unforgiving election campaign”.
But they insist Labour will need “an agenda in government that confronts the urgent imperative of raising resources through major UK tax reform” in order to “address at least a decade of sustained underinvestment”.
They say this can be done in line with the party’s values by shifting the burden of taxation from income and employment to unearned wealth and capital, thereby allowing greater investment while addressing “soaring levels of wealth inequality in Britain”.
Their calls for higher tax on wealth and for taxing capital gains at the same rates as income tax follow a week in which both the main parties have pledged a brighter future for the country while ruling out any further increases in income tax, national insurance or VAT.
Labour has also made clear that it has no plans for a wealth tax, despite pressure from many on the left to adopt one.
The intervention by Diamond, who was on the Blairite right of the party before leaving for academia, is intended to bring some degree of economic realism to the somewhat narrow general election debate on the economy.
Diamond and Murphy write: “Voters, of course, don’t like tax rises. As a result, Labour avoids tax pledges like the plague.
“But while the tax burden on working people is at a historic high, taxes on wealth and capital remain comparatively low.
“And taxes can become, if not popular, then less unpopular if framed as ‘necessary’ to fulfil progressive ambitions such as a ‘citizen’s endowment’ for every young person to invest in education or a future home, alongside funding services that give children a fair start in life.”
They add: “A newly elected Labour government should launch a commission on UK tax reform. There is an overwhelming economic and ethical case for higher taxes on wealth and for taxing capital gains at the same rate as income, not least the soaring levels of wealth inequality in Britain.”
They cite research indicating that such a reform could raise at least £10bn a year and would be relatively popular with voters.
“The tax commission would engage directly with citizens to work through key choices on tax prior to any final decision by ministers. In addition, reform of council tax through a revaluation of tax bands based on current property prices should be linked to a new devolved funding settlement for local authorities, boosting investment in local services.
“There is a radical course open to Labour in power that neither entails risky borrowing nor mindless cuts and kneecapped investment. The momentous challenges of our era should encourage Labour to reclaim the half-forgotten but deeply compelling tradition of economic prudence from the left.”
