Have Reeves and Starmer missed the chance to ditch stealth taxes? | Phillip Inman

For decades now, whenever the British public has faced the prospect of tax rises, large sections of the electorate – so large they sway most politicians – have made it quite clear, let those increases be by stealth. It is a message every chancellor since Nigel Lawson has heeded, with just a few honourable exceptions in the intervening decades. Stamp duty is a way to siphon off some of the gains when a property transaction goes through. Capital gains tax allows the state to take a slice of wealth after a sale. Never mind that both taxes deter people from buying and selling. It allows everyone to avoid the clearer, fairer annual tax on wealth that many economists support. Rachel Reeves looks like joining her predecessors when she stands up in the Commons on 26 November to deliver her second budget. This week it emerged that plans to increase income tax have been abandoned. The betting is now that she will instead raise money from a series of stealth taxes, citing a review of the economic outlook as suggesting she can get away without breaking the manifesto commitment not to raise one of the “big three” taxes. Less than two weeks ago, with her sums showing Britain deep in the red, the chancellor signalled she would begin talking to the nation openly about the difficulties of providing 21st-century public services with the income from a tax regime hollowed out by the Tories and distorted by endless tinkering. The prospect of grasping the political nettle was a reminder of Keir Starmer’s approach immediately before and after the general election to put “country first, party second”, as he said in a speech on his return from seeing the king on 5 July. Country first appeared to be the guiding maxim as Reeves gave a speech arguing everyone should share the responsibility of rebuilding the state after years of austerity. Rather than skate around the subject, she strongly hinted that income tax would need to rise. There would also be a root-and-branch review of property taxes. It is unfair to single out the current Labour leadership for brazenly putting party first Everyone knew income tax rises had been avoided since 1975 and an increase this year would also break a manifesto promise. Yet here we were, with No 10 and No 11 seemingly on the same page. Not only that, there was an expectation they would explain the need to not only raise tax fairly and transparently, but also to create a big enough financial buffer to stop any speculation – in the press and in financial markets – that she would need to do it all again next year. Labour backbench MPs – or enough of them – by contrast, signalled that breaking manifesto promises was a step too far. They would lose their seats. Labour would lose the next election. In many ways it is unfair to single out the current Labour leadership and those sitting on the backbenches for brazenly putting party first. If we rewind to the early 1990s we find Norman Lamont relying on stealth taxes – such as a freeze on income tax thresholds – to bring in the much-needed cash. He could rightly point to one element of his budget that demonstrated to the public very visibly how they needed to share the pain. He included an increase VAT on domestic fuel, to take effect a couple of years later. However, with echoes of today, his successor Kenneth Clarke was unable to implement the rise after a rebellion of Tory backbenchers. Gordon Brown, well known for implementing stealth taxes, provided an exceptional moment when he added 1p to national insurance, hypothecated on it being dedicated to health spending. Osborne took a stealthy approach except when he increased VAT from 17.5% to 20%. Osborne’s VAT rise is more akin to Reeves’s situation. Osborne was breaking a manifesto pledge, but had the excuse of a difficult global situation, high debts and needing to compromise with the Liberal Democrats. There was never any need for Osborne to introduce a succession of austerity budgets when borrowing costs were almost zero, but falling into line with the standard VAT rate across Europe was a reasonable and transparent way of raising much-needed cash. Osborne’s right-hand man, Rupert Harrison, the architect of the last big VAT rise, has warned Reeves against mimicking his other memorable moment, the 2012 “omnishambles” budget, which fell apart after several of the micro tax increases quickly unravelled. Patriotism is a belief that the UK is a good place to live and needs some self-sacrifice from those who have done well to make it thrive Writing about Brown’s national insurance increase and Osborne’s rise in VAT, he said: “These major, broad-based taxes raise predictable revenue with fewer distortionary impacts on behaviour or the economy.” His warning looks like going unheeded. Proposals for the reform of council tax now look like being ditched in favour of bolt-ons to an already discredited system. Income tax thresholds will be frozen, disguising the increase in tax on workers. If there are changes to pension taxes, they will mostly likely add complexity to an already byzantine system. Why do voters deserve politicians who lack the will to make long-term decisions? Maybe that’s because MPs and many voters fail to understand what patriotism means. It is a belief that the UK is good place to live and needs some self-sacrifice from those who have done well to make it thrive. Instead we have an ageing electorate where too many want to actively rewind the clock to some mythical bygone age or just cash out, taking their pensions and property gains with them. There was hope that Starmer and Reeves would override these impulses to establish a more coherent, fairer tax system. That seems to have evaporated.