The second piece of good news concerns the Labor Party. In an interview with this newspaper, Shadow Chancellor Rachel Reeves ruled out raising the top rates of income tax and capital gains tax, saying Labor would not introduce a wealth tax or mansion tax. Furthermore, he said the overall tax burden is high enough.
Any spending initiatives that the Labor Minister wants to pursue will need to be funded from other countries’ economies. Beyond the immediate years, increased government spending will only be possible through increased tax revenues from economic growth. Call me naive, but I thought this was a breath of fresh air. Certainly, one concern is how such a prospect will be received by the Labor Party. Angela Reiner’s comments to the TUC last week were another. He said a Labor government would repeal recently enacted laws restricting strikes. It made my heart sink. But perhaps we should see Ms Rayner as a modern-day John Prescott and not assume that what she says will become Labor policy.
I thought what Rachel Reeves said was very important. If there is a growing perception that a Labor government will impose significant tax increases in the run-up to the next election, it will not just be the wealthy who will be affected. Capital will flow out and confidence in both the UK economy and UK assets will decline. Never mind what this means for the new Labor government. That would also make things difficult for the current Conservative government. At present, there appears to be general agreement that the tax rate and tax burden are sufficiently high. Cynics would say this is only because the Conservative government is following socialist policies, including socialist tax rates. But just recently, let’s remember where the Labor Party came from. The idea that a Labor government would not impose higher taxes is a good start. This will provide a basis for discussion on the really important topic: how can we achieve decent economic growth?
Roger Bootle is a senior independent advisor at Capital Economics.