Austerity is on its way back to the top of the Conservative party agenda. Forget about “levelling up”, a skills agenda and a fully functioning welfare state backed by billions of pounds of funding: the scene is set for a three-year spending review that Rishi Sunak has already warned will be extremely tough.
Whitehall departments are braced for yet another round of spending cuts justified by the need to keep taxes low and to bring down borrowing in the wake of the billions spent helping the country get through the Covid-19 pandemic.
It won’t matter that the heads of social services departments said last week that they can barely meet their statutory obligations to keep vulnerable children safe, let alone care for adults with complex needs, while on shoestring budgets.
This year, adult social care departments face £600m of cuts and a funding shortfall of £204m. The autumn review looks likely to impose more pain on local government and social services departments in particular.
Defence is safe and some aspects of schools and health spending are likely to be protected, but we already know that proposals to support the pupils worst affected by Covid closures have been abandoned and millions of people on hospital waiting lists will most likely still be waiting in a couple of years’ time.
When Keir Starmer is confronted by the accusation that to spend more requires either raising taxes or increasing borrowing, what will he say?
If the past 18 months are anything to go by, the Labour leader might attack Sunak’s cuts to public services and poke fun at Boris Johnson’s failure to persuade his own chancellor that his pet projects need serious amounts of cash.
It seems unlikely that he’ll tackle the question head-on. There is a Labour policy review to wait for and anyway, who in their right mind wants to talk about higher contributions to the running of the state when they have an election to win in 2024?
Except that Starmer needs to talk about tax. And he needs to start soon because Sunak’s question about who pays for public services won’t go away. He can’t fall back on ideas from the past – whether that be Tony Blair’s timid low-tax manifesto, or the Corbynite doubling of capital gains tax and proposal for a new income-tax regime that cast people on incomes of £80,000 and above as rich. The world has changed and so has the way many people make money. Those who have accumulated what would before have been thought of as significant wealth come from every conceivable background, from fortysomething electricians and plumbers to Chelsea-tractor-owning pensioners.
If Starmer plans to shake the magic money tree and borrow his way to prosperity, then he will have confused day-to-day government spending and investment spending. Few economists dispute that governments should borrow to support investments in infrastructure and skills, which have a direct effect on the wealth-generating capacity of the economy. But most would refuse to back a government plan that depends on borrowing to fund the basics.
Yet Starmer is understandably wary of giving any signal that he might sign up to higher taxes. The rightwing press believes that loyal readers, while they might not have a high income, have acquired some wealth and want to protect it. These are the swing voters Labour must capture to secure office. Starmer is especially concerned by any association with Corbyn’s so-called taxes on success, which is how the accumulation of wealth and income is often characterised.
Yet he could begin by asking questions. And the first could be why people believe the gains they have made from property are anything more than a stroke of good fortune. And why, if it is not much more than luck, they should continue to benefit from rising prices.
More than 80% of the world’s savings are invested in property, mostly residential. While it would be political suicide to ask for higher taxes on gains made by property owners to date, there could be a debate on how those gains should be taxed in the future.
Last year the Social Market Foundation, which has closer links to the Conservative party than Labour, confronted the problem and recommended a 10% surcharge on sales. As a way to fund 21st-century public services it was hard to fault. It claimed that the measure could raise more than £400bn over 25 years, even accounting for changes in behaviour that might bring down house-price growth.
Starmer could propose something more modest and promise to use the money to cut NHS waiting lists. But whatever the strategy, he must begin to discuss how some targeted wealth taxes are justified, and a prerequisite of a fairer society.