Pledges by Labour leader Ed Miliband that Labour would not resort to additional borrowing to finance more spending should it win the next UK election should hardly come as a shock.
He told the party’s policy forum that Labour, which has vigorously opposed the coalition’s spending cuts to date, must now face up to the “hard reality” that it would not be able to reverse spending cuts scheduled by the coalition for 2015-16. He said the party must be “credible” and he warned the policy forum that if the party won the next general election it would be in “tough” economic times.
That is an uncomfortable fact of life that confronts all parties and indeed even for members of the coalition cabinet who sought to resist particularly severe cuts due to the decision to ring-fence spending on the NHS and international development.
What makes this tough discipline all the more unavoidable are the continuing increases in the cost of welfare provision, with the bill for social security and tax credits set to hit £220 billion by 2015-16. Now add to this the pressures on public spending flowing from demographic changes and Mr Miliband has been, if anything, gentle in his remarks.
Such are the constraints of deficit and debt that government spending cannot continue to grow without resort to more taxation. But where Labour strategists have an important contribution to make is not in accepting the need for tough discipline in public finance alone, but in redefining what are and what are not essential functions of a social democratic state and how policies designed to maintain welfare standards and address income inequality can be pursued without adding to the nation’s debt total.
Of course, a more robust rate of economic recovery would materially help. But for this to occur, the private sector would need some assurance that the rewards of investment at the early stage of the cycle would not be hit by additional tax imposts. Mr Miliband evoked the spirit of the radical Attlee governments which achieved huge advances in welfare provision while also tackling the debt legacy of the war.
He could also have invoked the advice of Aneurin Bevan: “The language of priorities is the religion of socialism.” In truth, it is the reality of all political parties, and even more so today than back then.
As important as rethinking and redefining the priorities of government in a debt-burdened age is the need for fresh thinking on raising finance other than by a direct increase in personal taxation. A levy of some sort on the boom in e-commerce and internet trading that has contributed to the downturn in our high streets would be one such approach.
But the nettle that still has to be grasped is the need for tough constraint on the public purse. There is much a radical Labour administration could cut without undermining its core purpose and mission.
Starbucks tax contribution a start
In announcing it will pay £10 million in UK corporation tax this year, high street giant Starbucks could be said to have woken up and smelt the coffee. Revelations that it had paid no such UK tax since 2009 provoked a public outcry and fired campaigns by politicians to change tax legislation.
That the coffee chain was behaving in such an anti-social manner, though it had done nothing technically wrong, was a bruising and potentially highly damaging dent in its public image as a supporter of “progressive” causes. It has now paid £5m with a further £5m to come later this year.
This is good news – as far as it goes. But more change is needed. Despite UK sales of £400m last year, the company had in place an elaborate tax avoidance scheme under which it transferred some money to a Dutch sister company in royalty payments, bought coffee beans from Switzerland and paid high interest rates to borrow from other parts of the business. It was legal. But it was hardly fair, not least for its smaller UK-based coffee shop competitors who have had to bear the full brunt of tax imposts.
The exposure underlines the need, expressed at the recent G8 summit, for international agreement and co-operation to curb tax avoidance by means of cross-border financial transfers and the use of specially created vehicles to mitigate tax obligations.
Starbucks enjoys a fair trading environment in the UK and all manner of public services and amenities that help indirectly to sustain customer footfall and business. It is only right that the coffee giant should make a due contribution to the maintenance of these based on the high
turnover it clearly attracts.