John McDonnell, implausible low tax Marxist
It’s baffling that John McDonnell is described as the brains of the Corybnite wing of the Labour Party – though, in fairness, it’s not a difficult mantle to claim. In a moment of entertaining mental confusion, the Shadow Chancellor (speaking on Sky News) has insisted that he will not reverse what are effectively significant income tax cuts announced by the Chancellor in Monday’s Budget.
As Philip Hammond attempted to avoid unforced errors while delivering on Theresa May’s conference pledge to “end austerity”, he committed the Treasury to significant fiscal loosening, accepting in effect a £30 billion widening of the annual budget deficit. However, better-than-expected tax receipts emboldened him not to suspend key rises in the personal allowance and in the higher rate threshold (up to £12,500 and £50,000 respectively), but actually to bring them forward by one year to 2019. The move will see 32 million taxpayers benefit in real terms.
Defying expectations, the Shadow Chancellor actually endorsed the tax cuts, which will result in £2.7 billion losses to the Treasury in the short term. He has been slammed by Labour grandees for accepting what Shadow Foreign Secretary Emily Thornberry described as “tax cuts for the rich” and which New Labour veteran Yvette Cooper said she could “not support”. Seeing the centrist wing of the Labour Party attack the Corbynite leadership for supporting Tory budgetary measures is truly a sight to behold.
The Resolution Foundation, a think tank, has calculated that nearly half of the tax cut benefit will go to the top 10% of earners, with the wealthy benefiting 14 times more than the poorest from the threshold increases. David Lammy, a Labour MP and high-profile former minister, commented: “We should not be supporting tax cuts that disproportionately help the wealthy.”
McDonnell, however, has defended his comments in two ways. The first makes sense from a left-wing perspective: the move comes within the broader context of Labour’s plans to hike taxes on the top 5%, introducing a 45p rate for high earners, to crack down on tax avoidance and to raise Corporation Tax to European levels or higher.
More surprising is the Shadow Chancellor’s second defence “We are keen not to take money out of people’s pockets”, and that “we’re not going to take funding away” from “middle earners”. Andy Burnham said he was “at a loss” over the Chancellor’s reasoning. Well, he isn’t the only one.
In a revealing moment during his Sky News interview McDonnell said that allowing the tax cut – or, as he prefers to call it, “allowance” – will be a “cost to the economy”. But hang on a minute – just beforehand he said that the tax cuts would put money back in people’s pockets and hence boost investment. Which is it? The contradiction emerges from the fallacy committed by all socialists – namely, that the economy is the same thing as the state. Money back in people’s pockets is almost always regarded by the far left as a waste since it’s money that could be taxed and spent for the social good (as the government understands it). Only money that is spent in the public sector is really contributing to the economy, goes their theory.
It looks as though poor old McDonnell may be experiencing some cognitive dissonance here. The notion that tax reductions stimulate the economy and actually result in higher revenues – as has been witnessed with income tax and Corporation Tax receipts in recent years – is a fundamentally Tory belief, not a Labour one.
I don’t believe for a moment that McDonnell has been converted to the fiscal benefits of a small state, nor do I think the self-declared Marxist Shadow Chancellor is experiencing genuine confusion. Rather, the move to endorse the cuts is purely cynical. Deep down he really does believe that money is better spent by government and is wasted in private hands, and his comments on business taxes in particular show it. Rather, he is concerned with strategic advantage. How would it look for the Labour Party to argue openly in favour of someone earning £20,000 a year to be taxed on more of their income rather than less, when the Tories are proposing to allow them well over half their income tax-free?
Generally, most British voters have a common sense approach when it comes to taxation and they are rightly unimpressed when the state seeks to take more of what they take home each month. It’s obviously fallacious to argue that the rich benefit “disproportionately” from tax cuts; clearly those earning more will benefit more in purely quantitative terms, but the proportional benefit to lower earners of the personal allowance is huge.
Taking millions out of income tax is one of the most progressive (in the true, economic sense) moves made by any government, Conservative or Labour, and has contributed to the employment miracle that outstrips anything seen on the continent. McDonnell does not want to see a thriving private sector economy because a prosperous, property-owning democracy creates the opposite of the conditions he needs for a radical socialist overhaul of our society. He hasn’t been convinced by Hammond on income tax – it’s pure political posturing.