Who’s on the Ropes Now?

Ross McKibbin

That a week is a long time in politics is one of those wise sayings which usually turns out to be untrue. Not now. All those articles written only a couple of weeks ago and giving entirely good reasons why Gordon Brown was on top and David Cameron on the ropes now look faintly embarrassing. But at the beginning of October Brown was on top and no one can be faulted for failing to see his impending humiliation. Nor could they have predicted that the abandonment of a premature general election would lead directly to the resignation of Menzies Campbell as Liberal Democrat leader, even though his position had for some time been uncertain. Yet little more than a week later, Brown is on the ropes, Cameron on top and Campbell has gone.

It would be unwise to read too much into this bouleversement. The Labour vote has not collapsed and the Tories remain very vulnerable. Their new policies do not stand close inquiry. Still, the episode tells us a lot about modern British politics, and for the Labour Party it raises problems hitherto brushed aside. The more general one is that whatever was positive in New Labour is now played out. In the last ten years Labour has been favoured by three things: social and demographic changes that worked to its advantage; popular memory – very long-lived – of the last Conservative government; and the effects of big increases in public expenditure. Everything thought to be particular to New Labour – public service ‘reform’, the PFI, targets and choice – now either means little to the electorate or is actively disliked. ‘Choice’ has become a tyranny – forcing people to make choices when most of them are not in a position to do so – and the damaging consequences of targeting and the PFI are well understood. Worse, these are policies associated not just with New Labour but with Brown in particular. The only thing that still commands support is public spending, and it must be reined in since state borrowing is at levels deemed unacceptable by conventional economic opinion. At the same time, the benefits Labour gets from higher spending, especially on health, have been reduced both by the government’s repeated assertions that the public services still need reform and by the actual ‘reforms’ it keeps introducing. The government will certainly try to keep spending on health and education as high as possible, for without that Brown and the Labour Party stand for nothing. Brown, in explaining why he did not want an election, said he needed time to acquaint the electorate with his vision of Britain. But there is no vision, and in an operative sense, hardly ever has been.

Brown is the victim of his own behaviour over the last ten years. He has spent so much time concealing himself and his views that now he is so blinded by the light he can’t find his bearings. Though his intellectuality is constantly emphasised, as is his sympathy for Labour’s political traditions (as compared with Blair), there is little evidence that he has a reliable political compass or any considered notion of what the Labour Party should represent. That is one reason the government was quick to steal Tory policies on inheritance tax: it could think of nothing better to do. The proposals Alistair Darling presented to Parliament were only slightly less opportunist than George Osborne’s, and the ill-thought out changes to capital gains tax – which must have been in the government’s mind for some time – suggest things were done in a rush. Until the Tory Party Conference stopped the government in its tracks, what it substituted for vision was a thoroughly New Labour game, playing at politics: in this case working up an election that would finally do for the Conservatives. It was a game Brown was sucked into by the self-confident tyros who surround him, but was played so elaborately and ham-fistedly that they were almost certain to lose. (Most people knew that nothing was more likely to unite the Tories than the prospect of an election.) In the first two or three months of his government, when he had to react to administrative crises (foot and mouth) and short-term financial crises susceptible to quick solutions (Northern Rock), Brown’s low-key response was a welcome change to the relentless high key of his predecessor. When it came to the longer term, though, he threw away what advantages he had: thus the painfully obvious invitation of Lady Thatcher to tea and the even more obvious visit to Basra. He did badly what Blair would have done with panache.

What finally threw Brown’s government off balance was the issue of owner-occupied houses and their taxation. Promising to eliminate death duties (in effect what they were promising) was a strategy the Conservatives took surprisingly long to adopt. That it was an act of last-ditch opportunism doesn’t mean that it isn’t a perfectly viable electoral strategy – especially for people influenced by American example. And the Tories now increasingly use the term ‘death tax’, as did the American right in its successful campaign against it. Were the issue simply the fairness or otherwise of estate duties the government might have made some effort to defend them in principle. Inheritance tax is (in most senses) a fair tax and a high yielding one. It is the real or imagined relationship between this tax and owner-occupation that has made the issue so difficult for Labour. Private housing is the rock on which Britain’s political economy is built and all political parties favour it and wish to extend it. It is ideologically central to British life. And it is central to the economy. The growth of the British economy in the last ten or fifteen years has been based on a consumption boom financed in many cases by the inflation of house prices: it is on the security of these that much personal borrowing depends. Both the Conservative and Labour Parties have connived at this asset-inflation, though the Conservatives wish to stoke it up even more. The abolition of stamp duty for first-time buyers while additions to the housing stock remain so low will simply accelerate the inflation of house prices. First-time buyers will be no more able to buy houses than they are now. Both parties say they want to make housing more accessible, but if they significantly increase supply – by encouraging local authority or other forms of social housing – they risk lowering the value of the security on which people can borrow.

Price inflation of houses has had two other consequences. One is generational inequity – the young are disfavoured by it as much as their parents are favoured – and wealth inequity (which is also partly generational): those who can get a foot on the ladder are much more favoured than those who can’t. The other is liability to inheritance tax. Death duties are irrationally feared by many people. At the moment only a small proportion of estates have to pay them, and avoidance is fairly easy, but the likelihood of having to pay rises with the value of the family house. It is not therefore irrational for people to wonder whether the tax will be levied when they or their parents die, especially since most do not take steps to avoid paying it. Furthermore, the tax is in one way historically unfair. It was never intended to be levied on a suburban semi – on a ducal mansion, yes – and when the idea was formulated in the late 19th and early 20th centuries most people were not owner-occupiers. This is what makes a tax that is already widely disliked seem even more unreasonable. The Conservative proposals thus have demagogic appeal. Death duties will be paid only by ‘millionaires’, so drawing on popular resentment of the financial privileges of the home-grown very rich, and the shortfall in revenue will be made up by a tax on the non-home-grown very rich, another object of popular resentment. That millionaires almost certainly will not pay it and that the shortfall will not be made up by the non-domiciles no longer matters. The government’s decision to tax the non-domiciled only when the Conservatives proposed to do so, and after many years of insisting that it was unwise, demonstrated how empty New Labour has become. The political class, and especially the present government, has got itself into a mess by devising an economic system that partly depends for its growth on ever-increasing house prices and an ideological system, universal owner-occupation, that depends on the reverse. And if (as in Scotland) the government finds itself forced to restore something like free nursing-home care in England it will be in even more of a mess.

Once the Conservatives had taken the plunge on death duties it was difficult for the government not to follow suit – despite the revenue implications. Yet had Brown not been so obstinate in regarding the existing rates of income tax as untouchable (unless lowered) or had he been more open about what taxation is actually for, the government might not have become so dependent on indirect or capital taxes (or National Insurance charges, which are not regarded as income taxes). Any serious diminution in indirect or capital taxation – like inheritance tax – now has real consequences. Labour is discovering, as the Conservatives did in the 1990s, the truth of another wise saying: chickens always come home to roost.

19 October