Labour’s ‘tax and spend’ is alive and well

LAST week, Labour leader Ed Miliband used media interviews to reiterate his desire to help the “squeezed” middle classes.

These, you will recall, are the people who Mr Miliband and his Shadow Chancellor, Ed Balls, were quite happy to see squeezed in their previous roles as part of Gordon Brown’s government.

However, it is not only the antecedents of the two Eds which sap the credibility of their attempts now to pose as the new-found friends of Middle England.

There is also the question of from where they will find the money to ease the squeeze.

The Conservatives claim that, in the last month, Labour had made �12billion of unfunded spending commitments. Labour, of course, says it hasn’t.

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Since both statements fall broadly into the category of “Well, they would say that wouldn’t they?”, let’s not be detained by them just now. More to the point is Mr Miliband’s call yesterday for Chancellor George Osborne to renew the tax on bank bonuses levied by his predecessor at the Treasury, Alistair Darling.

Mr Miliband claims this would raise about �2billion, which he would like to be spent on job creation – �1.2bn on housebuilding, �600million on youth employment and �200m for regional development funds.

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Wouldn’t that be nice? The problem, according to the Conservatives, is that the bonus tax is so open to avoidance tactics that it would raise less money than the coalition’s proposed bank levy (although, of course, Labour again disagrees).The bigger problem, however, is that even if one accepts the �2bn figure, the plan of Mr Miliband and Mr Balls is to spend the lot rather than use it to help reduce the deficit.

Mr Balls claimed yesterday that “getting more people into work and the economy growing strongly again is the best way to get the deficit down” but the problem with this analysis is that it has too much in common with the strategy which helped push the deficit up in the first place. There is a time and a place for applying a fiscal stimulus but, with many signs indicating a return to economic growth during the first quarter of 2011 and inflation proving troublesome, this is not it. Pouring tax revenue into job creation, while it can be useful in helping the economy through a short downturn, is subject to a law of diminishing returns particularly if, as is likely in the present circumstances, it contributes to a bigger or earlier increase in interest rates than would otherwise be necessary.

Having failed to win the votes of enough public sector workers to win the last election, Mr Miliband seems to hope for better luck next time with his appeal to the middle classes. But, given his still too obvious tax and spend instincts, they should not be taken in.

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