New Labour’s tax injustice

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I wrote the following on the Guardian web site today:

The New Labour experiment deserves to die. There are many reasons. But let me offer just one: it has failed to deliver tax justice.

Tax justice can be defined in various ways. It can be horizontal justice, so that all those on similar income pay similar overall rates of tax. It can be vertical justice, so that those with greater income and gains pay more tax. It can be assessed domestically or internationally. But it doesn't matter how you look at, New Labour has failed to deliver it.

I can live with failure if someone has tried and things haven't worked as expected. But this was not the case here. New Labour set out to fail. Its tax policy was designed to be unfair. There was one tax policy for the rich, another for the rest. There was one tax policy for those resident in the UK, another for those acquainted with the UK but able to exist beyond the reach of its taxes.

This needs explanation. When it came to power New Labour realised it was going to promote financial services as the basis of the UK's wealth. You could argue it had no choice. I do not agree. But that meant two things. The first was that it would run a trade deficit and secondly, if it was to have its own currency that meant it had to attract "hot money" to the UK to make up the difference. Labour promoted tax haven UK to achieve this, combining lax regulation and low taxes to bring money to our shores.

So the domicile rules stayed for the very rich: for them tax was an option, not an obligation. Amazingly these laws even survived the outlawing of discrimination on the basis of national origin in the revised Race Relations Act of 2003, of which they are a blatant breach.

For those not able to exploit such loopholes there were, to use a horrible but in some ways accurate phrase, more stealth taxes as the tax base was expanded to collect revenue whilst Labour claimed to be cutting tax rates. In the end that dishonesty has not fooled anyone.

But now New Labour's support of tax havens is catching up on it - whether that support is for the Euromarket based in London, where no questions are asked and no data on the people to whom interest is paid is collected, or New Labour's blatant support of abuse in locations such as Jersey which have acted as conduits to channel money, tax free to London. The consequence of these policies for house price inflation, inequality and the undermining of the state, let alone in promoting corruption and kleptocracy amongst the rulers and elites of developing and former Soviet countries, a is becoming apparent. The BAe affair was a very public example of a very widespread problem.

And middle England paid the price.

So what now? It's simple: there must be a party of the Left that is honest about our need to pay our way in taxation, that is committed to progressive taxation and tax justice but also recognises that we must survive on what we make, not what we can rake off the system, but which is candid about the need for those with resources to pay for the services our society needs. And we need that party to condemn tax havens, corruption, greed and inequality in favour of the better quality of life that the alternatives offer.

It is possible. It may not be comfortable for some. Change rarely is. But New Labour's policy was unsustainable, as is now apparent. Let us embrace change.

"After New Labour", the second debate in the "Who owns the progressive future?" series, organised by Comment is free and Soundings journal, will take place in London at Kings Place on November 3 at 7pm. Guardian readers can obtain tickets at a special rate of £5.75 by phoning Kings Place box office on 0844 264 0321 and quoting "Guardian reader offer". For full details click here.

Labour could be that party, of course. It's just got to leave its past behind.