‘To win back trust, Labour needs a clear dividing line on tax’

There are few things as a political adviser, outside of elections, that makes one’s heart sink more than a new poll when your party is in a downward spiral. It only further confirms your innermost fears. But not all polls are equal – there are some you pay more attention to than others. But the problem for Labour right now is that you’d be better reading the obituaries for good news than the latest voting intentions. And the numbers that people like me used to focus more on at this stage in the electoral cycle, the ones on trust and competence, are even more worrying than the headline vote share.

Labour is polling at 12% on trust in handling the economy. This is the lowest it has ever been recorded with YouGov. We are six points ahead of the Greens but a point behind both the Conservatives and Reform on 13%. To be fair, none of the main parties’ polling figures in this regard are particularly strong, but it marks a sharp drop from Labour’s 26% and five-point lead over the Tories at the election last year. 

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Thankfully – As since the late 1970s, the party leading on economic trust has almost always gone on to win nationally – , there isn’t an election tomorrow. Conversely, a collapse in trust in a party’s economic competence tends to be an omen for electoral defeat. 

Rachel Reeves faces a massive task. To begin with, it was a truly shocking economic inheritance that Labour was left. The national debt at record highs, with among the highest borrowing costs in the G7, public services on their knees after 14 years of austerity and stagnant economic growth. Thanks to years of uncertainty due to Brexit and underinvestment despite interest rates at all time lows, productivity has stalled and families are paying the price through higher bills and weaker wages. Globally, trade tensions, stubborn inflation and rising borrowing costs make the outlook even grimmer, underscoring the need for a truly transformative Labour government.

It is in this context that it’s easy to understand why there have been briefings that Rachel Reeves is considering raising the basic income tax rate. However, this would be a terrible idea – compounding matters, and turning a terrible situation into an almost irreversible one. It would gift our political opponents a clear attack line. 

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The basic rate is one of the more tangible and recognisable areas of taxation to most people, which is why no one raises it. The last time is was done, by Denis Healy in 197, from 33% to 35%, did not lead to electoral success at the following election. In the 50 years since, regardless of party, the Chancellor has not raised the basic rate for that obvious reason.

Rather than raising the basic rate on millions of working people, the government could raise a similar rumoured £10 billion in this area of tax by looking back for inspiration to what the Prime Minister once claimed should be our “foundational document”.

By updating Labour’s 2017 approach on income tax so that the 45 per cent rate begins above £90,000 and introducing a 50 per cent rate above £125,000, we could once again ensure that only those in roughly the top 5-6 per cent of earners pay more in tax. That reform would raise roughly £6 billion a year, around the same amount the Treasury is reportedly seeking to raise through the chancellor’s proposed income-tax changes, but without increasing taxes on the vast majority of working people. And either way, it would be a meaningful and fair contribution, roughly the same as the government is looking to save from disability and Universal Credit reforms.

It’s a fair and reasonable dividing line. Well, it must be a better political dividing line than the one reportedly guiding Treasury thinking, which aims to protect the bottom two-thirds of earners, roughly those on under £45,000 a year, whilst still raising the basic rate. Those at the top of the income scale, around the top 5 per cent, sit at the same end of an economy where reward and opportunity are heavily concentrated. They take around a third of all income, so it’s right that they contribute more.

And when this approach was last used, after a spell of disastrous polling for our party, it fared better in the polls than we are doing now. At the time of the 2017 general election after pursuing this tax policy, Labour polled 25% on which party would handle the economy best and was level with the Conservatives at 30% on trust on tax. This is because it signalled a transformative approach, and gave our party a clear authentic economic message.

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If Labour wants to win back trust, it needs to rediscover that clarity. We need a fair, credible plan that protects working people while asking a little more of those at the very top, as that would show that economic competence and social justice can still go hand in hand. 

You could call it governing for the many, not the few.

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