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IAIN WATSON: Just as a swallow signals
the arrival of summer, the political poster tells you there's an election
on its way. But for those who thought it might all be different this time,
disappointment awaits. At the next election, like 1997, tax and how much
it should be cut, will be a key issue. The Tories feel that tax cuts is
the strongest card, even though they've had to convince a more sceptical
electorate that these won't be at the expense of key public services.
Labour still feel vulnerable on tax. Many of their planned improvements
have yet to be delivered, so people are asking where their money is going.
Indeed, in the wake of the fuel protests, Labour may feel less confident
now than they did in 1997 on the tax issue. And with tax rates set to play
such a central part in the next General Election campaign, future governments
may find it more difficult than ever to convince people to stump up more
tax when it's needed
LORD PLANT: I think given that there is
this public resistance which we acknowledge, it's then very important that
we try to chip away at that, to show the inexorable link that there is
between taxation and higher levels of public service.
GILES RADICE: Obviously a Labour government
has to be very mindful of being criticised for sort of ...being automatically
increasing taxes because that's the traditional right wing attack on a
left of centre government
WATSON: The Nicholls family live
in South East London. Father Phil is about to take their daughter, Lily,
to school; his wife Kim is a childminder. They voted Labour in 1997, believing
that public services would get better. Some Labour backbenchers argue
that families like these would pay higher taxes to fund the improvements
they want to see
MARTIN SALTER: Certainly my experience
as a deputy leader of Reading Borough Council for many years and as a member
of parliament, is that people will tolerate levels of taxation and in some
cases quite high levels of taxation, if they feel that it's being spent
sensibly, being spent wisely, and being spent on services that matter to
them.
WATSON: The school run is almost
complete. But Labour still has some way to go to deliver the improvements
to public services promised in last summer's comprehensive spending review.
Phil Nicholls is happy with the education his daughter Lily receives at
the local primary school, but wants even more to be spent on the next generation.
He's wary about paying tax up front with so few benefits yet to be seen
on the ground
PHIL NICHOLLS: You know pour the money
in for the standards to get better. You know that's great. But when you
just think oh we're pouring the money in, millions and millions and nothing
is really improving, they haven't got a real strategy about it, I think
that's quite dangerous.
DAVID RUFFLEY: It is better for ordinary
families to keep more of the money that they earn to spend or to save,
as they choose, not as the state chooses and I think that is a lesson that
any Chancellor would be very stupid to ignore, particularly on the income
tax side of things. That is the most visible example of the state taking
your money.
WATSON: Labour can't afford to
give the impression that their natural instinct is to put taxes up, for
fear of handing over the initiative in the General Election to the Tories.
So just as in 1997 symbolic commitments not to increase direct tax rates
seem set to stay - even for the better off
RADICE; The Labour government has
committed itself to 40% high rate over the life time of the last parliament
and I think they're probably likely to do the same for the next parliament
and there is an argument for continuity in taxation. I mean what it said,
if you like to the middle classes of England that we are not going to be
a punitively tax raising party. That we're going to escape from the idea
of a Labour government that we're a tax and spend government.
WATSON: So boldness on taxation
won't be on the Labour menu for the next election. But far from looking
for continuity in tax, they are going for cuts. At a conference in London
yesterday, the Chancellor signalled more clearly than ever before that
there will be targeted tax cuts to help working families in his March budget.
And prominent Labour backbenchers are saying done in the right way, this
will help sustain the support of Labour's core vote, as well as providing
symbolic comfort to middle England, too
RADICE: I think that the government
is right to say there is room for targeted tax cuts. There is no doubt
that the low paid, the less well off groups in society, there are things
you can do, in the tax system, and the 10p rate could possibly be extended
so there are things that can be done
WATSON: It's a day of reckoning
for the Nicholls. They like to know exactly how much they've got to spend.
Similar calculations are going on in Downing Street - numbers 10 and 11
- to see how taxes can be cut without giving the impression they're trying
to buy votes. Modest tax cuts for the least well off is thought to be the
Chancellor's favoured option, while the Prime Minister is said to want
to see a wider range of people feeling the benefit of tax reductions.
ANDREW DILNOT: I don't think we necessarily
need to assume that a targeted tax cut is a tax cut that will only affect
a small group of people and that only that one small group might gain.
A targeted tax cut just means something that's targeted at a group that
you want to help, we've had targeted tax cuts aimed at motorists, at small
businesses, at families with children, at the low paid, all of those are
possibilities this time round.
MATTHEW TAYLOR: Labour are backing away from this
idea of general tax cuts and instead talking about targeted tax cuts.
Well what's a target, it appears to be families, it appears to be children,
it appears to be pensioners. It's just another way of describing an attempt
to address the Conservative agenda of the tax burden
WATSON: Kim Nicholls and her young
companions, Isobel and Joseph, are making one of their regular trips to
the local clinic. The Liberal Democrats say that, unlike the other main
parties, they'll support the Health Service by raising the top rate of
tax and give more to schools by putting a penny on the basic rate - if
needed. They say openness with the electorate works and Labour's caution
on tax and spending since 1997 will cost them support this time round.
TAYLOR: I think Labour are in real
difficulties, they're not delivering on public services and because they
won't talk about income tax for historic reasons, they've been forced to
use indirect taxes, which have actually hit the poorest hardest. And this
has disillusioned traditional Labour voters enormously who are either sitting
at home or turning to the Liberal Democrats
WATSON: Recent polls suggest that
Labour's core vote aren't exactly enthusiastic about turning out at the
next election, but support IS holding up in the key marginals which Labour
won in 1997. The party aren't too keen to give the Tories the tax issue
in those seats. So Labour, for reasons of political expediency, are boxed
in on income tax .But their favoured path after the 1997 General Election
- allowing less visible taxes to take the strain - has proved a rather
rockier road recently. Voters are now looking well beyond what Labour says
and does on income tax alone.
Last year's petrol protests
exacted concessions on fuel duty that the Chancellor would rather not have
made and he'll be keen not to make any similar commitments in the manifesto.
But his strategy of tapping more and more sources of revenue, other than
just income tax, is under pressure. People have become more aware than
ever of the taxes they're shelling out.
KIM HOWELLS: Your petrol is high and I
begrudge, one thing I begrudge is filling up the tank. I use the car Monday
to Friday, just doing the school run going to a few local toddler groups
and possibly between twenty and twenty five pounds a week. And that's not
really going anywhere as such.
DAVID RUFFLEY MP: These things are now very very
visible and there could well be and I think it's already started, a problem
with the Chancellor's reputation. But those are problems that are added
to when you look at how little room he's got now, for increasing tax almost
anywhere. The stealth taxes, the gaffe has been blown for Gordon, he can't
really do that again.
JOHN WHITING: I think the fuel duty protests
and all the analysis that was done about that time, which showed how much
of a gallon, litre of petrol went to the government in the form of taxation,
has really got home to a lot of people. It's also made them think well,
what about that bottle of whisky, what about the food that I buy, everything
else, how much am I paying in taxation.
WATSON: No-one likes paying tax,
but raising money from so-called 'sinful' products is often seen as fair
game. So taxing cigarettes and booze attracts less resistance than taxing
petrol. Cars are seen as essential, not luxury items, these days. But
with both alcohol and cigarette duty higher here than on the continent,
smuggling is rife. So the limit may have been reached in taxing our more
pleasurable pursuits.
MARTIN SALTER MP: There is a ceiling that is..
that will be reached, probably is reached already, in respect of that particular
aspect of indirect taxation, because obviously if it starts to fuel the
black economy, then the Treasury ends up cutting its nose to spite its
face.
WATSON: So Labour may have to find
another way out of the tax dilemma and become less dependent on traditional
sources of revenue. With relatively low rates of corporation tax, business
may seem like an easy hit - especially as companies don't get a vote at
election time. But politically, that could signal the end of the line
for the New Labour brand, and practically, could encourage multinationals
to move their investments elsewhere
WHITING: Living in a global economy
means that you have to have regard to the fact that your tax base - in
other words, the people, the businesses that you are trying to tax - might
suddenly start to disappear.
WATSON: Labour are tackling the
tax issue for maximum electoral advantage. But there are fears that they
are perhaps playing to the gallery of public opinion rather than trying
to change attitudes towards taxation. Certainly with a big budget surplus,
there's no immediate need to raise taxes in order to pay for better public
services. Indeed the Chancellor would claim he's banished boom and bust
for ever. but there are those within Labour's own ranks who say the next
election should be used to dispel the notion you can get something for
nothing. Otherwise they could get into trouble in a downturn and bequeath
future governments a very unwelcome legacy.
PLANT: There does come a point
when for the future, we've got to say, look, we want high quality health
care for all our citizens. We've got to invest in high quality education
if were going to be competitive in the world. There is the money to do
that now, but in different economic circumstances, never the less we should
have some kind of under pinning through the tax system, to ensure that
we're going to maintain that sort of quality of provision into the future.
DILNOT: At the moment we're going
to be getting better public services, higher public spending, by increasing
the amount of borrowing, the reason we can do that is at the moment we've
got such a large surplus so we can afford to increase public spending more
quickly than taxes, but you can't do that forever.
WATSON: Reassuring voters such
as Phil Nicholls, who backed Labour in 1997, is a high priority for the
government - especially after the events of the past week. Labour strategists
have no doubt had some sleepless nights and the idea that the government
might risk making the moral case for taxation at this election, has been
consigned to the realms of fantasy. In doing so, the option for future
governments to argue that better public services really do come at a price
could now be closed off.
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