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negLabtax_bombshell

There will be lots of issues at the next election – the Government's record on the economy, welfare reform and public services, the presidential contest between David Cameron and Ed Miliband, the EU in/out referendum (especially if Labour is not offering one.)

However, we can now see that the Chancellor of the Exchequer, George Osborne, will offer the electorate a clear pledge that a Conservative Government would not put up tax.

Naturally Mr Osborne will be quizzed about this. Probably it will be made clear this means no overall increase in tax – some might go up, but only if offset by other tax cuts.

There is also the complication that we are talking about tax revenue rather than tax rates. Mr Osborne's pitch is that enough spending cuts have been identified to gradually restore a balanced budget – that no extra tax will be required. This should still allow cuts in tax rates where this would allow increases in tax revenue. In opposition, Mr Osborne was dismissive of the Laffer Curve – either through scepticism or because he thought putting forward the Conservatives as tax cutters was misguided politically.

The Chancellor has learnt the hard way that the economy simply can't absorb higher taxes.Tax increases for Capital Gains and North Sea oil reduced revenue. Keeping the 50p top rate for three years sent out a damaging signal and also reduced revenue. In terms of the politics, even fiddly tax hikes – notably for pasties – produced anger from those who regard themselves as already overtaxed. Both politically and economically we are at the limit of the amount of tax we can take.

How will Labour respond?

The Blairite instinct would be to match the pledge. The 1997 pledge to hold both the basic rate and top rate of income tax sent out a powerful New Labour message – even though lots of other taxes were raised. There was still a signal that Labour were not anti rich people. This was important not only to the rich but to those with the aspiration to be rich.

Ed Miliband is more likely to fight the election saying he will increase tax but only for the rich. He will fight the 1979 election again when Labour promised in their manifesto:

In the next Parliament, we shall introduce an annual wealth tax on the small minority of rich people whose total net personal wealth exceeds £150,000.

The Conservative message in 1979 was unapolegetic about the case for tax cuts – for rich and poor. There were plenty of other election campaigns in the pre Blair ere when tax was a dividing line.

One can see why Mr Miliband hopes that bashing the rich would offer some electoral "traction." Often voters favour tax increases for "the rich" – usually defined as anyone earning more than they are. Also the rebranding efforts by the Conservatives have done little to dent the party being identified as for the rich.

The Conservative counter message will presumably be that if Labour seeks to raise extra tax from the rich this will not work. They would inevitably end up putting up tax for ordinary people as well. The experience from France will be cited.

This is the trap Labour will fall into. They will fight the election promising tax rises for the few. The electorate will rightly suspect it will mean tax rises for the many.

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