Miliband and Balls are short on fiscal credibility for a number of reasons – most of all thanks to their continued refusal to acknowledge the Brown government’s addiction to debt was a bad thing.

The problem goes deeper than a borrowing habit that would have put Keynes to shame, though. Labour fatally misunderstand the structural problems facing both the state and the tax system.

The latter issue is evident in today’s Observer scoop, which reports the Opposition are considering an increase in National Insurance “to save the NHS”.

The scheme has several implications:

  • It shows that even Labour now acknowledge the inherent unpopularity of tax – they now feel the need to tie it to a specific public service in the hope of persuading the electorate that it’s acceptable. Even five years ago they would simply have said “tax is what makes us civilised”, and they might have got away with it.
  • The Government now have another, clear piece of evidence that a Labour government would endanger the recovery. While Miliband claims the rising number of jobs isn’t sufficient, he is apparently willing to mull increasing the tax on working – something which would increase the cost of living and reduce the chance of the unemployed finding work.
  • One of the problems of the current tax system (regardless of your preferred overall rate of taxation) is that it is too complex. We should be aiming to eliminate National Insurance entirely, and simply have Income Tax in order to reduce the opportunity for abusive stealth taxation. Not only would a hike in NI run against that aim, Labour’s proposed policy would actually make the system even more complex – money raised by the increase would go into a specific policy pot. In effect, this segment of NI would be a whole new tax, complicating things even further.
  • Labour may have been forced (by undeniable demographics and economics) to accept that the NHS in its current form faces serious challenges, but their mindset is still that any problem can be solved simply by throwing money at it. Their vast expansion of NHS funding while in government failed to deliver a correlating improvement in outcomes – and adapting the service and its funding to fit an ageing population is a far bigger problem to solve.

As our Pinning Down Miliband series has shown, the Labour policy platform is currently wafer thin across all areas. If this is the level they’ve reached on what is meant to be their core issue, they’ve a long way to go.