
Call it a defence levy or even a patriot tax – but Labour is going to have to raise taxes, fast | Gaby Hinsliff
Five years ago this weekend, life as we knew it was suspended overnight. Though with hindsight it seems amazing that it took Britain so long to lock down in the face of a gathering pandemic, at the time the pace of events felt dizzyingly fast.
It took a still-young government time to realise its manifesto was toast; that it would be forced into decisions either it or the public hated, which would nonetheless beat the alternative. The new chancellor, Rishi Sunak, was visibly reluctant to rip up a budget whose ink was barely dry and instead spend billions paying people not to go to work. Yet ironically, it is furlough for which history may remember him most kindly.
I won’t pretend that this still-new Labour government finds itself in exactly the same predicament, despite facing the collapse of a world order with grave consequences for national security. This time, life won’t change overnight. We have the relative luxury of perhaps four or five years to rearm, rebuild alliances across Europe and develop resilience. That means not just weaning the country more urgently off fossil fuels or tackling Russian disinformation on social media, but being honest about what has changed and how.
Britain’s armed forces are so hollowed out by years of austerity that in truth even spending 3% of GDP on defence may not be enough to plug the gaps in European security left by a rapidly retreating US. Borrowing is maxed out, which leaves either spending cuts of the kind currently traumatising Labour backbenchers – potentially deep enough to unravel us as a society – or tax rises. There is a tiny, shrinking window of time in which this government could make the connection between such a painful tax rise and the chill felt across Europe when watching the White House turn on Volodymyr Zelensky. Call it a defence levy, a national resilience programme, a patriot tax, even, if you want to win over the Sun – but time is running out to start making the case for it. If taxes will ultimately have to go up this parliament, better come out fighting for it early than be miserably backed into it closer to an election.
Nobody pretends that would be easy. Taxes are already high by British standards, if not by European ones, and the cost of living crisis has not disappeared. Unfortunately, the money needed won’t all come from the kind of magical unicorn wealth taxes that people always hopefully suggest at this point could raise untold billions while only affecting a handful of multimillionaires, but which in practice never quite stack up like broad-based progressive tax rises do.
Manifesto promises on tax and spending were already stretched to snapping point and Labour is now reaching the point of having to choose which to break. Either Rachel Reeves will have to raise taxes again eventually, despite suggesting last autumn that she wouldn’t be delivering a budget like that again, or the better lives this government was elected to deliver won’t happen. The former would be hideously unpopular but might help avoid the latter, which in the worst-case scenario could be terminal not just for Labour but for mainstream politics. Keir Starmer represented a last throw of the dice for too many voters who think politicians talk a good game but nothing really changes. If this doesn’t work out, all that is left that hasn’t been tried is something more darkly Trumpian.
The welfare cuts over which Labour MPs have agonised are only the tip of a spending-review iceberg. Last week’s unusually widespread cabinet leaks – suggesting ministers from Ed Miliband and Angela Rayner to Shabana Mahmood and Yvette Cooper raised concerns about threatened raids on their budgets – were notable because all are charged with delivering things that matter to the ordinary working people we are told Starmer is most worried about, and because of wider concerns among some MPs that he is outsourcing too many big judgment calls to the Treasury. If a Labour government can’t build more houses, control crime and immigration, and generally tackle the impression that nothing in this country works, it is doomed. Fixing what was broken within the tight constraints that – for perfectly understandable electoral reasons – Reeves set herself was always going to be hard, but it will be impossible if any proceeds of growth vanish into the Ministry of Defence.
There are obviously a million good reasons not to do something that would be seen as ripping up manifesto pledges barely a year into government. When YouGov tested the idea of raising taxes “on people like you” to fund defence in February, admittedly before that shocking encounter in the White House, less than one-third of voters were in favour. Raising taxes on what might be the brink of a trade war-induced recession would be economically risky, and the political damage goes even deeper: wasn’t the whole point of Starmerism to make smaller promises, but actually keep them? Yet that’s precisely why, if Labour is going to end up forced into a reset anyway, an emotionally compelling case has to be made that something profound has changed.
As the former Treasury guru Ed Balls pointed out recently on his podcast, and as Sunak came to realise in March 2020, sometimes the world does turn on its axis and there’s no pretending it hasn’t. There has been a new boldness to Starmer as he grapples with this crisis. Now he must bring that quality to paying for it.