The City is bracing itself for a “political reckoning” if Labour wins the 2015 general election, say Jim Pickard and George Parker in the Financial Times. The difficulty Ed Miliband faces is how to pay for “social democracy” in a time of austerity, especially with the budget deficit expected to hit £80bn next year. Labour’s leadership is looking towards the Square Mile with “hungry eyes”. Many of its MPs view the £5.5bn in bonuses “handed out by Barclays, HSBC, Royal Bank of Scotland and Lloyds this year as obscene” and are looking to see how the City can fund schemes to provide guaranteed jobs.
Shadow chancellor Ed Balls is planning “a suite of policies for siphoning off money from Britain’s wealthy”. These include a new bank bonus tax expected to raise up to £2bn, hiking the top rate of tax from 45p to 50p, a reduction in pension relief for top earners from 25p in the pound to 20p and a ‘mansion tax’. However, the FT questions whether Balls will “rake in anything like the £6bn” he hopes for.
Critics say Labour’s sums don’t add up. The Institute of Economic Affairs, a think tank, complains the party is “undermining incentives to save through pensions to generate revenue for their latest political project”. Miliband claims cutting pension tax relief for high earners will generate £900m to fund temporary jobs for young people, says Kate McCann in City AM. But this “could slash retirement savings”. Besides, Labour has already earmarked the bank bonus tax money to build more homes and reverse the VAT hike.
These tax changes are “smart politics” though, says George Eaton on the New Statesman website. While the Tories “boast” about their jobs record, long-term youth unemployment has doubled. The policies are based on the successful Future Jobs Fund, axed by the Coalition despite a government study finding it had a “net benefit to the economy of £7,750 per participant”.
Few voters will “shed tears for the 1.5% fortunate enough to earn over £150,000 a year” who have enjoyed on average a £107,500 Coalition tax cut. Basic tax payers are “still subsidising” higher earners’ pension contributions: before the 2012 Budget Danny Alexander called for the Coalition to bring in a similar policy. Labour’s plan is a “neat way of reopening this particular Coalition divide”.