We need the left to come together and rethink taxation so that we can properly fund crucial public services

The Policy Network think tank is launching the Open Left project, a major initiative designed to encourage progressive parties to reach across partisan divides, forging creative solutions to the problems facing the country.

In opposing Brexit, politicians from separate parties have worked together constructively. But in domestic policy, an atmosphere of tribalism and narrow party advantage still prevails. Britain’s “winner-takes-all” electoral system incentivises parties to put their electoral interests before the national interest. Our politics is broken.

After 70 years of reform, it is obvious that no single party has a monopoly on political wisdom or truth. Many issues, not least the historically inadequate funding of public services, have become so intractable they require substantive cross-party agreement to break the deadlock. As the impact of long-term underfunding in the NHS is exposed in rising waiting times and cancelled operations, the reluctance of parties to face up to Britain’s taxing and spending dilemma is increasingly debilitating.

The central issue in British political debate is the illusion that voters can enjoy Scandinavian quality public services with American levels of taxation. Labour under Jeremy Corbyn published an eye-catching manifesto in 2017 which acknowledged taxes would have to rise to after a decade of austerity.

Yet analyses by the Institute for Fiscal Studies (IFS) exposed the limitations of the party’s strategy. Hitting wealthy individuals as Labour proposes would raise an additional £49bn a year. Those earning over £80,000, 5 per cent of earners, would be subject to a new 45p marginal rate of tax; those earning more than £123,000 would face a 50p top rate. Pension tax relief for high earners would be withdrawn. Corporations would face higher tax bills.

These rises are nowhere near sufficient to fund the massive increases in spending envisaged by Corbyn’s party. Labour’s proposals would take tax receipts back to levels last seen in the mid-1980s, not the 1960s or 1970s. Demographic pressures and an ageing population exacerbate the NHS shortfall.

The King’s Fund estimates spending will need to rise by 4 per cent a year in real terms to maintain the present service. Meanwhile, the tax base is becoming more precarious as revenues from taxing alcohol, smoking and petrol decline precipitously. The UK’s public finances remain brittle following the decline in tax revenues after the financial crisis: the consequence of over-reliance on financial sector growth and a booming housing market.

The implication is that if the Labour Party wants to secure public services that are high quality and well funded, taxes must rise across the income distribution. Instead of making the case for tax as an instrument for attacking the rich, Labour must return to the argument that tax is the down payment we make for living in a decent and fair society.

The history of the past 30 years indicates that securing political consent for increased taxes requires greater transparency in public spending. The social contract between voters and government has frayed. Strengthening the connection between citizens and the taxes they pay should be underpinned by “hypothecation” for the NHS: specific tax rises tied to extra funding.

There are alternative means of raising revenues that politicians have ignored for too long. Local government should have discretion to impose levies for housing and public infrastructure. There should be progressive “co-financing” mechanisms to support childcare and elderly care, with contributions determined by ability to pay.

Wealth and property taxation is another challenge our politicians cannot duck, given the vast stock of inherited wealth. Progressives must focus on shifting the burden of taxation from incomes to land values and unearned capital receipts. Labour and the Liberal Democrats have flirted with property taxes since 2010, yet these proposals are unlikely to be feasible without cross-party agreement. Such reforms are controversial, but they address our long-term fiscal predicament.

The major parties have conspired over the past two decades to make implausible promises. The political class has conspicuously avoided an honest debate about the parameters of taxing and spending. Too many taboos are erected. Free thinking is virtually non-existent.

As a consequence, both parties lack the decisive mandate to make tough decisions. It is essential that politicians open up a serious conversation with the public about future choices.

In the 1980s, Labour, the Liberal Democrats and the nationalist parties cooperated to hammer out a programme for constitutional change to oppose the centralising forces of Thatcherism, later enshrined in Charter 88. That prospectus was largely enacted following the 1997 election.

Today, centre-left parties need a mandate for radical solutions to funding public services. Several ideas should inform that agenda. Firstly, a hypothecated tax to pay for the NHS and social care. Secondly, a land value tax. Thirdly, giving local and city governments power to levy taxes that improve services.

No one party, ideological tradition or jurisdiction can possibly have sole possession of good ideas in British politics. We need an open left where progressive parties work together, forging a new political consensus for the common good.

Patrick Diamond is senior lecturer at Queen Mary, University of London, and chair of the Policy Network think tank. He is a former adviser to Tony Blair and Gordon Brown