Stealing the mansion tax from the Lib Dems is an effective ploy. But he's spending the money the wrong way
Since he revealed his unexpected promise – well, sort of promise – to bring back a 10p starting rate of tax funded by a mansion tax on homes worth £2m or more, Ed Miliband has been heard to tell colleagues that he doesn't want people to see it as a clever ploy to wrong-foot the Tories and drive a wedge between them and the Lib Dems.
I don't know why not. Part of the job description of an effective opposition is to disconcert and disrupt the government while at the same time commanding the media agenda. One way to do that is with surprise gambits. Of course, it was a ploy. The right question is whether it is truly clever.
In terms of the politics, it was really quite smart. Even Tories can be heard saying so. The Labour leader now has one simple pledge that adds ballast to his floaty "One Nation" rhetoric and puts a bit of definition on how he would go about creating a "new economy". This will blunt, at least for a while, some of the criticism that Labour is a policy-free zone.
Emblematic announcements matter in politics and there is a clear symbolism in giving a tax cut to the poorly paid, albeit a very modest reduction, at the expense of people, often foreigners, who live in very large houses. It has the considerable merit of being easy to explain. "This is a doorstep-ready policy," as one Labour MP puts it.
The announcement has led news bulletins and generated debate, achieving more cut-through in the media than most of the things Labour has to say. It was a neat piece of triangulation. For all his repudiations of New Labour, Mr Miliband is rather attached to that positioning technique to create dividing lines with the government while distancing himself from his party's past. This policy is not New Labour because Tony Blair would have recoiled against imposing a mansion tax on the wealthy. But it is not Old Labour either because it includes a tax cut rather than just associating the party with tax hikes and spending rises.
David Cameron was wrong to suggest that the announcement had been dreamt up in a hurry on the back of an envelope. That is a trait that we associate rather more with him than with the leader of the opposition. Whatever Mr Miliband's faults, he is not exactly notorious for impetuously spraying around policy commitments. The disastrous consequences for the last Labour government of Gordon Brown's decision to abolish the 10p rate featured heavily in the Labour leadership contest in 2010. Ed Miliband and Ed Balls had been discussing this move for a while. It is true to say that the timing of the announcement was influenced by the imminence of the budget. The two Eds now have something to say before and after George Osborne gets to his feet.
A 10p tax band is popular with some Tory MPs, so it also ratchets up the pressure on the chancellor to find a matching offer for the low paid when his cupboard is bare. Adopting a mansion tax steals one of their most distinctive ideas from the Lib Dems and drives a wedge between them and the Tories. On a visit to the Eastleigh byelection yesterday, Mr Miliband announced the second leg of his plan. That is to hammer at that split within the coalition by forcing a Commons vote on the adoption of a mansion tax. This will put Nick Clegg and his party on the horns of a very painful dilemma. The Lib Dems will be forced to choose. Vote for their own policy and cause massive ructions within the government in the run-up to the budget. Vote against in order to preserve cabinet collective responsibility and be accused by Labour of another betrayal. If they do the latter, Labour campaigners are hoping it will resonate in Eastleigh.
So as a piece of politics, it is pretty sharp. But Labour should not fool itself that this amounts to having a fully formed economic policy. It doesn't. Nor is it an answer to the sternest challenge that faces the two Eds: their continuing struggle to convince enough voters that they can be trusted again with the nation's finances.
And is this particular policy actually any good? Is it the right idea to have a mansion tax and use the money to reinvent a new starter rate for income tax? There is certainly a compelling case for reforming the way in which property is taxed. The council tax bands, originally introduced by John Major's government, are now years out of date with the result that higher-end properties are under-taxed relative to less valuable ones. The owners of quite modest homes currently pay the same council tax as billionaires living in gold-plated palaces.
The fairest way to approach this would be to redraw the bands, but none of the parties seems to want to touch a revaluation of every property in the land. They quail before the prospect of a tabloid clamour about "council snoopers" and an outcry from the losers. A mansion tax is a next best alternative. As a way of taxing wealth, it is crude, but it does have the advantage of being fairly efficient because it ought to be difficult to dodge. Even the most ingenious accountant finds it harder to hide a house from the taxman than more portable forms of wealth.
What's much more dubious is whether the best use for the proceeds is a new starting rate of tax. British politicians have been fiddling about with this for more than 30 years. Lower starting rates of tax have been introduced by both Labour and Tory chancellors looking for an eye-catching headline that they hoped would deliver an electoral dividend. These new bands have then been undone later by another chancellor because he wanted the money to generate a different kind of eye-catching headline in the hope of winning votes.
Denis Healey introduced a new starting rate in 1978 in anticipation of the election the following year. It was then scrapped by Geoffrey Howe in 1980. Norman Lamont came up with a new starting rate in 1992 to spike Labour's guns just before the election of the same year. Gordon Brown brought in the 10p rate in 1999 only then to undo it himself eight years later in one of his last acts as chancellor. He did so because he wanted to fund a cut in the basic rate to 20p. He hoped that would impress MPs with his cleverness, win him adulatory headlines and smooth his path to the succession to Tony Blair. You know what, it did. The Brown budget of 2007 was applauded by everyone from the Daily Mail to the Daily Mirror. It was only later that most of his colleagues and the media woke up to what it meant for lower earners and started to describe it as a terrible blunder. The least convincing bit of Mr Miliband's manoeuvre was the attempt to divorce himself from Gordon Brown. The Labour leader said his old master had made a "mistake" when he abolished the 10p rate. Mr Balls was even more brutal, saying their former boss had "set one group against the other" and even likening him to George Osborne. That must have hurt, up there in Kirkaldy.
The way the two Eds have told it, they were down on their hands and knees warning Mr Brown that he was about to commit a catastrophic error and imploring him not to do it. Others who were inside the Treasury at the time don't regard this as an entirely accurate portrayal of events. There were a few people – Frank Field was a distinguished example – who did foresee the trouble it would cause, but the two Eds were not among them and stalwartly defended the decision at the time. Mind you, they had plenty of company.
The Tories have been crowing that Mr Miliband has made "a stunning admission of economic incompetence". If it was such, they were complicit in it. David Cameron and George Osborne led their party in support of the abolition of the 10p band. If Ed Balls is ever in a position to bring it back, you can be fairly certain that a subsequent chancellor will later come along and get rid of it all over again.
The theory is fine. The idea is that it will help people on low incomes and strengthen the incentive to work, enhancing fairness and productivity at the same time. But there are simpler means of putting money into the pockets and purses of the low paid. As the Institute of Fiscal Studies has pointed out, a less complex and slightly more progressive way to do the same thing is to increase the personal allowance, a policy on which the coalition has already spent £9bn a year. A superior alternative would be to increase the threshold at which people start paying national insurance contributions.
There are better ways of achieving the ends that the two Eds seek. With many years in the Treasury between them, they surely know that. So, yes, clever politics. Just a pity it is a rather dumb policy.