Taxing questions

Demoralised Labour backbenchers, watching helplessly as their government disintegrates and the prospect of electoral humiliation looms, have at last found a cause to which they can rally: higher taxes on the ‘super-rich’, both private and corporate.

In the first of those categories, the target is anyone with an annual income of £250,000 or more. In the second category, the proposal gathering support not only on Labour benches but also in opinion polls is for a windfall tax on utility companies which have jacked up the prices of electricity and gas so dramatically in recent months, blaming soaring wholesale energy markets, yet still have the gall to announce handsome profits.

Behind this bandwagon — currently driven by the Guardian’s Polly Toynbee — are two impulses. The first is an old-fashioned socialist urge to penalise the allegedly undeserving rich and lash out at the perceived evils of capitalism — and to use the proceeds to maintain benefits for the poorest segments of society, including, for example, the elderly on fixed incomes who struggle to pay inflated domestic heating bills.

The second impulse is to do something about the catastrophic state of the public finances. Public sector net borrowing surpassed £19 billion for the first four months of the current fiscal year and is likely to exceed £50 billion by the end of it. With economic growth already at zero and the flow of tax revenues dwindling as slowdown turns to recession, Gordon Brown is set to break all records for debt levels and fiscal deficits before he departs. Growth is not going to solve the problem for him, because there will be very little of it between now and June 2010, the last and most likely date for a general election.