Alistair Darling should be as bold as David Lloyd George was 100 years ago.
He should announce a £1,000 increase in the personal tax allowance and increases in benefits and child tax credits to ensure that the Government achieves its goal of halving the number of children in relatively low-income households by 2010-11. This will cost about £10 billion a year.
He should announce tough limits on the growth of public spending from 2010-11, while making it clear that extra resources will continue to be made available for priority areas such as education, health and childcare. Major projects, such as the replacement of Trident submarines, will have to be cancelled.
He should reaffirm the moral case for progressive taxation to finance public spending. He should increase the top rate of tax to 50 per cent for taxable incomes of more than £150,000. At the same time, to ensure the rich pay their fair share of taxes, there should be a major clampdown on tax avoidance, tax reliefs and tax havens.
He should announce plans to examine the feasibility of a tax on carbon emissions and a land value tax.
Raising existing taxes and introducing new ones may sound like a sure route to political unpopularity, but the fiscal position leaves the Chancellor with little choice. It may reassure him to know that Lloyd George’s ‘People’s Budget’ helped revive the Liberal Party’s political fortunes, showing that boldness can deliver votes as well as economic results.
Tony Dolphin is a Senior Economist at the ippr.