The Labour Party’s plans just got a very unlikely backer. And it’s terrible news for the Conservative government.
The International Monetary Fund (IMF) has said that higher income tax rates for the wealthy would tackle income inequality without negatively affecting growth. And as Shadow Chancellor John McDonnell quickly pointed out, that’s essentially what Labour argued during the general election.
It’s not, however, an argument the Conservative government will likely welcome. Because it has cut taxes for the rich regularly in office. In fact, the Conservative manifesto promised to roll out more tax cuts that the rich would benefit from. It’s unknown as yet whether Chancellor Philip Hammond will move forward with these cuts in the upcoming budget.
But the IMF’s intervention would make doing so very uncomfortable indeed.
Labour pledged not to raise taxes for 95% of workers in the general election. Instead, it proposed a 45% tax band for those earning over £80,000 a year. But during Prime Minister’s Questions (PMQs) on 11 October, Theresa May accused McDonnell and Labour leader Jeremy Corbyn of living on “planet Venezuela” in their approach.
But unlike the South American country, which has limited international clout, the IMF is a core feature of the established global order. Formed after WWII, along with the World Bank, it is responsible to the 189 countries – including the UK – that make up its membership. The US holds the most sway over the IMF because it pays a large chunk of the institution’s funding.
So Corbyn and his party are now, in reality, living on ‘planet IMF’ rather than ‘planet Venezuela’. Or perhaps the IMF has headed over to ‘planet Corbyn’. Either way, the fact that this establishment organisation is advocating fair, progressive taxation to tackle inequality is damning for the Conservatives.
In response to the IMF’s findings, a Treasury spokesperson said:
A fair tax system is a critical part of our plan to build a fairer society. Today, the richest 1% pay over a quarter of all income tax while 4 million of the lower earners have been taken out of income tax altogether.
Growth vs survival
Those who argue against higher taxes on the wealthy usually claim doing so would hamper economic growth. But the IMF said:
Empirical results do not support this argument, at least for levels of progressivity that are not excessive.
But whether growth, or “progressivity”, is the measure we should be using to calculate progress is also in dispute. As George Monbiot recently wrote in The Guardian:
Sustained economic growth on a planet that is not growing means crashing through environmental limits: this is what we are witnessing, worldwide, today… The index that was supposed to measure our prosperity, instead measures our progress towards ruin.
So the IMF’s intervention may inflict some damage on the Conservative government’s credibility unless it changes tack. Particularly if Hammond announces more tax cuts for those with plenty in his upcoming budget. But the IMF itself needs to wake up to the fact that it’s sustainability not economic growth that should be its guiding principle moving forward.
That is, if we’re to have a world left in which to pay all these taxes.
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