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Nick Wood: Bank error in Miliband’s favour. Who will defend the market economy?


Britain remains a deeply conservative country if the political controversies of the past week are anything to go by. Margaret Thatcher may have given a 15-year-long masterclass in market economics and Tony Blair may have briefly taught Labour to accept if not love free enterprise, but the central electoral battle remains the contest between the politics of envy and the politics of fear.  We are stuck in a 1970s time warp. At this rate flared jeans, platform shoes and the Austin Allegro will be making a comeback.

The row over the role played by HSBC’s Swiss banking arm in helping thousands of UK citizens evade or avoid tax has proved a Godsend to Labour. It plays directly into Ed Miliband’s narrative of a squeezed middle cut out of the recent economic resurgence, which is going largely to benefit the “have yachts” – the rich and super-rich who control big corporations and City firms, earn squillions in bonuses and are free to move their money around as if they were playing a global game of Monopoly. Bank error in your favour – collect £100 million.

No matter that tax avoidance is perfectly legal and is practised by everyone who pays into a pension, sets up an Isa or makes arrangements to minimise inheritance tax. The spectacle of Lord Fink, hedge fund tycoon and former Tory treasurer, admitting employing HSBC to assist in some “vanilla” tax avoidance while City fat cats gambolled the night away at the Black and White Ball have only reinforced Miliband’s central charge – that Cameron and Co champion the wealthy few and not the hard-pressed many.

The opinion polls amplify this conclusion showing that the HSBC row has “cut through” to the man in the street and that the public overwhelmingly believe that it is not acceptable legally to avoid tax.

The latter is an extraordinary finding (by 57 per cent to 32 per cent) and it equates to the revelation by YouGov highlighted by Kathy Gyngell on this site that by a margin of 62 per cent to 38 per cent, the public believes that the Government should do more.

True, the Conservatives have hit back by pointing to the “hypocrisy” of  Labour donors resorting to trusts and tax havens and legal tax avoidance by the Miliband family. But a row over tax avoidance/evasion is a home match for Labour, serving only to broadcast Miliband’s grim caricature of Britain as a land of “food banks and bank bonuses” menaced by “predatory” capitalists and marred by crippling inequality.

This is a nonsense of course. The British economy is far bigger and stronger today than it was in the 1970s and the average baby boomer Brit is far better off than his parents’ generation. But at the same time, as globalisation has taken root,  the gap between the boardroom and the shop floor has widened hugely. To take one example, in 1980, a director of Barclays Bank earned about 15 times average earnings. Now the differential is 75 times.

Nonetheless, for all Miliband’s talk of zero hours contracts for ordinary folk and zero tax for plutocrats, the figures tell a different story. According to HM Revenue and Customs, the top 10 per cent – who earn around £25-an-hour – will pay nearly 60 per cent of all income tax this year. The top one per cent will pay almost 30 per cent. And around 4.5 million people are now paying top rate tax – up 1.5 million since Cameron came to power and more than three times the level when Tony Blair replaced John Major in the late 1990s.

Mrs Thatcher was fond of saying that the battle against inflation was never over and had to be fought and won again every day.The same applies to market economics. In a country where the majority of people want bigger government, and a majority (52 per cent) of households receive more in benefits and public services than they contribute in taxes (up from 40 per cent in the 1970s), the dangers are obvious. Smaller and smaller numbers of people (the rich and not so rich) paying out more and more in taxes to fund an increasingly bloated and bossy state.

Stripped of his pious rhetoric, that is what Miliband is about. Just look at the prospectus of an incoming Labour government: the ‘mansion’ tax (which would increasingly apply to modest homes in London at least), a restored 50p top rate of income tax (which would raise less money than the current 45 per cent additional rate), a bank bonus tax, price controls on energy, and possible seizures of land from “hoarding” property speculators. And, of course, a witch-hunt directed at tax avoiders large and small.

The pity is that Cameron and Osborne have not taken Mrs Thatcher’s injunction to heart. Unnerved by the popular fury directed at bankers after the crash, they have proved timid defenders and exponents of the market economy. They have fallen back on the politics of fear – that Labour would wreck the economy all over again – rather than bang the drum for the politics of aspiration. Could the plump chickens of the City and the boardroom be coming home to roost?

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Nick Wood
Nick Wood
Chief Executive of Media Intelligence Partners

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