DANIEL HANNAN: It’s a surprise Starmer can maintain a straight face

It’s not the dishonesty that stings. It’s how Labour insults our intelligence. Sir Keir Starmer’s attempt to shift the blame for his coming tax rises is so brazen that it’s a wonder he can keep a straight face.

In a widely trailed speech today, the Prime Minister will solemnly warn ‘working people’ of ‘unpopular decisions’ ahead.

‘Frankly, things will get worse,’ he will say, ‘before we get better.’

The Labour leader will claim that the Conservatives have left him nothing but ‘rubble and ruin’, and that cleaning up the mess is bound to be painful. So painful, indeed, that (in an argument that seems remarkably convenient from Labour’s point of view) it will take two parliamentary terms to undo the damage.

Come off it, Starmer. There is no mysterious hidden deficit. For the past 14 years, all government revenue and spending has been carried out in public, invigilated by the Office for Budget Responsibility.

The ‘books’, if you want to call them that, were as open to you as to anyone else. You knew perfectly well what the situation was when you promised that, beyond the three tax rises in your manifesto (VAT on schools, taxes on non-doms and a retrospective levy on energy companies) there would be ‘no additional tax rises’.

You could not have made yourself clearer. Your Chancellor, Rachel Reeves, assured us that ‘every Labour policy’ had been ‘fully funded and fully costed – no ifs, no ands, no buts’.

Don’t even think of trying to claim that the situation has deteriorated since then. Every economic institute has upgraded its forecasts since the election was called – even the IMF, which had been sulkily predicting a recession ever since the Brexit vote.

Britain has had the fastest-growing economy in the G7 this year. In the quarter just ended, growth in the UK was twice what it was in the EU.

Inflation is hovering around its 2 per cent target. The deficit is falling. The influential S&P Global Business Outlook Survey finds British firms more optimistic than in any other big economy.

No, there is one thing, and one thing only, that is creating a black hole, and that is Labour’s decision to spray public money around with abandon: £8billion on Ed Miliband’s pet project of ‘Great British Energy’, £12bn on overseas ‘climate aid’, £14 bn on public sector pay awards.

Sir Keir talks of facing ‘unpopular decisions’. But he has already advertised to the world that he will duck them, handing eye-watering sums to his trade union allies without asking for any reforms in return.

Teachers and NHS workers will get pay rises at twice the rate of inflation. Train drivers are getting a backdated 14 per cent hike. Junior doctors are getting no less than 22 per cent.

All these awards are unconditional. If ever there was a time to tie pay rises to higher productivity – perhaps asking rail staff to work more weekends, or doctors to carry out more consultations face-to-face rather than online – it is now.

Instead, all Labour has asked in return is that the beneficiaries don’t strike.

How do you expect other trade unions to respond? Already, other railway workers and border officials are engaged in industrial action. And why not, when dealing with a pushover Government like this?

What will be the consequences? First, we are in danger of a wage-price inflation cycle, as in the 1970s, undoing all the hard work of the past three years.

Second, and more seriously, we are expanding the area of our economy that consumes revenue at the expense of the bit that generates it. Not only is Labour paying state employees more, it is also hiring more of them, quietly cancelling plans to let the size of the civil service return to where it was before the supposedly temporary increases that accompanied the pandemic.

As a result, there will be 66,000 more public sector workers on the payroll, many of them ‘community outreach workers’, ‘diversity co-ordinators’ and the like. You can’t accuse Starmer of failing to look after his base.

Labour is going to tax us not because it has suddenly discovered a deficit in what were always publicly available figures, but because, whether from ideology or cowardice, it is choosing to give more money to more government workers.

The entire premise of Starmer’s speech is false. What has damaged Britain is not free-market Tory dogma. On the contrary, we have not been so highly taxed and regulated for decades.

No, what has damaged us is the massive rise in spending occasioned by the pandemic and the lockdown – a rise that no politicians have been brave enough to reverse.

Labour, of course, wanted an even longer lockdown. When Boris Johnson finally loosened restrictions, Starmer talked childishly of a ‘Johnson variant’ that would supposedly kill thousands (it didn’t, obviously).

After the lockdown, there was no serious attempt to wind back what had supposedly been emergency spending increases. On the contrary, there was an assumption that the new spending levels were permanent, and that taxes must rise to meet them.

That is our real illness. By misdiagnosing it, Starmer is guaranteeing the prescription will make things worse. The last thing we need is an even larger government.

It is bad enough that, with taxes already at a 70-year high, Labour thinks it can squeeze yet more out of the private sector. But even worse are the kinds of taxes it has in mind.

Tax rises of any kind will harm growth. No British government has ever managed to tax at a rate of more than 38 per cent of GDP. Once the proportion goes higher, people work shorter hours, retire earlier or emigrate.

Indeed, Labour acknowledged as much before the election, speaking of its aspiration to cut taxes, and promising to fund any spending increases out of growth.

Nonetheless, the tax rises least damaging to growth would be those that are simple to collect and that have only a limited impact on reduced investment. A rise in income tax or VAT, for example, would be a clean way to get extra revenue – though it would still harm the economy.

But Labour does not want to impose obvious taxes – those taxes that we feel when we open our payslips or go shopping. Instead, it is eyeing precisely the kinds of levy that are most damaging to economic growth – namely taxes on property, inheritance and savings.

A hike in capital gains tax, for example, wouldn’t just reduce investment. It would wipe out the City of London’s entire business model, driving billions of pounds of revenue abroad. And as the economy shrinks, the tax base will shrink with it, meaning Labour will have to whack up rates even higher.

What fools we were to think that we might be in for something relatively moderate or Blairite. Labour has inherited a bloated state, with an engorged public sector and unsustainable tax rates. And it has decided to spoon out more of the medicine that sickened the patient in the first place.

As the old saying goes, dogs bark, cats meow and Labour raises taxes. Right up to the point where there is nothing left to raise.

• Lord Hannan is President of the Institute for Free Trade.