England:Forget the vision of 1997. New Labour is old hat

Under Brown the party is moving uncomfortably close to the semi-socialist trade union past Blair tried to leave behind

William Rees-Mogg

New Labour was a brilliant idea in its time, but its time seems to have run out. In 1992 the Labour Party, led by Neil Kinnock, unexpectedly managed to lose the general election. Most Conservatives were surprised, though the 1992 victory turned out to be a poisoned chalice for their party. In 1997, under the leadership of Tony Blair and rebranded as “new Labour”, there was a 10 per cent swing to Labour; they won 418 out of 659 seats. The Conservatives won only 165.

The Labour Party manifesto for the 1997 general election put great emphasis on the “new Labour” idea, which had a strong appeal to the voters. The first sentence of the manifesto stated boldly that: “Britain will be better with New Labour”. The 1997 manifesto went on to claim that: “In each area of policy a new and distinctive approach has been mapped out, one that differs from the old left and the Conservative right. That is why Labour is new.”

Even Conservative supporters were impressed by this new Labour vision, though some of its claims seemed to be grandiose pie in the sky. “New Labour”, the manifesto stated, “is the practical arm of none other than the British people as a whole.” I do not know what that was supposed to mean. The pragmatic nature of new Labour was particularly emphasised and supported by Tony Blair himself. Old Labour was repudiated as bitter and ideological.

In 1997, in a commitment that was repeated in subsequent manifestos for the elections of 2001 and 2005, the Labour Party promised that: “There will be no return to the penal tax rates that existed under Labour and Conservative governments in the 1970s. To encourage work and reward effort, we are pledged not to raise the basic or top rates of income tax throughout the next Parliament.”

I doubt whether this was a wise pledge to make; I prefer David Cameron's resistance to tax pledges of all kinds. Tax decisions ought, in my view, to be made in the light of the economic situation at the time of the Budget. No business would fix its prices five years ahead. Nevertheless, the new Labour tax pledge was an important symbolic commitment.

By 1997, the old Labour Party had become unelectable. Tony Blair wanted to convince voters that new Labour would be different. There was no stronger symbol of new Labour's policies than the pledge not to raise the top rate of income tax. It is probable that Tony Blair wanted to tie his own party's hands.

He too must have feared that Labour's instinct to tax the rich was ingrained. Even in 2005, his third election victory, Mr Blair insisted on repeating the pledge that top rates of tax would not rise.

Such symbolic commitments have an even greater symbolic impact when they come to be broken, as Alistair Darling broke the new Labour tax pledge in his Budget last week. I am sure that this was bad economics. Britain is going to have to attract a great deal of money, if we are to meet the borrowing commitment that Mr Darling outlined in his Budget.

If you have to borrow £175 billion, you cannot afford to spit in the faces of those who have millions to lend. Because he has broken a symbolic commitment, the Chancellor has undermined his own credit and that of Britain. This could even cost Britain our triple-A credit rating.

The increase in the top rate of income tax to 50 per cent will not solve any of our financial problems. When Nigel Lawson cut the top rate to 40 per cent in 1988, the yield actually went up. It may well go down now that it has been raised.

One has to remember that it will be the most wealthy who have the strongest reason to leave the country, possibly taking all their tax with them. Those who have incomes of £160,000 or £200,000 may well stay and pay the extra tax. Those who have incomes of more than £1 million will have a strong incentive to avoid the tax or leave the country. The extra tax will not only affect the position of those who are already very rich, but also of those who think they might pass beyond the £150,000 threshold in the future.

This will therefore be a high-cost, low-yield tax, bound to damage Britain's competitive position as a business centre and as a recipient of borrowed funds. We shall lose many of our largest individual taxpayers, including senior executives in international businesses; we shall lose more of the international corporations who have to attract highly paid talent. As an economic decision, the 50 per cent band is stupid. As borrowers we cannot afford the risk to our credit position.

Yet it is surely even worse as a political decision. From 1951 to 1997 there was increasingly convincing evidence that old Labour was indeed becoming unelectable. Harold Wilson managed to win the two elections of 1974 against a weakened Ted Heath, but the Conservatives were in office for 35 out of the 46 years from 1951. That was why Tony Blair was able to convert old Labour into new Labour, despite the party's addiction to class prejudice and tax-and-spend policies.

It now seems that Tony Blair was himself the New Labour Party. Without him, it has almost ceased to exist. Gordon Brown was throughout a most unreliable supporter of the project, though he shares some of new Labour's underlying ideas.

To the voters, new Labour meant Labour without socialism, pragmatic rather than ideological, a moderate party devoted to practical welfare reforms. Tony Blair certainly believed in such a non-ideological party and made the idea of new Labour credible.

New Labour is not credible after this Budget. Gordon Brown has not been able to detach himself from the tribal prejudices of his party. He lacks the personal appeal that Tony Blair always retained for the English middle class. Labour looks uncomfortably close to the semi-socialist trade union party that can be remembered from the 20th century. Alistair Darling's Budget may be the end of the new Labour idea.