Keir Starmer faces a problem all of his own making over corporation tax

John Rentoul
·4-min read
<p>Keir Starmer will reply to Rishi Sunak’s Budget on Wednesday</p> (Reuters TV)

Keir Starmer will reply to Rishi Sunak’s Budget on Wednesday

(Reuters TV)

More politics through the looking-glass: a Conservative chancellor plans to put up taxes on profitable businesses and it causes a bigger headache for the Labour Party than for his own.

Keir Starmer and Anneliese Dodds, the shadow chancellor, insist that they are opposed to an “immediate” rise in corporation tax, but that is precisely what Rishi Sunak is likely to announce on Wednesday.

Starmer and Dodds have followed through on the logic of their argument that “now is not the time to raise taxes”, which has the advantage of being intellectually respectable. It is supported by most economists, who say it is more important, in the short term, to keep pumping money into the economy as it comes out of the Covid-19 recession than to try to balance the government’s books – and that it is safe to go on borrowing vast sums of money while interest rates are low.

As long as this was an argument against the rises in council tax that Sunak is forcing on local government, everything was going Labour’s way. But Starmer thought there were further gains to be made by extending the argument against tax rises to corporation tax. That allows Labour to pose as the “pro-business party”, as he seeks to repair the party’s reputation for economic competence. And it also offers the tantalising prospect of the top prize for the opposition in a parliamentary democracy: inflicting a defeat on the government in the House of Commons.

Opposing a corporation tax rise means putting a crowbar in the faultline in the Tory party and levering it open. Tory MPs such as David Davis are unhappy about putting up taxes on business, and Starmer can make common cause with them, temporarily, by arguing against all tax rises on wider economic grounds.

There are only two problems with this cunning plan. One is that Mark Spencer, the Tory chief whip, saw him coming, and has deployed the ultimate weapon to try to keep his troops in line. He has said that any votes on Budget motions will be treated as matters of confidence. That means that any Tory MP voting against the government would have the Tory whip withdrawn, and that means in turn that they would be unable to stand as the official Tory candidate at the next election.

The last Tory to have this punishment imposed was Julian Lewis, who colluded with Labour to seize the chair of the Intelligence and Security Committee from under the nose of Chris Grayling, the government’s preferred candidate. He had the whip quietly restored at the end of last year, but few MPs want to take those kinds of risks with their career.

Starmer’s other problem is public opinion. This is not to be confused with opinion in the Labour Party. Corbynite MPs such as Richard Burgon, Ian Lavery and Jon Trickett are publicly hostile, insisting that Labour ought to be in favour of higher taxes on companies, some of which have increased their profits during the pandemic. Privately, several members of Starmer’s shadow cabinet are said to be uneasy. All of which the Labour leader could have lived with, and indeed could have exploited to mark how the party had changed, not just from the Corbyn era but from the Gordon Brown period as well – as it still suffers from the folk memory of its association with the financial crash, when it is thought, unfairly, to have spent too much.

But in order to take on opinion in the Labour Party, Starmer needs to have public opinion on his side, and that is the one thing he lacks. The Savanta ComRes poll for The Independent today confirms that raising corporation tax is popular, supported by 55 per cent of voters and opposed by only 16 per cent. Starmer might say there is no contradiction, because the poll asks what should happen “once the crisis is over”, and he is opposed only to raising corporation tax now, while the crisis is still with us.

That argument is likely to be too subtle for most floating voters, however. On the whole, voters have a straightforward attitude to corporate profits, which is that they fall into the category of “taxing someone else richer than me”. Trying to be “pro-business” or to argue the need to sustain a Keynesian stimulus is not going to mean much to them.

When Starmer stands up to reply to the Budget on Wednesday, he will have his work cut out. He risks not only failing to divide the Tories, but succeeding in dividing his own party – while merely confusing sceptical voters.

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