Today Alistair Darling has an opportunity to radically alter Labour's tax policy. I hope it's an opportunity he grasps with both hands.
Reports over the weekend suggest that the two key tax changes in the Chancellor's pre-budget report will be a 2.5% cut in VAT combined with a new top rate of tax set at 45% for earnings over £150,000. Both these changes should be warmly welcomed by progressives. Some have complained that these proposals do not go far enough, but we must not underestimate the significance of what is being proposed: these policies, if implemented, will finally represent the start of a journey away from Thatcherite taxation policy. If the Government stays firm, we could be witnessing the beginning of the end of neo-liberal tax orthodoxy, if not in Britain then certainly within the Labour leadership.
To understand why these changes are so important, we need to look at the history of taxation in this country since Margaret Thatcher came to power in 1979. A key part of her economic policy was the transference of taxation away from income and on to spending. In her first budget in 1979 she cut the top and basic rates of income tax whilst increasing VAT from two rates of 8% and 12.5% to a unified rate of 15%. This put money in the pockets of the rich whilst punishing the poorest who would see little reduction in their tax bills whilst facing increasing prices. Indirect taxes, favoured by Thatcher, always hit the poor hardest.
Ever since 1979 we have seen income tax cuts, most recently by Gordon Brown in 2007. At the same time, VAT has been increased (it was raised to the present level of 17.5% in 1991), although Gordon Brown did cut the Reduced Rate of VAT to 5% in 2001.
If Alistair Darling goes ahead with these proposals, modest though they may seem, he is effectively tearing up the rules that have governed tax policy in Britain for decades.
The political significance is also huge: Labour's last three manifestos have explicitly stated that Labour will not increase income tax. One of the "gospel truths" of the new Labour project was that we could not win if the public thought we would increase income tax. Alistair Darling may be about to slay one of new Labour's sacred cows. For many in the Labour Party, myself included, it's about time.
It may be too late, of course. Because of our manifesto commitment not to raise income tax, no tax rise for top earners would come into effect until after the next election. If the Tories win it will be lost. However, although still ahead in the polls the likelihood of a Tory victory is getting slimmer by the day. My belief is that Alistair Darlings proposals in the pre-budget report will erode that Tory lead further. The new Labour spin machine that once told us income tax rises for the rich would never be popular will now be charged with selling this very idea to the public. I don't think people will need much persuading. The 10% tax debacle earlier in the year showed that most people do have a social conscience when it comes to taxation. The disgust felt towards rich City bankers, who many rightly feel are responsible for the credit crunch, has only galvanised opinion in favour of the rich paying a little more for the benefit of everyone.
We will also need to look carefully at what else Alistair Darling proposes today. I hope to see action taken to close tax loopholes - not always as simple to do as the Lib Dems like to claim but vital for fairness.
No doubt all the media's attention will be focussed on the Chancellor's income tax and VAT proposals. If he goes ahead, then economically it will be the end of "new" Labour. But it is not a return to "old" Labour, as the Tories may cry. What I hope it will mark is the beginning of real Labour. Better late than never.
Tom Copley, Chair, London Young Labour
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