THERE has rightly been a lot of discussion on tax and spend policy as we are now in the long run-up to the next general election.

We even have the spectacle of Chancellor Jeremy Hunt pleading with businesses in the pages of the Times to share their profits more with customers.

This is a sure sign that there is an election coming and that the Tories are in trouble because of the dire state of the economy and the continuous fall in living standards.

But one of the problems is that the economic debate focuses far too narrowly on specific levels for specific categories of taxation.

“A penny off the basic rate of income tax” becomes the centrepiece of a Budget (or not), whereas there are innumerable areas for taxation and for spending.

The labour movement as a whole has no interest in playing this game, which is largely a distraction from what is really going on, a bit like the Budget speeches themselves.

Instead, we should ask, what do we need to improve the wellbeing of the vast majority of the population, and how do we tax and spend accordingly? As a result, we can break free of the narrow discussion of specific tax rates and identify what we want as a society and who should pay for it.

This is highlighted in the recent controversy over the two-child cap on benefits. Tony Yates, a former economist at the Bank of England, described front-bench claims that there was no money left as “false, and corroding of politics.

Professor Jonathan Portes, a former economic adviser to Tony Blair, described the claims as “laughable,” going on to say: “This is an absurd way of talking about policy-making. Talking about there being no money left is the economics of the kindergarten.” We can do better than that.

The truism in politics is that to govern is to choose. Contrary to some simplistic notions, you cannot just create money, or borrow it without limit to fund all government spending.

Maybe Joe Biden still can. But Britain’s place in the world means it cannot. The Liz Truss/Kwasi Kwarteng experience should have killed off these notions for good.

So, the decision to categorise any area of spending as unaffordable is a matter of choices, of priorities. It is estimated that removing the two-child benefit cap would cost about £1.4 billion, rising over time.

But this is within a total level of government spending which in the last financial year reached £1,183bn. 

The implication is that there are nearly a thousand things where the money is already better spent than on abolishing the benefit cap.

The same is true of the relatively trivial sums involved in introducing universal free school meals, or even inflation-matching pay rises across the public sector.

The Institute for Public Policy Research reckons an across-the-board pay rise of 10.5 per cent would only cost an additional £7.2bn beyond what the government has already promised.

Of course, if every single item of government spending was absolutely essential and vital to our wellbeing, then there could, perhaps, be an “argument” for more belt tightening. I think advocates of that view would struggle to make the case, though.

But any such claim about the essential nature of all the government’s actual spending is laughably ridiculous. In recent days we had the MoD dismissing its own overspend and losses of £1.4bn as “immaterial in a £50bn budget.”

We have also seen the rank incompetence of ministers and the Bank of England in racking up losses of £150bn on its bond sales.

It is not just errors and failings that contribute to these vast areas of waste. In the last Budget in March, the Chancellor repeated the completely failed policy of all his recent predecessors by introducing further tax breaks in the hope of spurring much-needed business investment. These handouts totalled £29.7bn beginning in this year and over the following three years.

As Hunt will discover, like his predecessors, there will be no discernible uplift in the rate of business investment at all.

In effect, this amounts to just a gift of taxpayers’ money to businesses, many of whom are already enjoying vast profits from “greedflation” or blatant profiteering. We are getting nothing in return.

In passing, it should be noted that these handouts to businesses alone would cover the cost of scrapping the benefit cap, introducing universal free school meals, and a 10.5 per cent public-sector pay rise together. But these are not the government’s choices or priorities.

HM Revenue and Customs also admits that the “tax gap” — the amount of tax that should be collected (primarily from businesses and the rich) but which is not received — is £35.8bn in the latest financial year.

Other independent campaigners put the total far higher. A tiny investment in the number of tax inspectors and their operating systems would reap a huge return.

These alternatives are purely illustrative. There are many more areas where spending should be increased to benefit the population, as well as areas where they could be cut without any harm. There are also vastly greater revenues that could be collected, and none of them needs to fall on middle-income or low-income earners.

The overall balance of taxation is also completely wrong. Under Blair, corporate profits’ tax revenues amounted to about a quarter of the combined total of income tax and VAT. Now it is a fifth.

Returning it to the previous ratio would yield about an extra £20bn, even more if the were returned to nothing more radical than the early Thatcher years.

Above all, the labour movement must not allow itself to be misled or distracted by the terms of the official debate about the economy and about fiscal policy. It is an economy that is dependent on the efforts of working people and ought to be run much more in their interests.

No other country in the world has the equivalent of the two-child benefit cap. Where welfare provisions exist, they are generally allocated on the basis of need.

Yet David Cameron explicitly justified the cap on the basis of driving more poor families into work.

He completely ignored the fact that most working-age benefits go to people who are in work but are blatantly underpaid. As a result, all that happened was that the policy added to poverty.

We can do much better than this.

Diane Abbott is MP for Hackney North and Stoke Newington. Follow her on Twitter @HackneyAbbott.