François Miliband

IN MOST parts of the British economy, £100m ($166m) is a useful sum of money—enough to build half a dozen schools or even buy a couple of decent strikers in the English Premier League. It would not, however, make much of a dent in the British government’s £100 billion budget deficit. And £100m is all that Labour’s latest bout of business-bashing—a pledge to put the top rate of income tax from 45% back up to 50%—will probably bring in. The hit to Britain’s prospects as a place to do business is likely to be many times that sum.

This is not, however, primarily about economics. The 50% rate is a political sop, thrown to Labour’s electoral base by Ed Balls, the shadow chancellor, to make up for the austerity measures that he has also, rather more vaguely, promised, many of which will hit poorer Britons. But it goes deeper than that. Ed Miliband, Labour’s leader, is moving his party to the left (see article). Unlike Tony Blair, who courted business relentlessly, Mr Miliband has decided to wallop unpopular industries. In recent months he has promised to freeze household energy prices, confiscate undeveloped land from house-builders, break up retail banks and launch state-funded competitors.

This lurch may be a matter of personal conviction for the “Red Ed” of the tabloids. But it is also an electoral gamble—that by bashing business he will energise the Labour base, and the infuriated working classes will carry him to victory over David Cameron’s unloved and elitist Conservatives. The electoral arithmetic gives Mr Miliband a good chance of succeeding, not least because the right-wing vote has been split by the insurgent UK Independence Party.

But the gamble may not pay off. The Tories will fight the election on Labour’s weak point—economic competence. No party has won an election while trailing on both the economy and leadership, as Labour now is. Picking a fight with business over top tax rates will not strengthen Mr Miliband’s hand, when his economic credibility is already in doubt. Even if taxing the rich generally goes down well, increasing taxes on the 1% of taxpayers who already provide 30% of income-tax revenue is not obviously as fair as Mr Balls claims it is.

Above all, there is a good chance that voters will realise the harm that all this could do. Although some of the problems that Mr Miliband wants to tackle—such as Britain’s self-defeating culture of short-termism—are real, his headline policies look neither prudent nor practical. Freezing energy prices and confiscating builders’ land would reduce investment in those industries when Britain needs more power stations and houses, not fewer. Mr Miliband’s views on the financial sector have already contributed to a fall in the share prices of state-backed banks, thus reducing the potential returns to taxpayers from selling them. And the proposed tax rise risks deterring investors at a time when confidence in Britain’s recovery remains more fragile than the Tories like to admit.

Some Scandinavian countries have got away with tax rates of over 50%. But Britain would be at a disadvantage compared with bits of America (39.6% federal tax, with state taxes on top), Ireland (41%), Germany (45%) and even France (45% for most wealthy people; the infamous 75% rate kicks in only on salaries above €1m). And in financial services—where, whether Mr Miliband likes it or not, Britain’s competitive advantage lies—the country’s main competitors are Singapore, Hong Kong and Dubai, with income-tax rates of 20%, 17% and zero respectively. Although another 5p in the pound may not drive many Britons to move their families from the Home Counties to the Gulf’s arid shores, it will encourage foreigners who might have brought their brains and money to Britain to go elsewhere instead, and the country will be poorer for it.

Taking victory as red

To be fair, Mr Miliband has some better business policies—notably his proposals to boost apprenticeships and house-building. Having refused, so far, to match Tory promises of a referendum on Britain’s EU membership, Labour is also resisting the right’s harmful fantasies about Britain’s bright future outside the union. But the general direction is worrying.

François Hollande came to power in France as a business-bashing president. After nearly two years of entrepreneurial emigration and economic stagnation, he has just performed an abrupt U-turn: business is once more welcome at the Elysée and the 75% tax rate has been softened. Mr Miliband should change course before the election, rather than later.