Until the Tories move on tax, they'll be vulnerable to being outflanked
James Forsyth 6:28pm
The most interesting conversation in Westminster right now is what a new Labour leader could do to restore the party’s fortunes. One idea that could be particularly politically potent is a bold move on tax.
Since Labour came to power, the number of people paying the top rate of tax has pretty much doubled. Brown has kept Labour’s 1997 manifesto promise not to raise the top rate of income tax but he has done so at the cost of making more and more people pay tax at the top rate; a typical Brown dodge. This fiscal drag has had the same effect as an actual tax rise and resulted in people who are not earning huge amounts of money—police inspectors, for example, who earn in the mid 40 thousands—paying the top rate.
A new Labour leader could make a play for the middle class and break with Brown’s numerical manipulation by announcing that no one who earns less than £50,000 a year would pay tax at 40 percent. This would involve moving the amount at which people enter the higher tax band from £34,600 to £44,000. (The £50,000 sum is reached by adding in the personal allowance which will be a touch over £6,000 this tax year.)
This move would take 580,000 people out of the top rate of tax; it would be a significant middle class tax cut hitting precisely the kind of demographic that decides elections. It would also position Labour as an aspirational party.
On a static calculation, this policy would cost £2.5 billion. The move has to be notionally revenue—seeing as, realistically, Labour won’t cut public spending; is ideologically sceptical of the dynamic benefits of tax cuts; and is wary of being accused of offering a tax bribe. It could be paid for by introducing a new 45p top rate of tax for those earning more than £175,000 a year. (Again this is a static not a dynamic calculation, you would probably earn very little revenue from such a move).
If Labour did this the Tories would be in a right pickle. They would want to agree with taking people out of the 40 percent band but they wouldn’t want to support raising tax on the very rich. They couldn’t just do the former but not the latter as they have talked themselves into a rhetorical corner by denouncing unfunded tax cuts in such harsh terms. Opposing what is effectively middle class tax cut to prevent taxes being raised on hedge fund managers, investment bankers and the like would be politically crazy. The Tories proved how politically successful redistribution from the super-rich to the middle class can be last year when they promised to raise the inheritance tax threshold to a million pounds and pay for it by introducing a levy on non-doms.
My point is not that the Tories should be seeking a new top rate of tax for the ‘super-rich’ but that they need to offer a middle class tax cut or risk handing a new Labour leader an early and potentially hugely important political triumph. If the Lib Dems can promise to cut public spending by £20 billion, the Tories should be able to find the £2.5 billion necessary to lift 580,000 people who should never have been it in the first place out of the top rate of tax.
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Nick Kaplan
September 17th, 2008 7:01pm Report this comment1)The Lib Dems are not offering to cut public spending by £20 billion.
2) Labour MP’s, party members and trade unions are unlikely to vote for someone who is going to decrease taxes for the middle class rather than reversing the decision to abolish the 10p tax rate.
3) The middle class would see such a policy for exactly what it is; a cynical ploy to buy votes with other people’s money by a party who have never before expressed a serious interest in the concerns of this group.
4) The press would probably highlight just how economically stupid it would be to start creating economic disincentives during the coming economic storm.
Somehow I really cannot see this as being something the Tories should get too worked up about.
John Page
September 17th, 2008 7:06pm Report this commentThe richer middle classes will probably vote Tory anyway. The Tories need to get votes from the less well off. They could look at raising the tax threshold. Or maybe they could introduce a 10p tax rate?
TrevorsDen
September 17th, 2008 7:23pm Report this commentMaybe we should wait until after the appropriate speeches at the conference.
A new labour leader may well promise tax cuts. Where will the money come from?
And these would be the same labour leaders who sat on their hands as Brown made a mess of our economy would it? Maybe Jack Straw who ran Browns election campaign.
Forgiving lot our electorate ...
Max Usher
September 17th, 2008 8:30pm Report this commentHow have you made your calculations? Where can you asess the impact of income yax manipulations of this sort, even if they are (as you say) staic rather than dynamic calculations.
Hysteria
September 17th, 2008 9:01pm Report this commentbut you have assumed a tax cut needs to be balanced by a tax rise. What about a reduction in spending ?
Emil
September 17th, 2008 10:40pm Report this comment45p for those earning £175K?
Since these guys all have top accountants they (through many perfectly legal methods) only pay what they want to anyway.
Fergus Pickering
September 18th, 2008 3:23am Report this commentThere is not a snowball's chance in Hell of Labour doing what you say. Anyway, why shouldn't people earning £40,000 year pay a little bit more tax? Lovely word 'aspirational'. It means, quite rich and hoping to get very rich, doesn't it? Lawyers and doctors and chaps in the city.
Tim Carpenter LPUK
September 18th, 2008 8:42am Report this commentWhat do you mean "tax bribe"? You cannot bribe people by no longer taking quite so much of their own money!
You can buy votes (bribe if you will) using welfare and vast recruitment (800,000 "salaried unemployed" since 2001). You can make people beholden using selective tax credits to "pet" sections of the community, for sure, but that, and alterations in tax banding, is never a bribe. A one year winter fuel allowance is most certainly vote buying, a bribe and I am astonished that NL were allowed to get away with it.
It is like saying that the Mafia is bribing if it asks for less protection money from wealthy Sicilian shopkeepers vs poorer ones. How absurd is that.
Michael
September 18th, 2008 11:48am Report this commentI agree with John Page. The Tories could announce that they will re-introduce the 10% band and pay for it by raising the 20% to 22%. They could use Gordon Brown's old speeches back in 2005 or whenever it was he introduced the 10% band.
What could he say?
Lord Elvis of Paisley
September 18th, 2008 11:59am Report this commentFergus Pickering "There is not a snowball's chance in Hell of Labour doing what you say. Anyway, why shouldn't people earning £40,000 year pay a little bit more tax? Lovely word 'aspirational'. It means, quite rich and hoping to get very rich, doesn't it? Lawyers and doctors and chaps in the city."
Sorry, but they aren't paying a 'little bit more tax'. As soon as you hit the £40,000 figure, you're paying a LOT more tax, the net result of which is that somebody on a wage of £39K is effectively better off than somebody who just slips into the £40K band. It doesn't make sense, and neither does your argument.
And if you think earning £40,000 makes you 'quite rich', well you obviously live in some fantasy twin-dimension world to the rest of us.
John de Finchley
September 18th, 2008 1:44pm Report this commentYou're forgetting that if there's anyone the average Labour supporter hates more than someone on £175,000 a year, it's somebody on £50,000 a year.
Won't fly with the envy-ridden feral oiks who are the Labour Party grassroots.
Arthur
September 18th, 2008 5:25pm Report this commentWe don't need tax cuts; we need reductions in government spending. When the budget is balanced and then in surplus, we can think about reducing taxation as our debt is reduced.
Anything else would be gesture and gimmick politics from a bankrupt political elite. But then we Brits are so stupid we will probably fall for it.
Rory Sutherland
September 21st, 2008 1:14pm Report this commentIf you aproach the problem from an ethical rather than an electoral standpoint, isn't it the people who are taxed on a household income of £15,000 a year who most deserve tax cuts? And the way to fund these things should not be (at least not at first) creating a super rate of 45%, but by simplifying the tax system and closing various loopholes. A tax on wealth (as opposed to salary) is not an insane idea, either, since many of the very rich can disguise their earnings as something other than income.
CS
September 29th, 2008 2:52pm Report this commentOoooh it's new James article, new danger again.
I swear that, if it were suddenly revealed that Cameron was the second coming of Christ, James would be warning how this could be be painting the Tories into a dangerous corner in case a new Labour leader converted to Islam.
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