James Forsyth reviews the week in politics
The coalition has a problem communicating with the middle classes. As 20 October and the spending review approaches, the government’s message to other groups in society is easy to understand. The vulnerable will be protected from the cuts. Low earners will be allowed to keep more of the money that they make. But what about Middle England? It is much harder to discern what the coalition wants to say to them.
Politically, this is a dangerous vacuum. It is easy to see why anxious bourgeois voters — and there are many of them — might think that the coalition is going to attempt to balance the budget by lumping an unbearable fiscal burden on their backs.
Sensing weakness, Labour’s leadership contenders have already started talking about how the government is trying to take away the middle-class bits of the welfare state. They point to how child tax credits have been taken away from those on more than £30,000 a year and how the winter fuel allowance is going to be restricted. Whichever Miliband becomes leader, the idea that the coalition is short-changing the middle classes will be a major part of Labour’s critique of the government. Counter-intuitive as it may seem, Labour aims to emerge as the protector of the middle classes from the coalition cutters.
David Cameron has already made clear his vision of the welfare state. In Manchester last month, he said that the government must ensure that state-funded initiatives benefit ‘the people who need help the most’. He bemoaned how ‘the sharp-elbowed middle classes — like my wife and me — get in there and get all the services’. Never mind Cameron’s description of himself as middle-class — a quote that prompts wry chuckles from his colleagues — the remark underlined the Prime Minister’s view that the welfare state should not provide extras for the middle classes.
This position could have widespread appeal if it were accompanied by a reduction in the tax burden. But because of the state of the public finances, the coalition has ruled out any tax cuts until 2015 at the earliest. The middle classes, it is increasingly clear, will be expected to pay more in return for less.
In truth, the coalition has put forward policies that do benefit the middle classes — its deficit reduction strategy will keep interest rates low, its first Budget cut income tax for everyone on less than £44,000 a year and its education reforms will produce better schools. The Tories are reluctant, however, to spell out exactly how these policies might assist the middle classes for fear of upsetting the Liberal Democrat left.
Take the plan to raise the income tax threshold to £10,000. The coalition talks about this Liberal Democrat idea as something that helps the low paid by lifting them out of tax altogether. This is true, of course, but it is less than half the story. The total cost of this change will be just over £17 billion, and £16 billion of that will go to those who earn over £10,000 a year: you still benefit from this change if you earn £40,000 a year as your amount of tax-free income is increased. But the Liberal Democrats do not like to stress this point because they want to portray the reform as a policy designed to help the poor.
In this year’s Budget Osborne began the process of raising the threshold to £10,000, but he combined it with a freeze in the allowance for higher rate tax-payers. Even with this change, the policy benefits anyone who earns less than £44,000 a year. But coalition ministers are still reluctant to go on television to talk about how they have cut taxes for the middle classes.
Adding to this problem is the Conservatives’ complacency about their status as the party of the middle class. I have been told repeatedly by Tory insiders that the most important thing for the Conservatives is to show that ‘we are all in this together’ and that any talk of helping the middle class would be divisive. But with the next Labour leader about to launch a play for the middle classes, the Conservatives would be foolish to take their support for granted. The Conservatives must show that they are still the party of aspiration.
The Tories are on stronger ground when they claim that the middle classes will benefit from the general thrust of their economic policy. Reducing the deficit will allow monetary policy to stay loose and interest rates to be lower for longer. This will help both small businesses who need to expand and homeowners trying to pay their mortgages. At the same time, the plan to give Britain the lowest level of corporation tax of any major Western economy will bring more well-paid private sector jobs to Britain. If fiscal consolidation sets the economy on a stronger path, the middle classes are bound to benefit. They will also be helped by the coalition’s schools policy, which will, in time, improve the quality of state-funded education.
Tackling the deficit is, as Osborne’s allies are fond of saying, a question of political economy. This is why Osborne has left in place measures that are not economically productive, such as the 50p tax rate. They are meant to help maintain public support for the deficit reduction package in the round.
But the coalition should not be embarrassed about explaining what it is doing to help the squeezed middle; tax cuts for those earning less than £44,000 a year can hardly be portrayed as bungs to the Tories’ rich friends. If the coalition wishes to keep an electoral majority on its side, it needs to reach out to the middle classes. Mr Cameron should not risk finding out how sharp those elbows can be.
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