by Anthony Painter
If the leaks turn out to be true, we are facing one the most radical Budgets in living memory. The abolition or reduction of the 50p rate, regionalisation of public sector pay, increasing the personal allowance, and the introduction of “tycoon tax” (ie: minimum tax rate for all) is a major package of reform. As soon as George Osborne stands up, the framing battle will commence. What should Labour’s line be?
I’ll put my personal allowance tax saving on the fact that the line will be “fairness”. Ed Miliband and Ed Balls will focus on the abolition or reduction of the 50p tax rate. They will say this proves we are not all in it together; one rule for the rich and one rule for the rest of us. They will follow with a flurry of numbers about how the average family has been hit by the Tory-led government’s tax and spending changes since 2010. Labour would tax banks, protect tax credits and reduce VAT. The Tories favour the rich over the rest.
When George Osborne announced the VAT increase, the reaction was pretty much the same. The party HQ printing presses went into overdrive even while the leadership election was on and off Labour went. People didn’t want VAT to increase and they don’t want the 50p tax rate abolished. So it’s a no-brainer, right?
The problem is that it didn’t work.
Labour cries “unfair” at every possible opportunity. People know that Labour thinks everything the government has done is “unfair”. A good portion of the population think it is unfair too. One problem is that they take “fairness” to mean a slightly different thing to Labour. They take it mean reciprocal fairness: you should receive in accordance with your contribution. Labour means distributional fairness: the poorer you are, the more you should get. That is why Labour’s cris de coeur about fairness slightly miss the mark.
There is another approach: attack the government’s fiscal and economic decisions. The package of measures which is rumoured undermines fiscal consolidation and economic growth.
People have accepted in the main that while the cuts may be unfair in many ways, they are necessary. This would seem to be the weak spot that enables any 50p tax cut to be politically attacked. The simple fact is that it is fiscally ill advised – it undermines the fiscal consolidation message.
The HMRC will show how hundreds of millions were raised by the 50p rate in 2010-11 instead of the £2.6billion forecast by HM Treasury. It’s obvious why. Earnings were shunted into tax year 2009-10 in order to avoid the new tax rate in 2010. Since then earnings have been left on company books rather than being shifted to personal accounts in anticipation of its abolition.
It is very easy to shift your earnings form one year to the next or into share schemes and the like if you are an upper earner. There are one or two high profile people in the Labour party who could tell us all about how to avoid tax. It generally involves setting up a company.
So the take from the tax in 2010-11 will be much lower as a result of this earnings shift. There are two possible responses to this. You either make the tax permanent or you could link its abolition to a return to fiscal sustainability.
If your message is one of fiscal responsibility then it makes sense to abolish the rate once you have met a fiscal target, e.g. the elimination of the cyclically-adjusted structural current deficit. All being well, this will be sometime in 2016-17. If people want to wait until then to extract their earnings from their business so be it. In the meantime, we’ll still be taking somewhere in the region of £1 to £3 billion at a guess – not to be sniffed at.
Then Labour could applaud the “tycoon tax” as long as it is applied to all income, earnings, dividends, rents, capital gains etc. The personal tax allowance increase benefits middle and upper middle earners more than it does lower earners. Labour’s criticism that it should be targeted on the poorest rather undermines the “squeezed middle” message. Don’t oppose for opposition sake. However, any increase should be funded by tax increases for the wealthy, not spending cuts for all.
Finally, go for the economic impact of the Budget. The economic gains of eliminating the 50p are often asserted but rarely proven. There will be some marginal impact – a tiny proportion will no longer move to Geneva – but the fiscal hit is a greater concern.
The major economic craziness is the proposal on the regionalisation of public sector. While there will be some (marginal) gains as the private sector becomes more attractive in some areas, the overall economic loss is greater. Skills aren’t always readily transferable – how many teachers will give estate agency a go? The proposal will simply suck demand out of local economies as wages are hit. This in turns impacts jobs, investment, skills and growth. It also widens regional economic divides.
There is an argument for different pay in different regions so there is an efficient spread of skills within the public sector. However, the economically sane approach in regions is to level up pay. Trade unions are weaker and pretty nonexistent in many areas of the private sector. The state should be encouraging investment in skills and better wages for all instead of trying to force down the wages for skilled people.
When are we going to have a national argument about the fact that higher wages means more demand, more investment, and more incentive to invest in skills? Surely that’s better than the Tory-led government forcing the hollowing-out of the middle classes at an even greater rate than we have experienced. Instead of destroying middle class incomes, we should be creating more opportunity to earn at middle class levels for those in the private as well as public sector.
Imagine Labour arguing that the Budget takes unnecessary fiscal risks, makes huge economic mistakes and creates less opportunity for people to earn middle-class wages. It is anti-social mobility. Compare that, in terms of political impact, with a “fairness” message. The temptation is to keep the same framing over and over again. But when something’s not working, it’s time to change course.
Anthony Painter is an author and a critic.
Tags: 50p tax rate, Anthony Painter, Budget 2012, fairness
The 50p rate didn’t bring much in and was a bind to administer.
Lets have a proper debate.
Excellent post, Anthony. I expect Labour to stick with the ‘fairness’ approach – everyone understands ‘fairness’ in their own way so this means Labour can be all things to all people and avoid policies that some may dislike.
The suggestion in your final paragraph sounds way too radical for New Labour.
I’m with Tom Harris on this, i was agaisnt the 50p when it was itnroduced, but to cut it now would be worse
“However, the economically sane approach in regions is to level up pay.”
The “economically sane approach” is to pay more than you need to? Really?
It occurs to me that if you wanted to transfer wealth from southern England to the rest of the country you could cut income taxes outside southern England.
“swatantra says:
March 18, 2012 at 11:35 am
The 50p rate didn’t bring much in and was a bind to administer.
Lets have a proper debate.”
You could offer some evidence for those two statements for starters.
“There is another approach: attack the government’s fiscal and economic decisions. The package of measures which is rumoured undermines fiscal consolidation and economic growth.”
So you’ve missed two years worth of speeches from the Shadow Chancellor?
“People didn’t want VAT to increase and they don’t want the 50p tax rate abolished. So it’s a no-brainer, right?
The problem is that it didn’t work.”
Didn’t it? Labour has a 7 point lead in the latest poll. You’re not going to tell me they should be 30 points ahead, or something, are you? It’s not a bad performance at all, having come out of a terrible election result and not having an obvious leader in waiting.
Didn’t miss much from Balls then.
The problem is that Tories have wrongly defined Labour as the Party that uses taxes to support people who choose not to work, And the extra jobs have gone to immigrants from EU countries. Labour must show that it is on the side of working people by encouraging Trade Union membership, higher wages and simpler fairer taxes on wages including the removal of tax saving loopholes that ordinary workers ever access. Mandelson was right to say he was relaxed about people getting rich SO LONG AS THEY PAY THEIR TAXES = people forget the second part.
please amend previous post second last line “ever” should read “never “
The problem with that message, Anthony, is that it would perhaps hit home in the south, but would be utterly meaningless up here, and whilst Labour really can do without a lot of southern votes and win an election (we’re not going to win them, so lets stop kidding ourselves that Bournemouth or Maidenhead are about to turn red), we really can’t afford to turn off any of the voters who have added to our number since the 2010 election.
The strategy needs to be to gain a working majority – stuff the outside-chance seats we don’t need who are largely happy with what the Tories are doing in any case.
Hope Ed continues to reject your way forward