These tax cut whispers are about to get louder

Bizarrely, abolishing the 50p rate remains top of the Chancellor's list.

With summer over, the skies are darkening in more ways than one. Economic forecasts, previously strong for this autumn, have long been heading south. Last week sharpened the sense of impending crisis. The FTSE has been shaken more violently than at any time since the paroxysms of early 2009. On Wednesday, unemployment stats took their biggest quarter-on-quarter leap since March 2009. The US and German economies are flat-lining.

Whatever your favoured explanation for our worsening economic plight, one thing is increasingly clear: the UK economy is propped up on pillows, in desperate need of a shot in the arm. It may not be fashionable to say it, but that shot needs to involve a pickup in consumption and domestic consumer confidence. Yes, that jars with the consensus narrative about the need to rebalance our economy towards exports and investment, away from domestic consumption. But in times like these there's no escape from the cold hard reality: household consumption still makes up two thirds of UK GDP. Whatever our need for medium-term rebalancing, domestic consumption will play the star role in either lifting the UK economy out of danger or pushing it over the edge.

You only have to look at the periods following previous recessions to see how far we are now wavering from the 'normal' path to recovery. Figure 2 in this recent blog post compares the four major recessions that have hit the UK in recent decades, looking at the path of household consumption from their onset. In each case, it was at around this point - 10 quarters on from the start of contraction - that the spark of consumer spending re-ignited. As would be expected following a "balance sheet recession"', our current path to recovery looks decidedly different. Today, consumer spending is not a rocket booster but a millstone.

This economic misery is being driven by the coincidence of two things: households are seeing their disposable incomes fall steadily in real terms at the same time as they continue to carry a massive burden of debt. That leaves them facing a stark choice. Either falling incomes mean less spending or households will have to eat into their savings or take on yet more debt. (New research from the Resolution Foundation out this week will confirm the startlingly poor savings position of Britain's low-to-middle incomes households and reinforces just how vulnerable millions of households are to any future rise in interest rates). Only a pick-up in real disposable incomes will gradually free us from this bind.

So how is this harsh economic reality set to play out in our politics? Amidst all the unpredictability, we can be confident about one thing: in the coming months the current Westminster chatter about tax cuts will become louder and more volatile. Expect arguments over timing, over who to target, the potential impact on consumer confidence and spending, and perhaps loudest of all, over how any cut could be paid for.

In macroeconomic terms, of course, any plausible move on tax will pale in comparison to the decisions the Bank of England makes on further quantitative easing. But in the context of a long squeeze on living standards, all political parties have long realised that the lure of a targeted reduction in taxes for at least some groups would eventually become irresistible. Deteriorating economic news may expedite this.

So what's on the agenda? Bizarrely, given the economic context, the abolition of the 50p rate remains top of the chancellor's list, with a review set to report in the autumn as cover for a move. Even leaving aside the glaring question of equity, there will be grave doubts about the economic wisdom of trying to stimulate the economy - however modestly - with a tax cut for the very richest. Whatever you think of the 50p rate (and polls show that the public think quite a lot of it) cutting taxes for those at the very top is more likely to see money flowing into high-end savings accounts and central London property. By contrast, tax cuts for the bottom half of the working population - in particular those low income households who are now spending every penny they earn - are far more likely to help the high street.

Of course, the chancellor must know full well that, on its own, a tax cut for the richest 1 per cent would be the final nail in the coffin of his claim that "we're all in this together". If that is Labour's hope, there is a good chance they will be disappointed. It's no surprise, then, to see recent Lib Dem briefings talking up the idea of reintroducing the 10p rate of tax, backed by a clear message that they want to support those struggling on low and middle incomes.

Such a move may seem far-fetched but it has a powerful political logic. Many Labour backbenchers would retch at the prospect of Tories jeering from across the benches, hollering that they have put right the injustice of Brown's 10p abolition. The Lib Dems would of course revel at the prospect of claiming that it is they who have dragged the government's tax strategy in a more progressive direction.

Could it prove possible to make any sort of move on both 10p and 50p? That would be a significant fiscal stretch. It will depend in large part on the state of the economy; though paradoxically, if things suddently get worse, measures that currently sound implausible could gain a new respectability. It will also depend on whether the Coalition is willing to raise compensating tax revenue in a way that doesn't tilt the economy downwards. For that reason it's significant that some Lib Dems are now briefing aggressively in favour of a wealth tax (as well as green taxes) - and that prominent Tories are pitching in their penny's worth, from outright hostility from some cabinet ministers to more thoughtful support from commentators.

Of course, as the debate heats up, other options will also rise to the surface. For all its economic and political superiority over a tax-cut for the very richest, there are reasons to question the reintroduction of the 10p rate. Some will argue, for example, that reversing cuts to tax credits would better target money to those most in need. The fiscal position, combined with an unwillingness to raise other taxes, may in the end scupper any move in the near future in any case. But wherever the debate ends up, one thing is already becoming clear as the summer wanes: this game of Westminster whispers is set to get a whole lot louder.

Gavin Kelly is Chief Executive of the Resolution Foundation. James Plunkett (twitter.com/#!/jamestplunkett) leads the Foundation's Commission on Living standards.

GETTY
Show Hide image

How Devon's humpback whale is dredging up the politics of the sea

The arrival of a humpback whale at Slapton Sands has caused a local splash. But the history of the village has a warning for those who think of the sea as spectacle alone.

The Devon coast road from Dartmouth to Torcross is as pretty as it is treacherous. After winding through a cliff-top village, the road ahead falls away to reveal a giant lake – the Slapton Ley - flanked by green hills on one side and ocean on the other. 

Tourists (or "grockles") gasp at the view and, in recent weeks, even locals have been staring out to sea - where a giant humpback whale has taken up residence in the bay.

Not seen at Slapton in living memory, the whale has swum into rural stardom. Hundreds have lined the beach with cameras and telescopes. The nearby pub and farm shop have seen levels of trade only usually enjoyed in the summer.

According to Keith Pugh, (the ice-cream-van-man who has been keeping the crowds supplied with tea) one lady from Plymouth caught the bus here every day for six weeks just to catch a single glimpse. That’s a four-hour round trip.

If this all sounds a bit fishy, that's because it is. Experts believe that the whale is feeding on the bumper numbers of small fish and mackerel that have been reported in the area. But even these are behaving in unexpected ways. “The mackerel are further north than usual for this time of year,” says Mark Darlaston, a photographer who first identified the whale as a humpback (and jokingly named it after storm “Doris”).

So what is the humpback up to, so far south of its northern feeding grounds? And should its presence be seen as a sign of recovery - for whales and UK waters in general? 

Not yet, say conservationists. And not if the history of Slapton is anything to go by.

Troubled waters

Villagers at Torcross, at the far end of Slapton sands, are familiar with secrets from the deep. In 1944, a military training in the bay went horribly wrong, when nearly 1,000 American servicemen were drowned. The tragedy was hushed up for decades.

But the greatest threat to the community comes from mismanagement of the sea itself. On 26 January 1917 the entire neighbouring village of Hallsands was swallowed by a storm. The tragedy was partially manmade. The underwater sandbanks, which had helped protect the shore from longshore drift, had been thoughtlessly dredged to supply building materials for the Plymouth docks. Some 660,000 tonnes of material were removed and never replaced.

The results of that plunder are still felt at Slapton today. In 2014, a gale-force storm swept away part of the road that runs between the sea and the ley. Just last year, the seawall at Torcross crumbled, as the protective beach beneath was carried away by waves.

Into the Brexit deeps

So much in our oceans is tightly connected to human activity. If whales are a rare sight on the UK coast, it is partly because of the human campaign against them for many years in the form of whaling. According to Sally Hamilton from the conservation charity Orca, the 1980s moratorium on whaling has helped some populations to recover. 

But others are still fighting to survive in the face of pollution, noise, and over-fishing. The UK’s last resident pod of killer whales looks likely to die out after high levels of PCB chemicals have stopped the females reproducing. In Norway, a stranded whale was found to have over 30 plastic bags blocking its digestive system.

There is also no certainty that the glut of fish that the whale is feeding on will come again next year. “There is still masses we don’t understand about the ocean,” says Will McCallum from Greenpeace, “Climate change and the threat of over-fishing mean that where fish are moving to is more unpredictable that it has ever been.”

And it's not just whales that could get caught out. Some UK politicians have demanded that a Brexit deal include blocking foreign vessels from fishing in British waters. With 58 per cent of UK-caught fish caught by non-British fleets, it is argued that a ban would benefit the UK industry.

But with migration patterns becoming more erratic, McCallum is sceptical. "Re-territorialising our waters would be an absolute potential disaster because we just don’t know where fish stocks are going to move," he says. 

Out of the Blues

At Torcross, the sea has long been a source of worry. Claire, the landlady at the Start Bay Inn, recalls the many storms that have pelted the seafront pub since she was a child. Just last year she was “running from one end to the other” trying to sweep the water out, while bottles rattled and the chip-fryer shook.

So it was perhaps unsurprising that news of the whale’s arrival first met with local concern. “I can’t bear to see it,” one woman tells me. She had read in the press that it had come so close in to shore to “beach” itself and die, and heard rumours it was in mourning for a lost calf.

But thanks to the investigations of Mark Darlaston and the divers at the British Divers Marine Life Rescue, such fake whale-news has been corrected - and its visits are fast becoming a source of wider hope. The owner of the Stokely farmshop has joked about replacing it with a decoy “nessie” when it leaves. Claire cannot wait to put its picture on the front of her menus (where the picture is currently of the recent storm).

It is not yet known what lies ahead for Brexit fishing policy, or for whales. But dip into the history of the village of Torcross, and it's clear that understanding and protecting the sea is inseparable from protecting ourselves.

India Bourke is an environment writer and editorial assistant at the New Statesman.