Taxing times for the coalition (contd...)

The £7bn of pension tax relief that Osborne won't cut.

Just in case there was any risk of the coalition row on tax policy cooling down for a day or two, along comes a new report today, Tax and the Coalition, to fan the flames.

We do, of course, need to bear in mind that in this choppy pre-party conference period, there is bound to be a rash of publications appealing to the party faithful and burnishing the author's credentials in their eyes. Nonetheless, Lord Newby -- author of the report -- is a well connected Liberal Democrat peer and tax-expert, known to be close to Vince Cable. His report pulls no punches. The 50p rate must be preserved until fiscal consolidation is achieved; the Laffer-curve economics of those on the right calling for its abolition is dismissed; and a raft of tax raising measures are proposed that would hit the seriously affluent including a mansion tax on properties over £2m (served up with a swipe against Eric Pickles), an increase in capital gains tax, a land value tax, and further anti-avoidance initiatives.

Most will view all this as yet another twist in the 50p tax-rate saga, but more interesting -- and ultimately more important -- is the proposal to abolish higher rate tax-relief for pension contributions. A massive £7bn is still spent on this staggeringly regressive policy (benefiting only the richest 12 per cent of tax payers).

The long-standing defence of higher rate tax-relief, such as it is, has been that it is needed to avoid a form of 'double taxation' - paying tax on the income from your pension at a higher rate than the relief received when contributions were first made. Newby gives this short shrift, arguing that it would only apply to a vanishingly small number of people (he estimates that someone would have to have a pension pot of over £1.35m before this would occur). Massive spending on higher rate tax-relief is a luxury for the affluent that shouldn't have been allowed to grow so much in the good times and certainly can't be afforded in the bad.

It's important to put the generosity of this £7bn into the context of our long term "pensions crisis" for those on low-to-middle incomes ("crisis" is horribly overused in today's politics, but not silly in this instance). A flow of reports have highlighted the extent to which British households are failing to save enough to guarantee an adequate income in retirement, and the ONS has pointed out that over a million people have stopped contributing to personal pensions over recent years. Two out of three of those on low-to-middle incomes are not contributing to their own pension. The combination of chronic under-saving and rapidly increasingly life expectancy, if left unchecked, will condemn a generation of pensioners to poverty in retirement.

There is a major program of private pension reform in the pipeline, not least automatic enrolment starting from 2012. But there is deep concern about the capacity of those on low-wages to actually make their contributions given the wider squeeze on household finances and current levels of indebtedness. And the scale of the incentives on offer to encourage them to do so will be relatively modest.

Today's report is a reminder that the 2010 Liberal Democrat manifesto committed to abolish higher rate pensions tax-relief, so that everyone would receive tax-relief at the basic rate. (Indeed some within the Labour negotiating team at the time of the coalition talks saw the Lib Dem proposal as a welcome opportunity to rebalance resources away from the most affluent). Since then, we've heard precious little from the coalition on this issue other than a (sensible) tweaking of the Labour government's belated commitment to restrict but not abolish tax-relief for the seriously rich: the policy is now to reduce the annual tax-deductible allowance from £255,000 to £50,000 and the lifetime allowance from £1.8m to the measly sum of £1.5m. Indeed, on this major element of public expenditure, the coalition appears almost uniquely reticent to make further savings (when it comes to tax-reliefs, small-staters often become big-spenders). Next time a minister says that, sadly, they have no alternative to cutting back this or that programme aimed at the disadvantaged, let's hope someone asks them why this £7bn is so untouchable.

So what might we glean about wider tax politics from today's report? First, it is a stark reminder of the precarious ideological balancing act that Clegg presides over within his party and in the coalition. Many on the Labour benches would happily agree with the great majority, if not all, of Newby's proposals. Rest assured, the same cannot be said of the Conservatives.

Second, it brings home how little thinking about long-term tax reform is coming out of Labour circles at the moment. The abolition of higher-rate tax relief should be just one element of this, and a rather obvious one, so it is surprising that Labour appears content to cede this territory to the Lib Dems. The savings on offer could be used for any number of good purposes -- not least in the short term, for a targeted tax-cut for low-to-middle income families; and in the longer term providing stronger incentives to encourage these households to save.

Third, the Lib Dem and (in-time) Labour leaderships are likely to view this £7bn as low-hanging fruit when they start to search for resources to pay for their next manifestos. So if the Conservatives think the abolition of higher-rate relief is a bridge too far, they risk starting the next election campaign with a black hole of £7bn relative to their rivals. This will, at some point, trouble them, so they will also have to think long and hard about whether they can themselves make further cuts before then.

Finally, it highlights the pivotal role that the policy of raising personal allowances has played in yoking together the coalition in support of a totemic tax-reform measure in the early part of the parliament. And it suggests how hard it will be for them to find a "phase 2" tax policy which provides the same political adhesive. Anyone who thinks that coalition relations on tax will be plain sailing once the issue of the 50p rate is finally resolved needs to think again.

Gavin Kelly is chief executive of the Resolution Foundation.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

Getty
Show Hide image

25 times people used Brexit to attack Muslims since the EU referendum

Some voters appear more interested in expelling Muslims than EU red tape.

In theory, voting for Brexit because you were worried about immigration has nothing to do with Islamophobia. It’s about migrant workers from Eastern Europe undercutting wages. Or worries about border controls. Or the housing crisis. 

The reports collected by an anti-Muslim attack monitor tell a different story. 

Every week, the researchers at Tell Mama receive roughly 40-50 reports of Islamophobic incidences.

But after the EU referendum, they recorded 30 such incidents in three days alone. And many were directly related to Brexit. 

Founder Fiyaz Mughal said there had been a cluster of hate crimes since the vote:

“The Brexit vote seems to have given courage to some with deeply prejudicial and bigoted views that they can air them and target them at predominantly Muslim women and visibly different settled communities.”

Politicians have appeared concerned. On Monday, as MPs grappled with the aftermath of the referendum, the Prime Minister David Cameron stated “loud and clear” that: “Just because we are leaving the European Union, it will not make us a less tolerant, less diverse nation.”

But condemning single racist incidents is easier than taking a political position that appeases the majority and protects the minority at the same time. 

As the incidents recorded make clear, the aggressors made direct links between their vote and the racial abuse they were now publicly shouting.

The way they told it, they had voted for Muslims to “leave”. 
 
Chair of Tell Mama and former Labour Justice and Communities Minister, Shahid Malik, said:

“With the backdrop of the Brexit vote and the spike in racist incidents that seems to be emerging, the government should be under no illusions, things could quickly become
extremely unpleasant for Britain’s minorities.

“So today more than ever, we need our government, our political parties and of course our media to act with the utmost responsibility and help steer us towards a post-Brexit Britain where xenophobia and hatred are utterly rejected.”

Here are the 25 events that were recorded between 24 and 27 June that directly related to Brexit. Please be aware that some of the language is offensive:

  1. A Welsh Muslim councillor was told to pack her bags and leave.
  2. A man in a petrol station shouted: "You're an Arabic c**t, you're a terrorist" at an Arab driver and stated he “voted them out”. 
  3. A Barnsley man was told to leave and that the aggressor’s parents had voted for people like him to be kicked out.
  4. A woman witnessed a man making victory signs at families at a school where a majority of students are Muslim.
  5. A man shouted, “you f**king Muslim, f**king EU out,” to a woman in Kingston, London. 
  6. An Indian man was called “p**i c**t in a suit” and told to “leave”.
  7. Men circled a Muslim woman in Birmingham and shouted: “Get out - we voted Leave.”
  8. A British Asian mother and her two children were told: "Today is the day we get rid of the likes of you!" by a man who then spat at her. 
  9. A man tweeted that his 13-year-old brother received chants of “bye, bye, you’re going home”.
  10. A van driver chanted “out, out, out”, at a Muslim woman in Broxley, Luton
  11. Muslims in Nottingham were abused in the street with chants of: “Leave Europe. Kick out the Muslims.”
  12. A Muslim woman at King’s Cross, London, had “BREXIT” yelled in her face.
  13. A man in London called a South Asian woman “foreigner” and commented about UKIP.
  14. A man shouted “p**i” and “leave now” at individuals in a London street.
  15. A taxi driver in the West Midlands told a woman his reason for voting Leave was to “get rid of people like you”.
  16. An Indian cyclist was verbally abused and told to “leave now”. 
  17. A man on a bike swore at a Muslim family and muttered something about voting.
  18. In Newport, a Muslim family who had not experienced any trouble before had their front door kicked in.
  19. A South Asian woman in Manchester was told to “speak clearly” and then told “Brexit”. 
  20. A Sikh doctor was told by a patient: “Shouldn’t you be on a plane back to Pakistan? We voted you out.”
  21. An abusive tweet read: “Thousands of raped little White girls by Muslims mean nothing to Z….#Brexit”.
  22. A group of men abused a South Asian man by calling him a “p**i c**t” and telling him to go home after Brexit.
  23. A man shouted at a taxi driver in Derby: "Brexit, you p**i.”
  24. Two men shouted at a Muslim woman walking towards a mosque “muzzies out” and “we voted for you being out.”
  25. A journalist was called a “p**i” in racial abuse apparently linked to Brexit.