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.

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No, Jeremy Corbyn did not refuse to condemn the IRA. Please stop saying he did

Guys, seriously.

Okay, I’ll bite. Someone’s gotta say it, so really might as well be me:

No, Jeremy Corbyn did not, this weekend, refuse to condemn the IRA. And no, his choice of words was not just “and all other forms of racism” all over again.

Can’t wait to read my mentions after this one.

Let’s take the two contentions there in order. The claim that Corbyn refused to condem the IRA relates to his appearance on Sky’s Sophy Ridge on Sunday programme yesterday. (For those who haven’t had the pleasure, it’s a weekly political programme, hosted by Sophy Ridge and broadcast on a Sunday. Don’t say I never teach you anything.)

Here’s how Sky’s website reported that interview:

 

The first paragraph of that story reads:

Labour leader Jeremy Corbyn has been criticised after he refused five times to directly condemn the IRA in an interview with Sky News.

The funny thing is, though, that the third paragraph of that story is this:

He said: “I condemn all the bombing by both the loyalists and the IRA.”

Apparently Jeremy Corbyn has been so widely criticised for refusing to condemn the IRA that people didn’t notice the bit where he specifically said that he condemned the IRA.

Hasn’t he done this before, though? Corbyn’s inability to say he that opposed anti-semitism without appending “and all other forms of racism” was widely – and, to my mind, rightly – criticised. These were weasel words, people argued: an attempt to deflect from a narrow subject where the hard left has often been in the wrong, to a broader one where it wasn’t.

Well, that pissed me off too: an inability to say simply “I oppose anti-semitism” made it look like he did not really think anti-semitism was that big a problem, an impression not relieved by, well, take your pick.

But no, to my mind, this....

“I condemn all the bombing by both the loyalists and the IRA.”

...is, despite its obvious structural similarities, not the same thing.

That’s because the “all other forms of racism thing” is an attempt to distract by bringing in something un-related. It implies that you can’t possibly be soft on anti-semitism if you were tough on Islamophobia or apartheid, and experience shows that simply isn’t true.

But loyalist bombing were not unrelated to IRA ones: they’re very related indeed. There really were atrocities committed on both sides of the Troubles, and while the fatalities were not numerically balanced, neither were they orders of magnitude apart.

As a result, specifically condemning both sides as Corbyn did seems like an entirely reasonable position to take. Far creepier, indeed, is to minimise one set of atrocities to score political points about something else entirely.

The point I’m making here isn’t really about Corbyn at all. Historically, his position on Northern Ireland has been pro-Republican, rather than pro-peace, and I’d be lying if I said I was entirely comfortable with that.

No, the point I’m making is about the media, and its bias against Labour. Whatever he may have said in the past, whatever may be written on his heart, yesterday morning Jeremy Corbyn condemned IRA bombings. This was the correct thing to do. His words were nonetheless reported as “Jeremy Corbyn refuses to condemn IRA”.

I mean, I don’t generally hold with blaming the mainstream media for politicians’ failures, but it’s a bit rum isn’t it?

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. You can find him on Twitter or Facebook.

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