Why Nick Clegg's still taxing Cameron and Miliband

The Lib Dem leader and the coming Budget.

It remains a curiosity of today's political scene that a small and unpopular party bumping along on 7 to 10 per cent in opinion polls is making the waves on the central issue of tax policy. On this one issue at least, the two main parties find themselves reacting to the gauntlet the Liberal Democrats have laid down.

Nick Clegg's recent speech to the Resolution Foundation making the case for going further and faster in reaching a personal tax allowance of £10,000 has been widely reported as a significant moment in the genesis of the forthcoming budget which due to the precarious position of the economy, and the increasingly creaky nature of the Coalition, is destined to be a highly charged affair both fiscally and politically.

Significant it may have been, but not for the rather mundane reason that the leader of the Liberal Democrats made the case for delivering on one of his central manifesto commitments as soon as possible. Dog bites man.

It was, however, noteworthy for three less commented upon reasons.

First, because it was an attempt to signal the end of the Liberal Democrats "give and take" strategy in relation to those on low and middle incomes. Up until now each rise in the personal allowance (or indeed progress on other Liberal Democrat priorities) has been funded in large part by cuts to tax credits and increases in taxes that particularly hurt the precise group the Liberal Democrats state they are seeking to help.

Hitherto this has completely neutered their claims to being a force for tax fairness. Clegg's new and unmistakeable message is that this time it will be different. From now on the wealthy should pay for further increases in the tax allowance - whether through wealth taxes, less avoidance or cuts in higher rate pension tax-relief.

If Clegg can make this approach stick -- and that is a very big if -- it makes additional increases in the personal allowance a different political proposition for both the Conservatives (a straightforward hit to some of their core support) and Labour (why oppose?).

That said, this new and potentially more progressive approach to funding increased tax allowances may well be completely lost on the public given that deep cuts to tax credits already in the pipeline (based on previous budgets that Clegg signed up to) will bear down on the working poor for years to come.

Second, Clegg's budget intervention represented the next stage in the Lib Dem's differentiation strategy. They expect, but still don't know for sure, that Osborne will agree to some progress on personal allowances. But even if they fail their judgement is that they would be better to do so having at least have looked publicly distinct (even if ultimately ineffectual), rather than seeming to meekly go along with whatever Osborne ends up announcing.

Playing your budget hand quite so openly is a high-stakes move, and not one borne from a position of strength.

Finally, Clegg's open air budget negotiations have certainly turned up the heat on Labour. Over the last few weeks there have been many more column inches written about Liberal Democrat-Tory budget disagreements then there have been about the opposition's position.

Moreover, Clegg has stolen a march on his opponents both in terms of being the leader talking about taxing the rich and the one reported as caring about cutting income tax on the low paid. Right now it is he who is occupying this large swath of political terrain -- more baggy centre, then squeezed middle -- which is about rebalancing the tax system so it better chimes with our straightened times.

Labour to date have been largely silent on this tax rebalancing argument, though Ed Miliband has been nodding towards the need for increased taxes at the top. Ed Balls' intervention yesterday was significant therefore not just in that it broadened out Labour's position on tax cuts from VAT towards other measures, like personal allowances, that the coalition might actually move on. But it also succeeded in inserting Labour into the middle of the Budget debate.

All three parties face some delicate judgements over the next four weeks. George Osborne will need to balance carefully his instinctive reluctance (and that of his backbenchers) to hand a major victory to Clegg with the potentially destabilising effects for the Coalition of the Liberal Democrats coming away with nothing.

Labour will need to strain to explain to a sceptical public how its call for large tax cuts in the here and now fits with its renewed determination to reclaim fiscal responsibility over the medium term, a theme which was so much in evidence at the turn of the year. And they rapidly need to come up with ideas of their own to prove it is they who are best placed to lead the debate on tax fairness.

Meanwhile Clegg desperately needs to show that he can convert his recent media momentum on tax reform into a Budget victory -- and, more than that, into an upward tick in the polls.

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

Photo: Getty
Show Hide image

Like it or hate it, it doesn't matter: Brexit is happening, and we've got to make a success of it

It's time to stop complaining and start campaigning, says Stella Creasy.

A shortage of Marmite, arguments over exporting jam and angry Belgians. And that’s just this month.  As the Canadian trade deal stalls, and the government decides which cottage industry its will pick next as saviour for the nation, the British people are still no clearer getting an answer to what Brexit actually means. And they are also no clearer as to how they can have a say in how that question is answered.

To date there have been three stages to Brexit. The first was ideological: an ever-rising euroscepticism, rooted in a feeling that the costs the compromises working with others require were not comparable to the benefits. It oozed out, almost unnoticed, from its dormant home deep in the Labour left and the Tory right, stoked by Ukip to devastating effect.

The second stage was the campaign of that referendum itself: a focus on immigration over-riding a wider debate about free trade, and underpinned by the tempting and vague claim that, in an unstable, unfair world, control could be taken back. With any deal dependent on the agreement of twenty eight other countries, it has already proved a hollow victory.

For the last few months, these consequences of these two stages have dominated discussion, generating heat, but not light about what happens next. Neither has anything helped to bring back together those who feel their lives are increasingly at the mercy of a political and economic elite and those who fear Britain is retreating from being a world leader to a back water.

Little wonder the analogy most commonly and easily reached for by commentators has been that of a divorce. They speculate our coming separation from our EU partners is going to be messy, combative and rancorous. Trash talk from some - including those in charge of negotiating -  further feeds this perception. That’s why it is time for all sides to push onto Brexit part three: the practical stage. How and when is it actually going to happen?

A more constructive framework to use than marriage is one of a changing business, rather than a changing relationship. Whatever the solid economic benefits of EU membership, the British people decided the social and democratic costs had become too great. So now we must adapt.

Brexit should be as much about innovating in what we make and create as it is about seeking to renew our trading deals with the world. New products must be sought alongside new markets. This doesn’t have to mean cutting corners or cutting jobs, but it does mean being prepared to learn new skills and invest in helping those in industries that are struggling to make this leap to move on. The UK has an incredible and varied set of services and products to offer the world, but will need to focus on what we do well and uniquely here to thrive. This is easier said than done, but can also offer hope. Specialising and skilling up also means we can resist those who want us to jettison hard-won environmental and social protections as an alternative. 

Most accept such a transition will take time. But what is contested is that it will require openness. However, handing the public a done deal - however well mediated - will do little to address the division within our country. Ensuring the best deal in a way that can garner the public support it needs to work requires strong feedback channels. That is why transparency about the government's plans for Brexit is so important. Of course, a balance needs to be struck with the need to protect negotiating positions, but scrutiny by parliament- and by extension the public- will be vital. With so many differing factors at stake and choices to be made, MPs have to be able and willing to bring their constituents into the discussion not just about what Brexit actually entails, but also what kind of country Britain will be during and after the result - and their role in making it happen. 

Those who want to claim the engagement of parliament and the public undermines the referendum result are still in stages one and two of this debate, looking for someone to blame for past injustices, not building a better future for all. Our Marmite may be safe for the moment, but Brexit can’t remain a love it or hate it phenomenon. It’s time for everyone to get practical.