Is Osborne really about to give people on £100k a tax cut?

The coalition’s travails over child benefit mean Osborne may revisit his decision to raise the perso

As we close in on the Budget, most eyes are still fixed on the fate of the 50p tax rate. Ignore for a moment some of the squeals from Labour on this issue (more in excited anticipation that it will be axed than horror) and spare a thought for the dwindling band of true Tory modernisers. Their two central ambitions over recent years have been to demonstrate an unswerving commitment to the National Health Service, and to show that they could govern the economy – and tax policy in particular – in the interests of the broad majority rather than the affluent elite. They are struggling to believe that, having watched the coalition conspicuously squander the first of these strategic objectives, it could be planning to deliver the last rites to the second, too.

Yet whatever the decision on the 50p tax rate, the heated debate over it risks obscuring another more nuanced, but still highly revealing choice facing Goerge Osborne. Who should benefit from the widely expected and costly increase in personal tax allowances: the vast majority of all taxpayers, including individuals to over £100,000 a year (and indeed households on £200,000), or just basic-rate taxpayers? It's an important issue in its own right – and one that has been given fresh impetus by the coalition's travails over child benefit.

To understand why this is the case, turn the clock back to 2010 when the personal allowance was first increased and the decision taken to limit the gains to basic-rate taxpayers. This was achieved by lowering the income threshold at which the 40p rate starts in order to cancel out the gains for higher-rate taxpayers – leaving them no better or worse off. Creating more 40p tax-rate payers has obvious political downsides. However, it makes the personal allowances policy both less regressive and significantly less costly. The savings could be used to help reverse this year's cuts to tax credits.

One of the main reasons why there was such a hostile reaction from many quarters to the initial decision to target the gains from the personal allowance in 2010 was the disastrous way it got caught up with Osborne's proposal to abolish child benefit for households with a higher-rate taxpayer. It meant those basic-rate taxpayers who found themselves shunted into the 40p rate not only faced a higher marginal tax rate but were also set to lose £1,750 of child benefit if they had two children.

This was pure political poison. Consequently, when a further increase in the personal allowance was announced in 2011, a different approach was adopted and the gains went to higher-rate taxpayers, too.

Which brings us to next week's Budget and how the decision that is set to be made on revising the policy on child benefit could also affect the one on personal allowances.

To date, the coalition's argument on child benefit has been that, given the scale of the deficit, the state can no longer afford to pay it to households with someone earning above £42,500; indeed, it is also argued that it is morally unfair to ask low-income families to contribute towards higher earners' child benefit. In which case you might well ask why we can afford tax cuts for individuals earning £100,000 (and households with a joint income over £200,000), regardless of whether they have children. You might also ask why it is fair to ask the same low-income family to contribute towards the cost of these tax cuts for the affluent.

I don't know how the coalition proposes to answer this. But as things stand they'll need to do so next Wednesday. Pity the poor soul in the Treasury being tasked with drafting the "lines to take" for ministers.

There is, however, a potential get-out clause for them. The approach now being touted as the likely change to Osborne's child benefit policy is to means-test the benefit at a higher level of income – say, £50,000 rather than £42,500. Whatever other problems this creates (and there are many), it will make it possible to restrict gains from an increased personal allowance to basic-rate taxpayers without creating the toxic side effect of stripping child benefit from those who get tipped into the 40p tax band. The coalition could, if it so wished, show that its priority really is basic-rate taxpayers (and in doing so save money).

We'll know soon enough. My tentative hunch is that the government won't opt to restrict the gains from increased allowances to 20p tax-rate payers – even though it is clearly more progressive and cheaper. I doubt the Chancellor will be willing to incur the price of creating more 40p taxpayers. If this is the case, the coalition will have some explaining to do, not least to its own backbench rebels on child benefit, about why a family on £50,000 should lose cash support while individuals without kids earning double that amount should get a tax cut.

And all this, of course, is before we get to the decision on whether to abolish the 50p tax rate . . .

Gavin Kelly is a former Downing Street adviser to Gordon Brown and Tony Blair. He tweets @GavinJKelly1.

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The idea that sitting all day behind a desk increases your output is a fantasy

If you don’t trust people, at least make sure that you imprison them, seems to be the idea.

Scruffy and tieless, I was the odd one out. Taking a break from research in the London Library, I settled at the bar of an Italian restaurant and resumed reading Tony Collins’s excellent book Sport in Capitalist Society. While the hedge-fund managers looked askance, the young Hungarian waiter recognised one of his own. “That was the subject of my PhD,” he explained, before giving me a sparkling history of sport and Hungarian society.

He now juggles waiting tables with writing articles. It’s not easy. He tells me that when he rereads his old academic work, “Sometimes I need a dictionary!” Like many other people in today’s economy, he balances different jobs, the remuneration and fulfilment varying significantly.

As you have probably noticed, it seems that almost everyone is employed but hardly anyone has a job. Of the 42 million people of working age in Britain, 23 million are in a full-time job; roughly 14 million are full-time parents or carers; most of the rest work part-time, or are self-employed, or work for a business that is so small that it is, in effect, a form of self-employment. The “job” – the salary, the subsidised canteen, the pension – is on the wrong side of history. That is both liberating and scary.

There are two separate points here. The first, deriving from the privilege of choice, is that some people (I am one of them) are happier with the variety and freedom of self-employment. The second is that many people do not have a choice: solid, dependable jobs are a dead concept. We had better get used to fending for ourselves, because we are going to have to.

The phrase “portfolio career” was popularised by the management thinker Charles Handy. “I told my children that they would be well advised to look for customers, not bosses,” as Handy put it. “The important difference is that the price tag now goes on people’s produce, not their time.”

This transition from time-serving to genuine contribution can be good news for workers and employers alike. The art of being an employee is to string things out while pretending to be busy. The art of being self-employed is the opposite: getting things done well and efficiently, while being open to taking on new work. Employees gain an incentive to look effortful, the self-employed to look effortless.

The idea that sitting constantly behind a desk increases output, which underpins the old concept of a job, is a fantasy derived from control: if you don’t trust people, at least make sure that you imprison them. As an unfortunate consequence, the projection of phoney “busyness” consumes more energy than actual work and brings a kind of compound stress: always bustling around, never moving forward. “Never walk past the editor’s office without carrying a piece of paper,” young journalists are advised.

When I turned pro as a cricketer, an old hand told me that if I ever felt lost at practice, I should untie my shoelaces and then do them up again. “We don’t measure success by results but by activity,” as Sir Humphrey quips in Yes Minister. Ironically, I had never realised that my career as a sportsman – apparently playful and unserious – would prove to be the outlier for opposite reasons. Where most careers have drifted towards freelance portfolios, professional sport has tightened the leash. When you have to eat, sleep and train according to strict rules, your job is at one extreme end of the control-of-freedom spectrum. Yet even in elite sport there is more room for semi-professionalism than the system usually allows, especially in games – such as cricket – where physical fitness is necessary but not sufficient.

Yet the reality of the portfolio career inevitably brings new problems that are bound up with wider forces. A life that is spent moving from one institution to another – from school, to university, to a lifelong job – is becoming exotic, rather than the norm. For most of us, there will be no retirement party, no carriage clock. It is not just finding income that is being devolved downwards; so, too, is the search for meaning, purpose and identity. We live in what Handy calls a “de-institutionalised society”.

There are civilising aspects to the trend. First, the new employment landscape reduces the likelihood of people wasting their lives in the wrong job just because it is safe. Handy cites data suggesting that 80 per cent of employees feel dissatisfied in corporate jobs while 80 per cent are happy leading freelance lives. Nor does the old lie – that of backloading happiness, with corporate sacrifice giving way to happy retirement – stack up. We are better off balancing duties and pleasures all the way through.

Second, the decline of the job-for-life may gradually undermine the assumption that everyone’s wealth and prospects (let alone their value) can be determined by a couple of questions about an employer’s address. Social assumptions based on (apparent) occupation are increasingly ridiculous. Guess who the scholar is in the Italian restaurant: the waiter. It’s a good lesson. Your Uber driver could be a landscape architect, funding his professional passion with part-time top-ups.

The language of employment (“Where do you work?”) has been slow to catch up with this reality. When asked, “What do you do?” a freelancer can give a full and interesting answer, only to prompt the follow-up question, “So, what do you do, then?” If conversation becomes less like a mortgage questionnaire, that can only be a good thing.

Hugo Rifkind, writing recently in the Times, admired the Scandinavian-inspired decoupling of taste from wealth. “It is a ­better world . . . where you are not judged on the lineage of your sideboard.” I am more radical. It is a better world when you are not judged on your job.

Better or not – and like it or not – we will have to get used to it. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war