Osborne's new dividing line: a 0% tax rate against a 10p tax rate

The Chancellor appears to rule out a 10p tax rate for the Budget and says raising the personal allowance is "a better policy".

Ed Miliband's pledge to reintroduce the 10p tax rate has left the Tories with a dilemma. Having previously hinted that they might adopt the measure, which was first proposed by a Conservative MP, Robert Halfon, do they seek to match Miliband's offer or do they reject it? 

It now looks as if George Osborne has settled on the latter option. In his interview on ITV's The Agenda last night, the Chancellor declared that the coalition had "a better policy" - "a zero per cent tax rate". He pointed out that the increase in the tax-free personal allowance from £6,475 in 2010 to £9,440 (from this April) had already compensated all of those who lost out from Gordon Brown's abolition of the 10p tax rate, adding: "We've taken a million people out of tax altogether so I would say a zero per cent tax rate is going to be a little bit more attractive at an election than a 10% tax rate and that's certainly been our priority."

Coming from the man who remains the Conservatives' chief election strategist, it was a significant statement. The Lib Dems have long made it clear that they will go into the next election promising to raise the personal allowance to £12,500, so that no one on the minimum wage pays any income tax. Osborne's words suggest that the Tories are now more likely to match this offer than are they to cut the starting rate.

It's not an approach that will please all Tory MPs. Halfon is fond of quoting former Conservative chancellor Nigel Lawson, who began his time at the Treasury by raising personal allowances but later reversed direction. He later explained: "I wished to create a large constituency in favour of income-tax reductions. The last thing I wanted to do was to reduce the size of that constituency by taking people out of tax altogether." But the imperative for the Tories to differentiate themselves from Labour now trumps this concern. 

With two years of the parliament remaining, the tax threshold is just £560 from the coalition's target of £10,000 after a larger-than-expected increase in the Autumn Statement. If Osborne chooses to pull a rabbit out of the hat on Budget day (as he usually does), one wonders if it will be to meet this pledge ahead of schedule. Having unambiguously rejected a mansion tax and now cast scorn on the 10p tax rate, the Chancellor has shown that he has no intention of dancing to Labour's tune. 

Chancellor George Osborne leaves 11 Downing Street on January 7, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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The future of the left: The path ahead is full of challenges

Be in no doubt: the left faces a struggle for survival.

There are plenty of grounds for pessimism about the left’s prospects and they are well rehearsed.  Across Europe, social democrats are out of power and when they do manage to enter government, it is under the skirts of dominant centre-right parties or at the helm of fragile coalitions. Ageing western societies have become more conservative, immigration has driven a cultural wedge into the cross-class coalitions that once undergirded centre-left voting blocs, and austerity has ushered in a politics of security, not reform. Only those who have borne the brunt of the financial crisis and its aftermath, like the unemployed youth and evicted homeowners of Southern Europe, have swung decisively to the left, joined by relatively protected but angry older middle class liberals of Northern Europe. Even in Latin America, where the left swept the board at the turn of the century, politics is shifting to the right. Bright spots, such as municipal experimentalism in Spanish cities, or energetic liberalism in Canada and Italy, illuminate the gloom. But mostly, darkness is visible.

Is this condition terminal? Inequality, stagnant living standards and the turbulence of global capitalism generate profound political discontent. They give oxygen to progressive protest movements as well as populist reactionaries, as the convulsions in US politics show. But only a facile determinism reads off political progress from economic crisis. There is nothing to guarantee that revulsion at political and economic elites will give birth to a new egalitarianism. The left needs a clearer headed view of the political terrain that it will face in the 2020s.

Demographic change is a given. Advanced democracies like Britain will get older and the weight of older voters in elections will increase, not diminish. The gap in turnout rates between young and old is unlikely to close, tilting politics even further towards the cultural concerns and economic interests of the over fifties. Leadership credentials and economic competence matter for these voters more than abstract appeals to equality. But a generation of young people will also enter middle age in the 2020s having endured the worst of the age of austerity, with lower wages, stymied home ownership aspirations and stunted career progression to show for it. So just as 20th century catch-all parties built cross-class electoral alliances, successful political movements in the coming decades will need to secure inter-generational voting blocs. Stitching these together will foreground the politics of family and focus policy attention on transfers of wealth and opportunity across multiple generations. 

Ageing will also ratchet up fiscal pressures on the state, as costs mount for the NHS, care of the elderly and pensions. But Britain’s tax base has been weakened by low productivity, corporate tax avoidance and expensive personal allowance giveaways. In the 2020s, this crunch will loom large over fiscal policy and force hard choices over priorities. Just as in the 1990s, we can expect public disquiet at the run-down of investment in public services to mount, but this time there won’t be the same spending headroom to respond to it. The political debate currently underway in Scotland about raising income tax is therefore a harbinger of the future for the rest of the UK.

Fiscal constraints will also force the left to take seriously the agenda of economic reform opened up under the ungainly title of “pre-distribution”. Without an account of how to generate and share prosperity more equitably within the market economy, social democracy is purposeless. But it will need a far more robust and plausible political strategy for achieving these ambitions than anything that has been on offer hitherto. Technological change will not usher in a new economy of its own accord, and without the solid base of an organised working class to ground its politics, the left needs to be open to a wide set of alliances with businesses, big and small. Combining economic radicalism with credibility and popular appeal, particularly to voters who still blame it for the financial crisis, is the hardest challenge the left faces, but there is no getting away from it.

On a note of optimism, the left is currently strong in cities, from which it can build out. Diversity is a strength in major urban centres, not a weakness, and powerful city leaders endow progressive politics with governing authority. Cities are the places where new social movements are most active and much of the energy of contemporary politics can be found, even if elections are fought on wider terrain. The task is to combine a propensity to decentralise and devolve with clear national political direction. The same holds with party reform: the mass political parties of the 20th century are dead, but networks can’t fight elections, so combining openness and democratic engagement, with discipline and national purpose, is vital. 

Nick Pearce is the director of the Institute for Public Policy Research.