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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What's going on in Northern Ireland?

Everything you need to know about why Northern Ireland is heading for an early election - and how it all works. 

Northern Irish voters will elect a new government, just seven months after the last election. Here’s what you need to know.

It all starts with something called the Renewable Heat Incentive (RHI), a scheme designed to encourage businesses to switch to renewable sources of heating, by paying them to do so. But the plan had two flaws. Firstly, there was no upper limit to how much you could receive under the scheme and secondly there was no requirement that the new heaters replace the old.

That led to businesses installing biomass boilers to heat rooms that had previously not been heated, including storage rooms and in some cases, empty sheds.

 The cost of the scheme has now run way over budget, and although the door has been closed to new entrants, existing participants in the scheme will continue collecting money for the next 20 years, with the expected bill for the Northern Irish assembly expected to reach £1bn.  

The row is politically contentious because Arlene Foster, leader of the Democratic Unionist Party, and the First Minister of Northern Ireland, was head of the Department for Enterprise, Trade and Investment (DETI) when the scheme was rolled out, putting her at the heart of the row. Though there is no suggestion that she personally enriched herself or her allies, there are questions about how DETI signed off the scheme without any safeguards and why it took so long for the testimony of whistleblowers to be acted on.

The opposition parties have called for a full inquiry and for Foster to step down while that inquiry takes place, something which she has refused to do. What happened instead is that the Deputy First Minister, Martin McGuinness, resigned his post, he said as a result of frustration with the DUP’s instrangience about the scheme.

Under the rules of the devolved assembly (of which, more below), the executive – the ministers tasked with running the government day-to-day must be compromised of politicians drawn from the parties that finish first and second in the vote, otherwise the administration is dissolved.  McGuinesss’ Sinn Fein finished second and their refusal to continue participating in the executive while Foster remains in place automatically triggers fresh elections.

Northern Ireland uses the single transferable vote (STV) to elect members of the legislative assembly (MLAs). Under STV, multiple MLAs are elected from a single constituency, to more accurately reflect the votes of the people who live there and, crucially, to prevent a repeat of the pattern of devolved rule under first-past-the-post, when prolonged one-party rule by the Unionist and Protestant majority contributed to a sense of political alienation among the Catholic minority.

Elections are contested across 18 seats, with five MPs elected to every seat. To further ensure that no part of the community is unrepresented in the running of the devolved assembly, the executive, too, is put together with a form of proportional representation. Not only does the executive require a majority in the legislature to pass its business, under a system of “mandatory coalition”, posts on the executive are allocated under the D’Hondt system of proportional representation, with posts on the executive allocated according to how well parties do, with the first party getting first pick, and so on until it comes back to the first party until all the posts are filled.

Although the parties which finish third and lower can opt out of taking their seats on the executive and instead oppose the government, if the first and second party don’t participate in the coalition, there is no government.

As it is highly unlikely that the DUP and Sinn Fein will not occupy the first and second places when the election is over, it is equally unlikely that a second election will do anything other than prolong the chaos and disunity at Stormont. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.