Tory MPs divided over tax cuts after Miliband's 10p tax pledge

Conservative MP Graham Brady demands the abolition of Air Passenger Duty but Robert Halfon tells the New Statesman it would be the wrong move.

After Ed Miliband's audacious pledge to reintroduce the 10p tax rate, funded by a mansion tax on houses worth more than £2m, George Osborne is under even greater pressure from Conservative MPs to play a "trump card" when he delivers the Budget on 20 March. There's frustration among the Tories that the 10p tax rate, a measure championed by a Conservative MP, Robert Halfon, was taken up by Labour before Halfon's own party. If he wants to avoid a backlash, the Chancellor now has no choice but to announce significant tax cuts when he steps up to the despatch box next month. 

In an article for today's Daily Telegraph, Graham Brady (profiled by Caroline earlier this year), the chairman of the powerful 1922 Committee of backbench Tory MPs, wastes no time in setting out hs Budget wishlist. While praising the Chancellor's cuts to corporation tax (which has been reduced from 28 per cent to 23 per cent and will fall again to 21 per cent next year), he urges him to "go further". 

Brady's principal demand is for Osborne to abolish Air Passenger Duty - "the highest aviation tax in the world" - which the Chancellor increased by eight per cent in last year's Budget. He points to a study by PricewaterhouseCoopers which found that scrapping the tax would deliver an immediate economic boost of 0.5 per cent of GDP. This, Brady pointedly notes, is "not to be sneezed at in these days of anaemic growth." 

But when I spoke to Robert Halfon earlier this week (undoubtedly now the most influential backbench MP), he told me that cutting Air Passenger Duty would be the wrong move. "In times like this, flying is a luxury, it's not something you have to do" he said. "It's [reducing Air Passenger Duty] not the best way to help low-earners".

Having criticised Labour's 10p tax proposal on the grounds that it would only mean an extra £34 a year for a family (once benefit withdrawal is taken into account), Halfon is still pushing for Osborne to adopt his policy in full: a reintroduced 10p rate on earnings between £9,440 and £12,000 (Miliband's proposal would only apply to the first £1,000 of earnings over the personal allowance).

But with Osborne having unambiguously ruled out the introduction of a "mansion tax" ("this party of home ownership will have no truck with it," he said in his Conservative conference speech), the question remains how the Chancellor would pay for a 10p rate. Halfon has proposed funding the measure by  ring-fencing the extra revenue from the 45p rate (on the assumption that a lower top rate of tax will benefit growth). But with growth likely to remain anaemic or non-existent, Osborne will have little room for manoeuvre, not least because he has already promised to raise the personal allowance to £10,000 by the end of this parliament. Whether or not Tory MPs secure the tax cuts they wish to see may yet depend on whether the Chancellor, a fiscal conservative to his core, is finally willing to tolerate a higher deficit. 

George Osborne is under pressure to deliver tax cuts in the Budget after Ed Miliband pledged to reintroduce the 10p income tax rate. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Why Angela Merkel's comments about the UK and US shouldn't be given too much weight

The Chancellor's comments are aimed at a domestic and European audience, and she won't be abandoning Anglo-German relationships just yet.

Angela Merkel’s latest remarks do not seem well-judged but should not be given undue significance. Speaking as part of a rally in Munich for her sister party, the CSU, the German Chancellor claimed “we Europeans must really take our own fate into our hands”.

The comments should be read in the context of September's German elections and Merkel’s determination to restrain the fortune of her main political rival, Martin Schulz – obviously a strong Europhile and a committed Trump critic. Sigmar Gabriel - previously seen as a candidate to lead the left-wing SPD - has for some time been pressing for Germany and Europe to have “enough self-confidence” to stand up to Trump. He called for a “self-confident position, not just on behalf of us Germans but all Europeans”. Merkel is in part responding to this pressure.

Her words were well received by her audience. The beer hall crowd erupted into sustained applause. But taking an implicit pop at Donald Trump is hardly likely to be a divisive tactic at such a gathering. Criticising the UK post-Brexit and the US under Trump is the sort of virtue signalling guaranteed to ensure a good clap.

It’s not clear that the comments represent that much of a new departure, as she herself has since claimed. She said something similar earlier this year. In January, after the publication of Donald Trump’s interview with The Times and Bild, she said that “we Europeans have our fate in our own hands”.

At one level what Merkel said is something of a truism: in two year’s time Britain will no longer be directly deciding the fate of the EU. In future no British Prime Minister will attend the European Council, and British MEPs will leave the Parliament at the next round of European elections in 2019. Yet Merkel’s words “we Europeans”, conflate Europe and the EU, something she has previously rejected. Back in July last year, at a joint press conference with Theresa May, she said: “the UK after all remains part of Europe, if not of the Union”.

At the same press conference, Merkel also confirmed that the EU and the UK would need to continue to work together. At that time she even used the first person plural to include Britain, saying “we have certain missions also to fulfil with the rest of the world” – there the ‘we’ meant Britain and the EU, now the 'we' excludes Britain.

Her comments surely also mark a frustration born of difficulties at the G7 summit over climate change, but Britain and Germany agreed at the meeting in Sicily on the Paris Accord. More broadly, the next few months will be crucial for determining the future relationship between Britain and the EU. There will be many difficult negotiations ahead.

Merkel is widely expected to remain the German Chancellor after this autumn’s election. As the single most powerful individual in the EU27, she is the most crucial person in determining future relations between the UK and the EU. Indeed, to some extent, it was her intransigence during Cameron’s ‘renegotiation’ which precipitated Brexit itself. She also needs to watch with care growing irritation across the EU at the (perceived) extent of German influence and control over the institutions and direction of the European project. Recent reports in the Frankfurter Allgemeine Zeitung which suggested a Merkel plan for Jens Weidmann of the Bundesbank to succeed Mario Draghi at the ECB have not gone down well across southern Europe. For those critics, the hands controlling the fate of Europe are Merkel’s.

Brexit remains a crucial challenge for the EU. How the issue is handled will shape the future of the Union. Many across Europe’s capitals are worried that Brussels risks driving Britain further away than Brexit will require; they are worried lest the Channel becomes metaphorically wider and Britain turns its back on the continent. On the UK side, Theresa May has accepted the EU, and particularly Merkel’s, insistence, that there can be no cherry picking, and therefore she has committed to leaving the single market as well as the EU. May has offered a “deep and special” partnership and a comprehensive free trading arrangement. Merkel should welcome Britain’s clarity. She must work with new French President Emmanuel Macron and others to lead the EU towards a new relationship with Britain – a close partnership which protects free trade, security and the other forms of cooperation which benefit all Europeans.

Henry Newman is the director of Open Europe. He tweets @henrynewman.

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