The welfare cuts that the 50p tax rate could have prevented

George Osborne abolished the top rate of tax after it "only" raised £1bn - but which welfare cuts could have been avoided for that amount?

George Osborne's stated justification for abolishing the 50p income tax rate was that, due to mass avoidance, it raised "just a third of the £3bn" expected. Even by Osborne's standards, this was a peculiarly unconvincing argument. It's true that £16bn of income was shifted into the previous tax year  - when the rate was still 40p - but this was a trick the rich could only have played once. Moreover, as the government has acknowledged in other instances, tax avoidance isn't an argument for cutting tax, it's an argument for limiting avoidance. 

But leave this aside. The fact remains that, as Osborne conceded, the 50p rate raised £1bn (and had the potential to raise far more). Not a transformative amount, to be sure (the deficit is forecast to be £120.9bn this year), but hardly to be sniffed at. Indeed, it's precisely this argument that the government makes when justifying "tough" measures such as the "bedroom tax" (which it is hoped will save £465m a year): every little helps. 

Osborne claims that the reduction in the top rate to 45p will cost the government just £100m but, once again, this is based on an anomalous year's data. Having brought forward their income in order to avoid the 50p rate in its first year, the rich have now delayed it in order to benefit from the reduction to 45p (again, a trick they can only play once) this year. The reality is that the cost of scrapping the rate is likely to be far higher, with up to £3bn in revenue forsaken. But as I show below, even if we accept the anomalous figure of £1bn, a significant number of the welfare cuts introduced by the government could have been avoided if the 50p rate had remained in place. 

The "bedroom tax"

The measure, which will see housing benefit cut by 14 per cent for those social housing tenants deemed to have one spare room and by 25 per cent for those with two or more, is forecast to save £480m - less than half of the yield from the 50p rate. 

It will cost 660,000 tenants an average of £14 a week or £728 a year. Exemptions have been introduced for 5,000 foster carers, some armed forces families and families with severely disabled children - but not families with a severely disabled adult

Estimated saving: £465m a year.

And

Council tax support cut by 10 per cent

The retention of the 50p rate could also have paid for the reversal of the 10 per cent cut in council tax support, which is forecast to save up to £480m a year. The measure will cost 1.9 million families who do not currently pay council tax an average of £140 a year. In addition, 150,000 low income families will pay on average £300 more a year.

I've written about the policy in greater detail here (Will this be the coalition's poll tax moment?).

Estimated saving: £480m a year. 

Or

Legal aid cuts

Alternatively, the 50p rate could have prevented the lowering of the cut-off point for legal aid to a household income of £32,000 and the introduction of a means-test for those earning between £14,000 and £32,000. 

Estimated saving: £350m.

Or

1% cap on benefit increases

Around half of the revenue raised by the 50p rate in its first year could have allowed the government to uprate benefits in line with inflation (which stood at 2.2 per cent in September 2012, the month traditionally used to calculate benefit increases), rather than by just 1 per cent. 

Estimated saving: £505m in 2013-14.

George Osborne scrapped the 50p tax rate in his 2012 Budget after it raised "just a third of the £3bn" expected. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Justin Trudeau points the way forward for European politics

Is the charismatic Canadian Prime Minister modelling the party of the future?

Six months after Canadian election day, Justin Trudeau’s Liberal party continues to bask in the glow of victory. With 44 per cent of support in the polls, the Liberals are the most popular party amongst every single demographic – men and women, young and old, and people of all educational backgrounds. 

While most European mainstream parties only dream of such approval, this is actually a small dip for the Liberals. They were enjoying almost 50 per cent support in the polls up until budget day on 21 March. Even after announcing $29.4 billion in deficit spending, Canadians overall viewed the budget favourably – only 34 per cent said they would vote to defeat it.

Progressives around the world are suddenly intrigued by Canadian politics. Why is Justin Trudeau so successful?

Of course it helps that the new Prime Minister is young, handsome and loves pandas (who doesn’t?) But it’s also true that he was leader of the Liberals for a year and half before the election. He brought with him an initial surge in support for the party. But he also oversaw its steady decline in the lead up to last year’s election – leadership is important, but clearly it isn’t the only factor behind the Liberals’ success today.

Context matters

As disappointing as it is for Europeans seeking to unpack Canadian secrets, the truth is that a large part of the Liberals’ success was also down to the former Prime Minister Stephen Harper’s extreme unpopularity by election time.

Throughout almost ten years in power, Harper shifted Canada markedly to the right. His Conservative government did not just alter policies; it started changing the rules of the democratic game. While centre-right governments in Europe may be implementing policies that progressives dislike, they are nonetheless operating within the constraints of democratic systems (for the most part; Hungary and Poland are exceptions).

Which is why the first weeks of the election campaign were dominated by an ‘Anybody But Harper’ sentiment, benefitting both the Liberals and the left-wing New Democratic Party (NDP). The NDP was even leading the polls for a while, inviting pundits to consider the possibility of a hung parliament.

But eight days before election day, the Liberals began to pull ahead.

The most important reason – and why they continue to be so popular today – is that they were able to own the mantle of ‘change’. They were the only party to promise running a (small) deficit and invest heavily in infrastructure. Notably absent was abstract discourse about tackling inequality. Trudeau’s plan was about fairness for the middle class, promoting social justice and economic growth.

Democratic reform was also a core feature of the Liberal campaign, which the party has maintained in government – Trudeau appointed a new Minister of Democratic Institutions and promised a change in the voting system before the next election.

The change has also been in style, however. Justin Trudeau is rebranding Canada as an open, progressive, plural society. Even though this was Canada’s reputation pre-Harper, it is not as simple as turning back the clock.

In a world increasingly taken by populist rhetoric on immigration – not just by politicians like Donald Trump, Nigel Farage, Marine Le Pen and other right-wingers, but also increasingly by mainstream politicians of right and left – Justin Trudeau has been unashamedly proclaiming the benefits of living in a diverse, plural society. He repeatedly calls himself a feminist, in the hope that one day “it is met with a shrug” rather than a social media explosion. Live-streamed Global Town Halls are one part of a renewed openness with the media. Progressive politicians in Europe would do well to take note.

Questioning the role of political parties today

Another interesting development is that the Liberal party is implicitly questioning the point of parties today. It recently abolished fee-paying, card-carrying party members. While this has been met with some criticism regarding the party’s structure and integrity, with commentators worried that “it’s the equivalent of turning your party into one giant Facebook page: Click ‘Like’ and you’re in the club,” it seems this is the point.

Colin Horgan, one of Trudeau’s former speechwriters, explains that Facebook is “literally a treasure trove for political parties”. All kinds of information becomes available – for free; supporters become easier to contact.

It was something the Liberals were already hinting at two years ago when they introduced a ‘supporters’ category to make the party appear more open. Liberal president Anna Gainey also used the word “movement” to describe what the Liberals hope to be.

And yes, they are trying to win over millennials. Which proved to be a good strategy, as a new study shows that Canadians aged 18-25 were a key reason why the Liberals won a majority. Young voter turnout was up by 12 per cent from the last election in 2011; among this age group, 45 per cent voted for the Liberals.

Some interesting questions for European progressives to consider. Of course, some of the newer political parties in Europe have already been experimenting with looser membership structures and less hierarchical ways of engaging, like Podemos’ ‘circles’ in Spain and the Five Star Movement’s ‘liquid democracy’ in Italy.

The British centre-left may be hesitant after its recent fiasco. Labour opened up its leadership primary to ‘supporters’ and ended up with a polarising leader who is extremely popular amongst members, but unpopular amongst the British public. But it would be wrong to assume that the process was to blame.

The better comparison is perhaps to Emmanuel Macron, France’s young economy minister who recently launched his own movement ‘En Marche !’ Moving beyond the traditional party structure, he is attempting to unite ‘right’ and ‘left’ by inspiring French people with an optimistic vision of the future. Time will tell whether this works to engage people in the longer term, or at least until next year’s presidential election.

In any case, European parties could start by asking themselves: What kind of political parties are they? What is the point of them?

Most importantly: What do they want people to think is the point of them?

Ultimately, the Canadian Liberals’ model of success rests on three main pillars:

  1. They unambiguously promote and defend a progressive, open, plural vision of society.
  2. They have a coherent economic plan focused on social justice and economic growth which, most importantly, they are trusted to deliver.
  3. They understand that society has changed – people are more interconnected than ever, relationships are less hierarchical and networks exist online – and they are adapting a once rigid party structure into a looser, open movement to reflect that.

*And as a bonus, a young, charismatic leader doesn’t hurt either.

Claudia Chwalisz is a Senior Policy Researcher at Policy Network, a Crook Public Service Fellow at the University of Sheffield and author of The Populist Signal: Why Politics and Democracy Need to Change