Cameron hands Labour an attack line by hinting the 45p tax rate could be cut

The PM's loose talk on tax has distracted from his popular pledge to maintain the triple lock on the state pension.

David Cameron has started 2014 with his biggest spending pledge to date: to maintain the triple lock on the state pension for the entirety of the next parliament. This means that pensions will continue to rise in line with inflation, earnings, or 2.5%, whichever is highest. He tells the Sunday Times: "This is the first plank of the next general election manifesto. Pensions are protected. I think that is really important. In a civilised society ... knowing you’re going to have a decent state pension ... is, I think, a really powerful thing."

This is undoubtedly smart politics. Pensioners are the most likely age group to vote (76 per cent did in 2010 compared to 65 per cent of the total population) and the Tories have become the first party to pledge to maintain the triple lock beyond 2015. But Cameron's promise is competing for attention this morning with his suggestion that the top rate of tax, which was reduced from 50p to 45p last year, could be cut again. He comments: "It just seemed to me that if your top rate of tax is not raising the money that it should, and it’s holding back the competitiveness of the economy, then even if it’s politically unpopular to change it, you must do it. I’m trying to sweep away all the things that hold back the chance of Britain being a real success story in the 21st century. And you know, having a top rate of tax of 50p is just going to hold Britain back. And what we’ve seen since the change is actually the growth of tax revenues."

And adds: "I’m always interested in listening to the experts. Tax rates should be set to raise money, not to send messages. I’m interested in making sure that the rich in this country pay a lot of tax, which they do. They’re paying a bigger share ... than they were. If people can bring forward arguments about how to maximise the revenue from the top rate of tax, I’m always interested to read them."

So, has Art Laffer (of the eponymous "curve") been vindicated? Do lower rates, as the right has long claimed, produce higher revenues? Not quite. The recent spike in tax receipts was most likely due to the income shifted from 2012 to 2013 in order to benefit from the lower rate. As the IFS noted: "Receipts in April will have been boosted by high income individuals shifting income such as bonuses and special dividends from 2012–13 to 2013–14 in anticipation of the fall in the top rate of income tax from 50 per cent to 45 per cent".  This, of course, is a trick the rich can only play once (unless the rate is reduced again), just as, in the opposite direction, they shifted £16bn into the previous tax year when the rate was still 40p (the reason the 50p rate raised less than forecast, although £1bn is hardly a trivial sum). Cameron should also avoid confusing correlation with cause. If revenues rise this year, it will likely owe more to the return of growth than lower taxes.

But regardless of the policy implications, Cameron's hint that the rate could be cut again ("If people can bring forward arguments...I'm always interested to read them") is terrible politics. Every poll published on the subject has shown that the public opposed the decision to reduce the 50p rate (one put support for the higher rate at 68%), while 48% favour a 60p rate. By suggesting, nevertheless, that the highest earners could be awarded another tax cut, Cameron has gifted Labour an attack line. Shadow chief secretary to the Treasury Chris Leslie wasted no time in declaring that "While ordinary families are facing a cost-of-living crisis it seems David Cameron wants to give people earning over £150,000 yet another tax cut. Working people are on average £1,600 a year worse off since the Tories came to office. But once again this Prime Minister seems determined to be on the side of the privileged few."

This should have been a good news day for the Tories, with Cameron promising continued increases in the state pension for all pensioners (not just some). But the PM's loose talk on tax has allowed Labour to once again portray him as being on the side of the few, not the many.

Update: Cameron tried to recover some ground on The Andrew Marr Show by saying that if he had "money in the coffers", he would target tax cuts at "the lowest paid", but he still refused to rule out cutting the 45p rate. If he wants to avoid allowing Labour to claim that he's planning another "millionaire's tax cut" throughout the election campaign, he would be wise to do so.

David Cameron gives a press conference after an EU summit in Brussels on December 20, 2013. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.