How the Lib Dems and others changed their tune on the 50p tax rate

Danny Alexander and former M&S boss Stuart Rose attacked Labour yesterday, but they used to insist that the top rate should remain in place.

Labour's promise to reintroduce the 50p tax rate was not just an attempt to prove that the party is committed to deficit reduction but also to set a political trap for the Conservatives. By rushing to quote businessmen opposed to the policy, the Tories have walked into it. Rarely in recent months have they looked more like the party of the rich. Meanwhile, the public (as ever) overwhelmingly support the measure. A poll for the Mail on Sunday found 60 per cent of voters in favour, with just 17 per cent opposed.

Many of those criticising the proposal have long argued against it (and often against progressive taxation of any kind) but it's worth noting a few who have changed their tune. Former M&S boss Stuart Rose, the chairman of Ocado, said yesterday that the 50p rate would "put at risk all the good work that has been done to put the economy back on track". But back in 2011, before George Osborne abolished it, he said: "I don't think that they should reduce the income tax rate. How would I explain to my secretary that I am getting less tax on my income, which is palpably bigger than hers, when hers is not going down? If, in the short term, a case was made for me to pay more than 50 per cent tax, which would help UK plc, I personally – Stuart Rose – would be prepared to pay more tax." Since austerity is going to continue for the entirety of the next parliament, it is hard to see how he can justify this volte-face.

Then there's the Lib Dems. In response to Ed Balls's announcement, Danny Alexander said: "Labour's hypocrisy on taxation is breathtaking. In government they left a system full of loopholes for the wealthy to exploit. Thanks to our action in government to raise capital gains tax, reduce pensions tax relief for the wealthiest and tackle tax avoidance, Lib Dems in government are raising more from those who have the most and making Britain more competitive. Reintroducing the 50p rate wouldn't help with either objective."

But before the 2012 Budget, he said repeatedly that the 50p rate should only be scrapped if a mansion tax was introduced. In July 2011, he told The Andrew Marr Show: "The idea that we're going to somehow shift our focus to the wealthiest in the country at a time when everyone's under pressure is just in cloud cuckoo land". No mansion tax was introduced, vetoed by David Cameron on the grounds that "our donors will never put up with it", but the 50p rate still went.

Alexander will no doubt point out that the current top rate of 45p is higher than that seen for all but one month of Labour's 13 years in office. But this still doesn't explain why it was right to reduce it. Ed Miliband, who has hardly made a secret of his disagreements with the last government's approach, can now argue that only Labour (which would also introduce a mansion tax) is committed to ensuring that the rich bear their fair share of austerity.

Danny Alexander at the Liberal Democrat conference in Glasgow last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Brexit has opened up big rifts among the remaining EU countries

Other non-Euro countries will miss Britain's lobbying - and Germany and France won't be too keen to make up for our lost budget contributions.

Untangling 40 years of Britain at the core of the EU has been compared to putting scrambled eggs back into their shells. On the UK side, political, legal, economic, and, not least, administrative difficulties are piling up, ranging from the Great Repeal Bill to how to process lorries at customs. But what is less appreciated is that Brexit has opened some big rifts in the EU.

This is most visible in relations between euro and non-euro countries. The UK is the EU’s second biggest economy, and after its exit the combined GDP of the non-euro member states falls from 38% of the eurozone GDP to barely 16%, or 11% of EU’s total. Unsurprisingly then, non-euro countries in Eastern Europe are worried that future integration might focus exclusively on the "euro core", leaving others in a loose periphery. This is at the core of recent discussions about a multi-speed Europe.

Previously, Britain has been central to the balance between ‘ins’ and ‘outs’, often leading opposition to centralising eurozone impulses. Most recently, this was demonstrated by David Cameron’s renegotiation, in which he secured provisional guarantees for non-euro countries. British concerns were also among the reasons why the design of the European Banking Union was calibrated with the interests of the ‘outs’ in mind. Finally, the UK insisted that the euro crisis must not detract from the development of the Single Market through initiatives such as the capital markets union. With Britain gone, this relationship becomes increasingly lop-sided.

Another context in which Brexit opens a can of worms is discussions over the EU budget. For 2015, the UK’s net contribution to the EU budget, after its rebate and EU investments, accounted for about 10% of the total. Filling in this gap will require either higher contributions by other major states or cutting the benefits of recipient states. In the former scenario, this means increasing German and French contributions by roughly 2.8 and 2 billion euros respectively. In the latter, it means lower payments to net beneficiaries of EU cohesion funds - a country like Bulgaria, for example, might take a hit of up to 0.8% of GDP.

Beyond the financial impact, Brexit poses awkward questions about the strategy for EU spending in the future. The Union’s budgets are planned over seven-year timeframes, with the next cycle due to begin in 2020. This means discussions about how to compensate for the hole left by Britain will coincide with the initial discussions on the future budget framework that will start in 2018. Once again, this is particularly worrying for those receiving EU funds, which are now likely to either be cut or made conditional on what are likely to be more political requirements.

Brexit also upends the delicate institutional balance within EU structures. A lot of the most important EU decisions are taken by qualified majority voting, even if in practice unanimity is sought most of the time. Since November 2014, this has meant the support of 55% of member states representing at least 65% of the population is required to pass decisions in the Council of the EU. Britain’s exit will destroy the blocking minority of a northern liberal German-led coalition of states, and increase the potential for blocking minorities of southern Mediterranean countries. There is also the question of what to do with the 73 British MEP mandates, which currently form almost 10% of all European Parliament seats.

Finally, there is the ‘small’ matter of foreign and defence policy. Perhaps here there are more grounds for continuity given the history of ‘outsourcing’ key decisions to NATO, whose membership remains unchanged. Furthermore, Theresa May appears to have realised that turning defence cooperation into a bargaining chip to attract Eastern European countries would backfire. Yet, with Britain gone, the EU is currently abuzz with discussions about greater military cooperation, particularly in procurement and research, suggesting that Brexit can also offer opportunities for the EU.

So, whether it is the balance between euro ‘ins’ and ‘outs’, multi-speed Europe, the EU budget, voting blocs or foreign policy, Brexit is forcing EU leaders into a load of discussions that many of them would rather avoid. This helps explain why there is clear regret among countries, particularly in Eastern Europe, at seeing such a key partner leave. It also explains why the EU has turned inwards to deal with the consequences of Brexit and why, although they need to be managed, the actual negotiations with London rank fairly low on the list of priorities in Brussels. British politicians, negotiators, and the general public would do well to take note of this.

Ivaylo Iaydjiev is a former adviser to the Bulgarian government. He is currently a DPhil student at the Blavatnik School of Government at the University of Oxford

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