The real Labour divide over the 50p tax rate

Is it a temporary tax or a permanent one?

In an attempt to counter Labour's populist (and popular) pledge to reintroduce the 50p tax rate, the Tories have been quoting Lord Myners' rather colourful denunciation of the policy. The former City minister (from 2008-10) said of Ed Balls's announcement: "The economic logic behind his thinking would not get him a pass at GCSE economics", adding that "We need to encourage productive enterprise and effort rather than resort to predatory taxation. It is not clear how this is going to help the UK economy compete with the world's growth economies. The UK already has an income tax system that is more progressive than most of our international competitors."

But in opposing the policy, Myners is very much the exception that proves the rule. Almost all in Labour recognise that the 50p pledge is a smart way of proving that the party is committed to fair deficit reduction and of framing the Tories as the party of the rich. Alistair Darling, for instance, said on Sky News this morning: "I think in the context, when I increased the top rate of tax to 50p I did it on a temporary basis, I made it very clear that I didn’t see that as being a long-term position but the deficit reduction has taken far longer than anybody would want and when you talk about reducing the deficit, there are quite substantial cuts that are slated to come in after the next election and it just seems to me that we need to be fair about this so that people with the broadest shoulders carry their fair share of the burden."

But it's worth highlighting a more subtle but significant divide within the party. In his speech at the Fabian Society conference yesterday and in his apperance on The Andrew Marr Show this morning, Ed Balls said several times that the 50p rate would only remain in place "while we get the deficit down". This is designed to present the move as a temporary, pragmatic measure, rather than as a permanent feature of the tax system. Balls, who is more conscious than some in the party of the need to avoid appearing anti-business, emphasised: "I've had very many businesspeople say to me over the last year or so, they say: 'We want to get the top rate of tax down' – well, of course they do. I want lower tax rates".

But while Balls has adopted this pragmatic stance, there are many in Labour who are committed to a top rate of 50p as a matter of principle. Back in June 2010, when he was running for the Labour leadership, Ed Miliband put himself in this camp when he said:

I would keep the 50p rate permanently. It's not just about reducing the deficit, it's about fairness in our society and that's why I'd keep the 50p tax rate, not just for a parliament.

He has not repeated this declaration since but many suspect that it remains his private view. What is not in doubt is that a significant number of the party's MPs believe that the 50p rate is an essential means of redistributing income to reduce inequality, not merely of reducing the deficit.

As for whether Labour would scrap the 50p rate once deficit reduction is complete, it's worth remembering Milton Friedman's line that "Nothing is so permanent as a temporary government programme". Income tax itself was introduced in 1799 as a temporary measure to help fund the fight against Napoleon. Two hundred and fifteen years later, it is still with us.

Update: In response to this post, a Labour spokesman told me that "what is permanent is our commitment to fairness in taxation" and that "the 50p rate is specifically tied to deficit reduction". The same source added that the party would have "more to say" in the coming months about reducing tax avoidance, suggesting that it is looking at means of ensuring that it maximises revenue from the new rate.

Ed Miliband and Ed Balls at the Labour conference in Brighton last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty Images
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Why are boundary changes bad for Labour?

New boundaries, a smaller House of Commons and the shift to individual electoral registration all tilt the electoral battlefield further towards the Conservatives. Why?

The government has confirmed it will push ahead with plans to reduce the House of Commons to 600 seats from 650.  Why is that such bad news for the Labour Party? 

The damage is twofold. The switch to individual electoral registration will hurt Labour more than its rivals. . Constituency boundaries in Britain are drawn on registered electors, not by population - the average seat has around 70,000 voters but a population of 90,000, although there are significant variations within that. On the whole, at present, Labour MPs tend to have seats with fewer voters than their Conservative counterparts. These changes were halted by the Liberal Democrats in the coalition years but are now back on course.

The new, 600-member constituencies will all but eliminate those variations on mainland Britain, although the Isle of Wight, and the Scottish island constituencies will remain special cases. The net effect will be to reduce the number of Labour seats - and to make the remaining seats more marginal. (Of the 50 seats that would have been eradicated had the 2013 review taken place, 35 were held by Labour, including deputy leader Tom Watson's seat of West Bromwich East.)

Why will Labour seats become more marginal? For the most part, as seats expand, they will take on increasing numbers of suburban and rural voters, who tend to vote Conservative. The city of Leicester is a good example: currently the city sends three Labour MPs to Westminster, each with large majorities. Under boundary changes, all three could become more marginal as they take on more wards from the surrounding county. Liz Kendall's Leicester West seat is likely to have a particularly large influx of Tory voters, turning the seat - a Labour stronghold since 1945 - into a marginal. 

The pattern is fairly consistent throughout the United Kingdom - Labour safe seats either vanishing or becoming marginal or even Tory seats. On Merseyside, three seats - Frank Field's Birkenhead, a Labour seat since 1950, and two marginal Labour held seats, Wirral South and Wirral West - will become two: a safe Labour seat, and a safe Conservative seat on the Wirral. Lillian Greenwood, the Shadow Transport Secretary, would see her Nottingham seat take more of the Nottinghamshire countryside, becoming a Conservative-held marginal. 

The traffic - at least in the 2013 review - was not entirely one-way. Jane Ellison, the Tory MP for Battersea, would find herself fighting a seat with a notional Labour majority of just under 3,000, as opposed to her current majority of close to 8,000. 

But the net effect of the boundary review and the shrinking of the size of the House of Commons would be to the advantage of the Conservatives. If the 2015 election had been held using the 2013 boundaries, the Tories would have a majority of 22 – and Labour would have just 216 seats against 232 now.

It may be, however, that Labour dodges a bullet – because while the boundary changes would have given the Conservatives a bigger majority, they would have significantly fewer MPs – down to 311 from 330, a loss of 19 members of Parliament. Although the whips are attempting to steady the nerves of backbenchers about the potential loss of their seats, that the number of Conservative MPs who face involuntary retirement due to boundary changes is bigger than the party’s parliamentary majority may force a U-Turn.

That said, Labour’s relatively weak electoral showing may calm jittery Tory MPs. Two months into Ed Miliband’s leadership, Labour averaged 39 per cent in the polls. They got 31 per cent of the vote in 2015. Two months into Tony Blair’s leadership, Labour were on 53 per cent of the vote. They got 43 per cent of the vote. A month and a half into Jeremy Corbyn’s leadership, Labour is on 31 per cent of the vote.  A Blair-style drop of ten points would see the Tories net 388 seats under the new boundaries, with Labour on 131. A smaller Miliband-style drop would give the Conservatives 364, and leave Labour with 153 MPs.  

On Labour’s current trajectory, Tory MPs who lose out due to boundary changes may feel comfortable in their chances of picking up a seat elsewhere. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.