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The real Labour divide over the 50p tax rate

Is it a temporary tax or a permanent one?

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

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.