George Osborne speaks at an event in Sydney on February 21, 2014. Photograph: Getty Images.
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Those who pay the 40p tax rate are not "the middle"

Just 15 per cent earn enough to pay the higher rate. Osborne is right to focus on helping the low-paid.

Two days ahead of the Budget, the Conservative revolt over George Osborne's stance on the 40p tax rate is continuing. The Chancellor's refusal to increase the threshold for the higher rate, in favour of helping low-earners through another large rise in the personal allowance (which is set to be increased from £10,000 to at least £10,500), is enraging those Tories concerned that the party's natural "middle class" supporters are being caught in a tax band intended for the rich.

Owing to successive reductions in the 40p threshold (which currently stands at £41,451, down from £43,875 in 2010), the number of people paying the rate has risen to a record high of 4.4m, up from 3m before the election. Norman Lamont and Nigel Lawson have both urged Osborne to act to relieve the "squeezed middle", while the Institue of Directors has warned of the damaging effect on work incentives. The Chancellor's alleged suggestion that the surge in the number of 40p taxpayers would aid the Tories by making voters feel a "success" (which may be partly true) has added fuel to the fire.

But barring a surprise U-turn on Wednesday (not unheard of in Budgets), he will ignore the pleas from right and increase the threshold by no more than 1 per cent, below the rate of inflation. It is far better, he believes, to target limited resources (the deficit is forecast to be £111bn this year) at the low-paid, who will benefit significantly from another rise in the personal allowance. This invites the rejoinder that Osborne chose to cut taxes for the richest 1 per cent by reducing the top rate from 50p to 45p in his 2012 Budget. But it is at least partly to compensate for that kamikaze act that the Chancellor is determined to reposition the Tories as the party for the low-paid

In this respect, Osborne is entirely right: it is not those who pay the 40p rate who are most in need of relief. Far from representing "the middle", those who are caught by the tax band represent the top 15 per cent of earners. The median salary for a full-time employee in the UK is just £26,884, well below the £41,451 you need to earn before paying the 40p rate. And even after falling within its reach, they will only pay the rate on income above this level (not their entire salary) meaning that the effect for many will be negligible. There may well be strong arguments for increasing the 40p threshold (Osborne should certainly be taxing the top 1 per cent far more) but it says much about the gulf between rhetoric and reality that higher rate taxpayers are still routinely described by the media and politicians as "the middle".

As I've noted before, there are better ways of supporting the low paid than raising the personal allowance - which will do nothing to help the five million workers who earn below £10,000.  It is those in the second-richest decile who gain the most in cash terms from the policy (mainly due to the greater number of dual-earning households), followed by the richest tenth, who gain marginally less due to the gradual removal of the personal allowance after £100,000 (a brilliant piece of stealth redistribution by Alistair Darling). As a percentage of income, it is middle-earners who gain the most, with those at the bottom gaining the least. Progressive alternatives to raising the income tax threshold include increasing the National Insurance (NI) threshold, which currently stands at £7,748, cutting VAT, which stands at a record 20 per cent and hits the poorest hardest, or raising in-work benefits such as tax credits.

But a rise in the personal allowance will at least do something to aid lower and middle earners, in contrast to a rise in the 40p threshold, which would benefit no one but the top 15 per cent.

George Eaton is political editor of the New Statesman.

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Senior Labour and Liberal Democrat politicians call for a progressive alliance

As Brexit gets underway, opposition grandees urge their parties – Labour, Lib Dems, the SNP and Greens – to form a pact.

A number of senior Labour and opposition politicians are calling for a cross-party alliance. In a bid to hold the Conservative government to account as Brexit negotiations kick off, party grandees are urging their leaders to put party politics to one side and work together.

The former Labour minister Chris Mullin believes that “the only way forward” is “an eventual pact between Labour, the Liberal Democrats and the Greens not to oppose each other in marginal seats”. 

 “Given the loss of Scotland,it will be difficult for any party that is not the Conservative party to form a government on its own in the foreseeable future," Mullin argues, but he admits, “no doubt tribalists on both sides will find this upsetting” and laments that, “it may take three or four election defeats for the penny to drop”.

But there are other Labour and Liberal grandees who are envisaging such a future for Britain’s progressive parties.

The Lib Dem peer and former party leader Ming Campbell predicts that “there could be some pressure” after the 2020 election for Labour MPs to look at “SDP Mark II”, and reveals, “a real sense among the left and the centre-left that the only way Conservative hegemony is going to be undermined is for a far higher degree of cooperation”.

The Gang of Four’s David Owen, a former Labour foreign secretary who co-founded the SDP, warns Labour that it must “face up to reality” and “proudly and completely coherently” agree to work with the SNP.

“It is perfectly legitimate for the Labour party to work with them,” he tells me. “We have to live with that reality. You have to be ready to talk to them. You won’t agree with them on separation but you can agree on many other areas, or you certainly should be trying.”

The Labour peer and former home secretary Charles Clarke agrees that Labour must “open up an alliance with the SNP” on fighting for Britain to remain in the single market, calling it “an opportunity that’s just opened”. He criticises his party for having “completely failed to deal with how we relate to the SNP” during the 2015 election campaign, saying, “Ed Miliband completely messed that up”.

“The SNP will still be a big factor after the 2020 general election,” Clarke says. “Therefore we have to find a way to deal with them if we’re interested in being in power after the election.”

Clarke also advises his party to make pacts with the Lib Dems ahead of the election in individual constituencies in the southwest up to London.

“We should help the Lib Dems to win some of those seats, a dozen of those seats back from the Tories,” he argues. “I think a seat-by-seat examination in certain seats which would weaken the Tory position is worth thinking about. There are a few seats where us not running – or being broadly supportive of the Lib Dems – might reduce the number of Tory seats.”

The peer and former Lib Dem leader Paddy Ashdown agrees that such cooperation could help reduce the Tory majority. When leader, he worked informally in the Nineties with then opposition leader Tony Blair to coordinate their challenge to the Conservative government.

“We’re quite like we were in 1992 when Tony Blair and I started working together but with bells on,” Ashdown tells me. “We have to do something quite similar to what Blair and I did, we have to create the mood of a sort of space, where people of an intelligent focus can gather – I think this is going to be done much more organically than organisationally.”

Ashdown describes methods of cooperation, including the cross-party Cook-Maclennan Agreement on constitutional reform, uniting on Scottish devolution, a coordinated approach to PMQs, and publishing 50 seats in the Daily Mirror before the 1997 election, outlining seats where Labour and Lib Dem voters should tactically vote for one another to defeat Tory candidates.

“We created the climate of an expectation of cooperation,” Ashdown recalls. Pursuing the spirit of this time, he has set up a movement called More United, which urges cross-party support of candidates and campaigns that subscribe to progressive values.

He reveals that that “Tory Central Office are pretty hostile to the idea, Mr Corbyn is pretty hostile to the idea”, but there are Conservative and Labour MPs who are “talking about participating in the process”.

Indeed, my colleague George reveals in his report for the magazine this week that a close ally of George Osborne has approached the Lib Dem leader Tim Farron about forming a new centrist party called “The Democrats”. It’s an idea that the former chancellor had reportedly already pitched to Labour MPs.

Labour peer and former cabinet minister Tessa Jowell says this is “the moment” to “build a different kind of progressive activism and progressive alliance”, as people are engaging in movements more than parties. But she says politicians should be “wary of reaching out for what is too easily defined as an elite metropolitan solution which can also be seen as simply another power grab”.

She warns against a “We’re going to have a new party, here’s the board, here’s the doorplate, and now you’re invited to join” approach. “Talk of a new party is for the birds without reach and without groundedness – and we have no evidence of that at the moment.”

A senior politician who wished not to be named echoes Jowell’s caution. “The problem is that if you’re surrounded by a group of people who think that greater cooperation is necessary and possible – people who all think the same as you – then there’s a terrible temptation to think that everyone thinks the same as you,” they say.

They warn against looking back at the “halcyon days” of Blair’s cooperation with the Lib Dems. “It’s worth remembering they fell out eventually! Most political marriages end in divorce, don’t they?”

Anoosh Chakelian is senior writer at the New Statesman.