View all newsletters
Sign up to our newsletters

Support 110 years of independent journalism.

  1. Business
  2. Economics
6 July 2015

Boris has outflanked Osborne on the living wage and the top tax rate

The Conservative leadership rival's alternative Budget offers something for the left and the right. 

By George Eaton

The next Conservative leadership contest has begun. Not every move that the contenders make should be viewed through this prism. But it is an inescapable reality that one of them will succeed David Cameron before the end of this parliament. 

In the first all-Conservative Budget since November 1996, George Osborne has an opportunity to raise his stock among his party by reducing the top rate of tax from 45p to 40p (as 160 Tory MPs have demanded). The absence of the Liberal Democrats from the government frontbench means that Osborne, one Conservative tells me, has “no excuse not to act”. But in his interview with Andrew Marr yesterday, the Chancellor signalled that he does not intend to use his political freedom to cut the top rate on Wednesday. He emphasised that his “priority” was to deliver to “the promises upon which we were elected” (of which a cut in the top rate was not one): a £12,500 personal allowance and a £50,000 40p tax threshold. Osborne appears to have wisely concluded that it would be dangerously incongruous to also reduce taxes for the top 1.5 per cent of earners while austerity (such as tax credit cuts) continues elsewhere. 

The Chancellor was also notably lukewarm towards the argument that more companies should pay the living wage to compensate those whose in-work benefits will be reduced (as former No. 10 adviser Steve Hilton has recently proposed). He said that “the best answer” to this conundrum was to cut taxes and “to make sure your businesses are growing and profitable and that they can pay good salaries”. At no point did he endorse the argument made by the left and, increasingly, the right that cheapskate corporations are denying their workers the pay they deserve.

In private meetings, I’m told, Osborne has consistently dismissed those (such as Jo Johnson, the universities minister and the author of the Conservative manifesto) who suggested that the Tories should annex Labour’s policy of providing tax breaks to companies who raise salaries to living wage level. To him, this is statist meddling based on the false premise that firms who can afford to pay more aren’t. As the Resolution Foundation’s Gavin Kelly writes in an essential blog: “Perhaps the biggest misconception is the voguish notion that if tax credits are cut, employers will somehow decide to offer pay rises to fill the gap. This is saloon-bar economics espoused by some on both left and right. The available evidence suggests that the great majority of the gains from tax credits flow through to employees, not employers.”

It is significant, then, that Osborne’s most formidable rival for the Conservative leadership, Boris Johnson, has used his pre-Budget Telegraph column to advocate the changes the Chancellor has refused to offer (for now): a cut in the top rate of tax and the expansion of the living wage. The latter is proposed as political cover for the former: “We think of ourselves according to our relationship with others – and it is simply not fair that a Budget should put more disposable income in the pockets of the rich and less disposable income in the pockets of the poor. And that, alas, would be the result if we were to cut top-rate tax and simultaneously to cut in-work benefits without any compensating improvements in pay.” Unlike Osborne, the Mayor of London contends that firms are using tax credits to artificially supress wages: “As for low pay, it isn’t a function of market forces. It’s being propped up by the taxpayer. That needs to end. And that means business has got to start paying its people a wage they can live on.” 

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

It is an appealing pitch that offers something to both the right (a cut in the top rate) and the left (the living wage) of the Conservative Party. The Mayor has cast himself as a “one nation” figure more capable of performing the political gymnastics required to deliver free market policies. Unless Osborne surprises on Wednesday, Johnson’s alternative Budget will retain political potency. 

Content from our partners
The promise of prevention
How Labour hopes to make the UK a leader in green energy
Is now the time to rethink health and care for older people? With Age UK

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU