Not as progressive as he likes to make out. Photo: Getty Images
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How does Labour move on from tax and spend?

Voting against further increases to the personal allowance would expose George Osborne's rhetoric for what it is.

Last week saw publication of the Conservative Government’s first Finance Bill. It’s through the Finance Bill that the Tories will give legal form to the tax measures announced in their Summer Budget.

And they make an ignominious start. True, they never promised us a Rose Garden. But, I beg your pardon, the Conservative Manifesto did promise not to increase rates of income tax. And the very first clause of that very first Bill breaks that promise by busting the ‘Tax Lock’ to permit a 7.5 per cent increase in income tax paid on dividends.

Nor was this the only tax promise to fail to survive the nine weeks from General Election to Summer Budget. The Tories also pledged to “increase the annual tax charges paid by those with non-domiciled status, ensuring that they make a fair contribution to reducing the deficit.” But the Budget gave us no increase in the annual charges. Instead we have some fairly modest changes which will remove the benefit of the status from those unlikely to have been entitled to claim it in the first place.

But, “over-firm” though the Manifesto commitments may be revealed to be, and with a second reading today, the task before Labour is to work out before the Committee stages in September where it stands on the Finance Bill measures.  

I’ll offer some thoughts in the coming days.

And I’ll assume Labour wants to shrug off the clothing of tax and spend and ask, instead, how it might wear its new garb whilst enhancing Labour values?  To do so is to accept, for the time being at least, the Conservatives’ narrative around the ‘right’ size of the state. Revisiting that question can await another day.

The first measure Labour should oppose is the proposed rise in the personal allowance.

Cameron spoke last month on the need to end the merry-go-round of “people working on the minimum wage having that money taxed by the government and then the government giving them that money back – and more – in welfare.”

But raising the personal allowance is medicine that gets nowhere near where the trouble is. There are several reasons why this is so. But most important: however high you raise the personal allowance, employers still have to deduct tax on income – in the form of National Insurance contributions – and pay it over to government.

As things stand, someone on minimum wage could work 31 hours a week before she had to start paying income tax. But she could only work 23 hours before paying National Insurance contributions.

If you really want to end the “ridiculous merry-go-round” you don’t focus on income tax which kicks in at 32 hours but on National Insurance contributions which kick in at 24 hours.

It’s just the wrong solution.

Raising the personal allowance is terrible policy for other reasons too.

It’s regressive: the lowest earning 46 per cent of adults already earn too little to pay income tax. Raising the personal allowance does nothing to help them. Indeed, those who presently benefit most in cash terms are, as IFS has identified, the second richest decile in the income distribution.

With the lower half of the adult income distribution already outside income tax the scope for helping the poorest through the tax system is limited. Tax credits are the sharpest way to target help at those who need it most. If, for reasons of ideology, you’ve discarded them from your tool box you’re left with blunter instruments. But here are two.

Council tax is highly regressive. In 2013/14, even net of Council Tax Support, it represented a staggering 13.5 per cent of the earnings of the poorest 20 per cent of households and only 1.9 per cent of the richest (source ONS) (6.4 per cent/4.3 per cent/3.1 per cent for intermediate quintiles). The case for spending part of that £4bn a year cost of raising the personal allowance to £12,500 on reducing this unfairness makes itself.

Compelling, too, although better understood, is the argument, already made above, for raising the level at which workers become liable to pay National Insurance contributions. If you spend that £4bn on raising the point at which you start to pay 12 per cent National Insurance contributions you can benefit those in work who earn £8,060 and above, reaching much further down the income distribution curve. Then you really will start to get people off the roundabout.

Of course, whatever you propose, the reality is that the Tories will press ahead, regardless, with increasing the personal allowance. And it is far, far too early to begin to formulate manifesto policies for 2020. But even at this stage in the electoral cycle there is work to be done in exposing the reality of Osborne’s One Nation rhetoric: a suite of tax policies which do nothing for the poorest and distribute their fruits to those who need them least. 

Jolyon Maugham​ is a barrister who specialises in tax. He advised the Labour party on tax policy, and blogs regularly on taxation here.

Jolyon Maugham is a barrister who advised Ed Miliband on tax policy. He blogs at Waiting for Tax, and writes for the NS on tax and legal issues. 

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Commons Confidential: Fearing the Wigan warrior

An electoral clash, select committee elections as speed dating, and Ed Miliband’s political convalescence.

Members of Labour’s disconsolate majority, sitting in tight knots in the tearoom as the MP with the best maths skills calculates who will survive and who will die, based on the latest bad poll, observe that Jeremy Corbyn has never been so loyal to the party leadership. The past 13 months, one told me, have been the Islington rebel’s longest spell without voting against Labour. The MP was contradicted by a colleague who argued that, in voting against Trident renewal, Corbyn had defied party policy. There is Labour chatter that an early general election would be a mercy killing if it put the party out of its misery and removed Corbyn next year. In 2020, it is judged, defeat will be inevitable.

The next London mayoral contest is scheduled for the same date as a 2020 election: 7 May. Sadiq Khan’s people whisper that when they mentioned the clash to ministers, they were assured it won’t happen. They are uncertain whether this indicates that the mayoral contest will be moved, or that there will be an early general election. Intriguing.

An unguarded retort from the peer Jim O’Neill seems to confirm that a dispute over the so-called Northern Powerhouse triggered his walkout from the Treasury last month. O’Neill, a fanboy of George Osborne and a former Goldman Sachs chief economist, gave no reason when he quit Theresa May’s government and resigned the Tory whip in the Lords. He joined the dots publicly when the Resolution Foundation’s director, Torsten Bell, queried the northern project. “Are you related to the PM?” shot back the Mancunian O’Neill. It’s the way he tells ’em.

Talk has quietened in Westminster Labour ranks of a formal challenge to Corbyn since this year’s attempt backfired, but the Tories fear Lisa Nandy, should the leader fall under a solar-powered ecotruck selling recycled organic knitwear.

The Wigan warrior is enjoying favourable reviews for her forensic examination of the troubled inquiry into historic child sex abuse. After Nandy put May on the spot, the Tory three-piece suit Alec Shelbrooke was overheard muttering: “I hope she never runs for leader.” Anna Soubry and Nicky Morgan, the Thelma and Louise of Tory opposition to Mayhem, were observed nodding in agreement.

Select committee elections are like speed dating. “Who are you?” inquired Labour’s Kevan Jones (Granite Central)of a stranger seeking his vote. She explained that she was Victoria Borwick, the Tory MP for Kensington, but that didn’t help. “This is the first time you’ve spoken to me,” Jones continued, “so the answer’s no.” The aloof Borwick lost, by the way.

Ed Miliband is joining Labour’s relaunched Tribune Group of MPs to continue his political convalescence. Next stop: the shadow cabinet?

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 27 October 2016 issue of the New Statesman, American Rage