UK Politics
That old top-rate myth
Published 27 November 2008
As Labour shows itself willing to challenge the right-wing press, now is the moment for the party to prove it can be even bolder
It is impossible to know how many regular readers of the Sun - with the obvious exceptions of its owner, Rupert Murdoch, and a handful of Premier League footballers - earn more than £150,000 a year. But it is tempting to wonder whether the average Sun reader, often described as "white van man", is ever bemused by the tabloid's ideological commitment to the very rich. In the week just past, the paper was expressing fury at what it considered to be Labour's "return to the 1970s" because of the Chancellor's pledge in his pre-Budget report to raise by 5 per cent, to 45 per cent, the top rate of income tax for those earning more than £150,000 a year in 2011.
On taxation, the centre of gravity of the Sun, like much of the media, is to the right of most of the electorate. Britain's voters have never been as opposed to a fairer tax system as many newspapers would have us believe. Which is why Labour's move towards introducing a more progressive system is overdue and, perhaps, a key to winning the next election.
The background to new Labour's fear of upsetting the centre-right consensus on tax is well known: Tony Blair, Gordon Brown, Peter Mandelson and Alastair Campbell watched helplessly as Neil Kinnock was eviscerated during the 1992 election campaign, when Labour proposed an increase in the top rate of income tax from 40 to 50 per cent as well as removal of the exemption that high earners enjoyed from paying the full 9 per cent National Insurance contributions. The Conservatives caricatured it as Labour's double whammy and - in a phrase they are using again - "Labour's tax bombshell".
Yet, in 1992, a significant majority of voters (52.2 per cent) voted for the parties - Labour and the Liberal Democrats - advocating income-tax increases rather than the one party that did not, the Conservatives (41.9 per cent). In the event, the Tories held on to power for another five years under John Major. Our voting system - where roughly a million people in marginal seats determine election results for the nation - has created a culture in which both main parties are forced to pitch their policies to centre-right seats in Middle England, even though there is a silent progressive majority in Britain.
Peter Mandelson, the Business Secretary, may have insisted to cabinet colleagues that the "broad sweep of history" will not judge Alistair Darling's pre-Budget report as a critical change of direction for new Labour. But, contrary to some reports, I understand that Mandelson "fully supported" the action by the Chancellor, the boldness of which has its origins in Brown's summer crisis of confidence. During this period, with Labour slumped in the polls, the Prime Minister and his closest cabinet colleagues concluded it was time for "Gordon to be Gordon" and "come out" as a redistributor of wealth. He was so unpopular that he had nothing to lose. He had to stop seeking to appease the right-dominated media opposed to his aims.
This feeling was strengthened by the election of Barack Obama on a progressive platform of increasing taxation of the richest and "spreading the wealth": an emphatic victory that at once surprised and impressed Brown. The gravity of the economic crisis - and altered attitudes in the City to fiscal policy - have changed the rules of the political game. Yet there are signs that the government's emergence as a force for social democracy, however flawed, is as much out of conviction as pragmatism or desperation.
All this means that the election contours are drawn more starkly, with the Tories back in their old comfort zone
It is disappointing that, having finally risked losing the support of Murdoch and the right-wing press, which has imprisoned Labour ideologically for the past 15 years, Brown and Darling did not go further. Only 1.3 per cent of those paying tax earn more than £150,000 a year, and only 2 per cent earn more than £100,000. Although a top rate of 50 per cent might have been seen as too punitive (as many in the Treasury warned), placing 2 per cent of income-tax payers into the top bracket would surely have been a legitimate step towards creating a progressive taxation system.
It tends to be forgotten - not least by the shadow chancellor, George Osborne, who seemed so pleased with his aggressive, braying performance in the Commons on Monday - that the top rate of tax under Margaret Thatcher was 60 per cent, until it was slashed to 40 per cent by the then chancellor, Nigel Lawson, in 1988. That was almost a decade into the Thatcher revolution. Indeed, until 1981 - three years into Thatcher's government - the top rate was 83 per cent.
The main parties never put the choice to the electorate again (though Charles Kennedy gained a million votes by pledging a penny increase on income tax in 2005) and from the 1990s the great taxation myth set in hard. In autumn last year, a YouGov poll for the Fabian Society found that 67 per cent supported a 50 per cent top rate of tax for those earning £100,000 or more, with only 25 per cent opposed to such a move. Strikingly, even Conservative voters were in favour of a higher top rate - by 55 per cent to 40 per cent - while the support was 78 per cent to 18 per cent among Labour voters, and 80 per cent to 18 per cent among Liberal Democrats.
Even those earning more than £50,000 appeared to believe in the enlightened self-interest of paying more tax, again countering the myth that the British electorate is obsessed with having more money to spend.
All this means that the election contours are drawn more starkly, Labour having pushed the Conservatives back to their monetarist comfort zone while, to the anger of the Times and other formerly new Labour-supporting papers, the government is starting to embrace a more openly redistributive and social democratic position.
The Conservatives may come to regret refusing to make fiscal policy their equivalent of Labour's old Clause Four, as the former chancellor Kenneth Clarke would have done. Since the Tories' crucial - and fated - withdrawal from their commitment to adhere to Labour's spending plans until 2011, David Cameron and his advisers have resorted to the "core vote" strategy, pursued so misguidedly by William Hague and Michael Howard at the 2001 and 2005 general elections.
With the positions of the two main parties suddenly polarised, the minority view that Labour can win the next election may soon become the conventional wisdom.
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