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14 February 2013

Miliband’s 10p tax pledge is a political masterstroke

The Labour leader has distanced himself from one of Gordon Brown's biggest mistakes, demonstrated his commitment to redistribution and left the coalition playing catch-up.

By George Eaton

It looks like Ed Miliband has been reading the New Statesman. Last week’s NS leader urged the Labour leader to call for the return of the 10p tax rate (as demanded by Conservative MP Robert Halfon) and in his speech on the economy, Miliband has done just that. 

Having borrowed one smart idea from a Tory, Miliband has borrowed another from a Lib Dem (Vince Cable). The return of the 10p rate will be funded by the introduction of a “mansion tax” on houses worth more than £2m. 

The numbers will need to be scrutinised but the politics are perfect. The pledge distances Miliband from one of Gordon Brown’s greatest mistakes, demonstrates his commitment to redistribution and splits the coalition. The Tories want a 10p tax rate but oppose a mansion tax; the Lib Dems want a mansion tax but oppose a 10p rate (preferring an even higher personal allowance of £12,500). 

Here’s the key section from the speech: 

A One Nation Labour budget next month would lay the foundations for a recovery made by the many, not just a few at the top.

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Let me tell you about one crucial choice we would make, which is different from this government.

We would tax houses worth over £2 million.

And we would use the money to cut taxes for working people.

We would put right a mistake made by Gordon Brown and the last Labour government.

We would use the money raised by a mansion tax to reintroduce a lower 10 pence starting rate of tax, with the size of the band depending on the amount raised.

This would benefit 25 million basic rate taxpayers.

Moving Labour on from the past and putting Labour where it should always have been, on the side of working people.

The question now is how George Osborne will respond when he delivers the Budget on 20 March. David Cameron hinted at PMQs yesterday that the Chancellor would announce the return of the 10p tax rate but having ruled out the introduction of a mansion tax, he’ll need to find another means of funding it. The Lib Dems, meanwhile, are sceptical of the measure, arguing that a income tax threshold will do more to benefit the poorest.

As Lib Dem minister David Laws argued yesterday: “It’s [raising the personal allowance] much simpler than having a 10p rate. It’s far more attractive to say to people on low incomes you won’t pay any income tax until you earn a sensible amount of money. We’re even talking about raising it further in the next Parliament so people on minimum wage don’t pay any tax at all.”

But whatever deal the coalition hammers out, Miliband’s political masterstroke means Osborne now has no choice but to play a “trump card” at the Budget.