In the weeks leading up to the Budget, my priority will be to push for those on middle and lower incomes to come first and foremost. But there are worrying reports that the Treasury is looking at a plan to reduce tax credits for millions of working people.
It has been suggested the Chancellor could take tax credits back to 2003/04 levels, as his supporters have been excitedly telling the media, providing him with £5bn of his £12bn currently planned welfare savings. But just look at what this would mean. If he reduced the per-child element of child tax credit to its 2003/4 level, adjusted for CPI inflation, then it would fall by over £840 per child per year. It would mean a family on £20,000 with one parent in work and two children losing almost £1,700 a year.
And then compare that to what the Chancellor is also thought to be considering for the taxation of top earners. If the Government cut the 45p top rate of tax rate to 40p then someone earning £200,000 annually would gain £2,500 each year. It is clear to almost everyone that a £1,700 raid on working families at the same time as a £2,500 giveaway for top earners would be unjustified. He has cut the rate of income tax for the top earners once already, so my question to him is simple: will he rule out lowering the 45p top rate on 8 July?
I won’t hold my breath. In the long weeks of the election campaign David Cameron and George Osborne ducked every opportunity to rule out a cut in the 45p rate, deploying every verbal contortion to avoid giving a straight answer to a straight question. Indeed, when they were both interviewed on the same day, they refused to rule out a cut. David Cameron said it was not “our policy, it’s not our plan” when he was asked on 5 April and then, hours later, George Osborne repeated this awkward formula, saying it was “not our plan”.
If you think this sounds familiar, then you’re right. It was in April 2010 that David Cameron repeatedly said he had “no plans” to raise VAT, only to hike it up within weeks of entering Downing Street. The Chancellor’s instincts in this area are well established, having made a top-rate tax cut one of his priorities in the last parliament. So it is no surprise to hear that he pushed for a further cut, to 40p, egged on by Boris Johnson, who in 2014 urged the Prime Minister to “to open up some more blue water, and cut the top rate back to 40p”. The Chancellor and Mayor of London didn’t get their wish – or, at least, they haven’t so far. It is thought that David Cameron vetoed the plan in 2012 but that doesn’t mean the end of the matter.
And now Osborne has brought his ideological soulmates in to the Treasury to help deliver his own agenda. Last month he appointed Greg Hands to the role of Chief Secretary. The Chancellor’s deputy has a long history of arguing for a “flat tax”, which would mean a huge giveaway for the highest earners. In 2006, Hands posed on a steamroller, emblazoned with the logo of the Thatcherite think tank Conservative Way Forward, campaigning for the Tories to “to move towards flatter” taxes. To meet at that midway ‘flat rate’ point, this would mean a tax rise for those paying the basic rate on earnings of up to £42,000 a year and another tax cut for people earning more than £150,000. Indeed, Osborne himself has described the flat tax as a “very exciting idea” while Oliver Letwin, the Cabinet Office minister, has suggested it could be looked at again once the public finances have improved.
If this is George Osborne’s vision for Britain then it is a frightening one. But until we see the final decisions of his emergency Budget on 8 July, his true agenda will remain hidden. With the Prime Minister declaring he will leave No 10 before the next election, would it be surprising if the Chancellor, keen to burnish his right-wing credentials with the backbenchers whose support he will need for the leadership, tries to impress them with a shift to the right? He has so far failed to rule out yet another tax cut for the very richest – and he may well make working people on £20,000 pay for this plan – but I will continue to demand action to help and not harm people on middle and low incomes.
Chris Leslie is Shadow Chancellor of the Exchequer