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  2. The Staggers
22 October 2018updated 07 Jun 2021 5:28pm

With his new tax cut, Boris Johnson is looking for love in all the wrong places

By Stephen Bush

Boris Johnson has a plan; a plan to cut taxes for people with incomes over £50,000, by moving the threshold at which you pay the 40p in the pound from £50,000 to £80,000.

The cut flows to everyone earning above £50,000, whether they are earning £50,001, £75,000, £80,000 or well in excess of that. It will create a maximum saving of £6,000 a year, but only for people whose earnings are in rent or divided incomes – the self-employed or people paying income tax through payslips would save £3,000 a year, because the cut is partially funded by increasing national insurance contributions. 

There is a lot to criticise about this plan from a distributional perspective, because it hugely benefits the highest earners while doing nothing for people on middle or lower incomes. (The median income in London is around £32,000, while across the whole of the United Kingdom it’s £28,000.)

But is also a politically maladroit way to spend £9.5bn. There are essentially three reasons for the government to cut taxes or spend money: to win support, to stimulate the economy or to fund something. Of course, these reasons intertwine: if you spend £9.5bn to boost economic growth you’d expect to win at least some reward from the voters.

£9.5bn is a non-trivial amount of money – for context, it is more than the total number of cuts to the schools budget since 2010, which have caused the Conservatives no end of political pain of late – so you really want to be getting a lot of bang for your buck, electorally speaking.

The problem is, while the total bill of the cut is large, the return to individual taxpayers is small. Let’s take someone in full-time work earning £80,000, as they are the least affluent biggest beneficiary of this tax cut. (We should always start by examining the voters with the least money as, surprise surprise, you will be more grateful to keep more of your money the less you have of it.) They will be better off to the tune of £250 a month, a little more than the cost of a PlayStation 4 and not even the cost of a luxurious weekend away. Frankly the Conservatives are not going to win the support of voters with £250 a month. Nor are these voters going to spend enough from this tax cut to get economic growth motoring along.

Added to that, while Labour has opted to match the Conservatives’ cut tax for people earning £50,000, people earning in excess of £70,000 are already better off voting Labour as far as the amount they personally will have to pay in tax is concerned. Adding to the politically inept decision, it is a tax cut that directly benefits members of parliament, essentially a charitable donation to a Labour Party that wants to be able to run on an anti-establishment platform at the next election.

But cutting taxes in the £50,000 to £80,000 range has become an article of faith among many in the Conservative Party. That’s because under New Labour the number of people paying the higher rate significantly increased and George Osborne did very little to reverse it.

But the political calculation that underpinned Osborne’s tax-and-spend changes – that you lose a great deal of revenue and gain very little in terms of votes – remains unchanged. And it remains a tax cut for people who really don’t need one.

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