The wisdom of ending the 50p upper tax rate half-way through this Parliament is open to doubt. If unemployment is still rising and benefits being pruned, a tax cut for the rich would send out a curious signal to the public.
Yet there is no doubt now that this is what the coalition intends, however, given David Laws writing last week in the FT that it should be done by 2013 and Nick Clegg telling us today that it would be done when people on lower middle incomes are “breathing more easily“.
How this will be done seems likely to be a combination of a crackdown on tax avoidance on the purchase of large houses (announced in the budget) and fiddling with council tax. It won’t be a mansion tax – according to Clegg – despite claims in some newspapers this morning.
Boris Johnson has written a withering article this morning contrasting what Ed Miliband said at Saturday’s rally with what a truthful Miliband should have actually said. The piece in the Telegraph is most amusing .
Then again, Labour claim that they have shown some evidence of where they would reduce the deficit. For example, Ed Balls has suggested that Labour would lower the threshold for people paying the 50p tax to £100,000 and introduce a mansion tax, according to this article from January. (Although the position may have since changed again). Getting rid of the 50p rate (currently paid over £150,000) is “not a priority” for Ed Miliband.
That creates an interesting dividing line between the coalition and the opposition. The conventional wisdom sympathises with the Tory/Lib approach; ie that this high rate is “anti-aspiration” and should be abandoned as soon as possible. The theory goes that people on £40k of £50k all think that – one day – they could earn over £150,000 and that the higher tax will somehow put them off achieving this goal.
The alternative view – taken by Labour – is that only 275,000 people pay the 50p rate, and they are by far the highest earners in society. (Although Jo Johnson, our guest contributor, calls them ‘innocent bystanders’ hit by a ‘blunderbuss’.) It surmises that only starry-eyed dreamers and milk round graduates expect to see their income triple or quadruple in a few years’ time.
I’ve no idea which view the public take at present. But I suspect that amid job losses, pay freezes, benefit cuts and shrinking public services, the latter view may win out.
Jim Pickard
Kiran Stacey