Friday, March 23, 2007


Gordon Widens Gap Between Rich and Poor – Tony Lies About It

Who says they don’t get on? The Prime-Minister-in-waiting-and-waiting-and-sulking-and-waiting has, in his final Budget, straitjacketed his successor into doubling tax rates on the lowest-paid, while on the same day the Prime-Minister-in-custody told Ming Campbell that the lowest earners pay no higher a proportion of their wages in tax than the highest. That was untrue then, and it will become more untrue as a result of Mr Brown’s Budget. With so many excellent blog pieces already analysing the Budget, I hadn’t intended to join in, but clobbering low earners like that makes me rather cross. Besides, I have some questions to ask.

As columns of figures tend to send me to sleep, many thanks to Will and Jonny for their easy-to-read graphs summarising the effect: that after not so much changing tax rates as shuffling them, very little changes except that you lose money if you earn under about £18,000 a year. In other words, for all that show, there’s very little change except to punish the people who already earn the least, as Ming Campbell famously pointed out in his reply to Mr Brown on Wednesday and David Cameron, er, wasn’t bright enough to spot and had to count up on his fingers later. A Conservative Leader must be very dim not to have spotted it; after all, income tax cuts for the better-off subsidised by stealthy sleight-of-hand tax rises for people on lower incomes was the favourite tactic of Mr Brown’s predecessor as Conservative Chancellor, Nigel Lawson. And of all the many other pieces written about the Budget, I’d also recommend Stephen Tall’s new and thoughtful analysis, though he obviously doesn’t share my now Pavlovian revulsion at Mr Blair (not that I hold any torch for Mr Brown, but I haven’t yet learned to disbelieve every single word he utters), and of course Jonathan Calder’s piece in which he reports what Mr Blair actually said and so is far less charitable (see there for how the richest do, in fact, pay a proportionately lower share than the poorest).

With so much writing already online, I’ll be briefer than usual; most of what I’d say has already been said. But a few questions still occur to me. The first is, what is the point of a revenue-neutral budget? If it’s neither to take nor to release more money, surely it must be to make significant changes to the tax structure. And why do that? Surely to benefit different groups, or to change behaviour. The really odd thing about Mr Brown’s Budget is that he hasn’t really done any of those things. Even his ‘simplifying’ of the income tax bands to two doesn’t actually change them for some of the non-work earnings taxed on income such as savings and dividends – so Mr Brown has ‘simplified’ three income tax bands into two bands or three bands (consult your tax tables to see which applies).

The Liberal Democrats have proposed a revenue-neutral package to make a ‘Green Tax Switch’. While Mr Brown merely fiddled at the edges of a couple of minor environmental taxes, which will change no-one’s behaviour, the Liberal Democrat plan is a huge redistribution of tax onto pollution to fight climate change, along with abolishing some of the large tax subsidies available to the rich, and to use every penny to cut taxes for people on lower and middle incomes. That includes a 2p cut in national income tax and cutting the 10p rate altogether. Now, when I heard Mr Brown speak, it sounded initially as if that’s exactly what he was doing; when he said he would abolish the 10p rate, I remember thinking, “How on Earth will he find the money to do that?” I’ve seen the figures, and know you need a pretty major tax switch to afford it. Of course, I’d been taken in for a moment by the ambiguity of ‘abolishing the 10p rate’ – as I said in commenting about Ming’s recent speech, that can mean either that we’d raise everyone’s tax allowances so instead of paying 10p in the pound at the bottom end, you’d get to keep every penny up to that level… Or that everyone’s earnings that are currently taxed at just 10p will be taxed at the standard rate instead. Of course, though Gordon had taken the headline-grabbing 2p cut in the standard rate from the Lib Dem plan, he’s cancelled it out by doing exactly the reverse of the Lib Dem proposal for the poorest tax-payers. We would have cut the 10p rate down to nothing, so the poorest two million would pay no tax at all; he’s doubled the 10p rate to 20p, raising taxes on the poorest two million so they have to pay more.

The answer to ‘why did Mr Brown bother?’ is, of course, that ‘2p off national income tax!’ is a good headline, even if it conceals robbing the poor to pay the rich. After all, it worked for the Conservatives under Mrs Thatcher, another long-serving Prime Minister with a brilliant Chancellor; another team who were smug about the widening gap between rich and poor and who, ultimately, couldn’t stand the sight of each other. I can’t criticise Gordon Brown for picking the tax cut that offered the best headline – after all, that’s why the Liberal Democrats picked it, too. What does stick in my throat is that he’s done it only for the headline, and that behind it, the change amounts to absolutely nothing. Another year to fight climate change lost; another two, probably, as this has been announced for next year, and Mr Brown evidently doesn’t trust his successor to write a budget of his own.

There remain a few more questions. How far can income tax be cut? Yes, it’s a tax on jobs, and in theory that’s a bad thing. But it’s also the tax most closely related to ability to pay, which is a good thing. Though people attack stealth taxes, the political reality is that no tax cuts are more popular than income tax cuts (again, that’s why we picked them, too). In an ideal world, I would not want to tax jobs. Or goods. Or pensions. Or homes. Or, let’s face it, anything. No-one enjoys any tax – and all taxes hurt someone, even when you aim the tax at pollution, not people. No one tax can ever be a panacea that will fund everything but hurt no-one, and anyone who claims to have found one is delusional. If public spending could be financed by magic money from the pixie tree, that would be lovely, but sadly no such thing exists (though George Osborne is still frequently seen digging up the Home Counties at night in a desperate attempt to find it). That means you can’t, in the end, cut income tax to nothing, even though doing this would reward work, because the effect would inevitably be regressive.

Coming back to regressive taxation brings me round again to Mr Brown’s tax raid on the lowest-paid, and my last question. Doubling income tax for everyone currently on the starting band has been defended by Mr Brown and his minions on the grounds that the 10p band has ‘done its job’, now that the system of tax credits is in place to give the money back to people who need it, so they won’t be worse off at all. There are several problems with that argument. It means that, instead of straightforwardly keeping their own money, people must jump through the bureaucratic hoops of a system proven to be riddled with errors and delays. It means that generally younger, single people will be singled out to be harder-hit. And it means above all that Mr Brown would rather pay the extra costs of bureaucracy and intrude into everyone’s lives to decide by his arcane whim what money they ‘deserve’, rather than let them simply keep the money they earn, because he wants to be in control, boss around everyone’s lives, and make his serfs grateful for the pittance he deigns to dole out to them. Well, we already knew that. What I don’t know is this. If the 2p cut to the standard rate is paid for by doubling the income tax rate for the lowest-paid, but Labour claims they won’t suffer because they’ll get the money back anyway through tax credits, which are more expensive to administer than letting them keep the money in the first place… If the money to pay for the headline cut is being given back to the people it’s being taken from (with an extra cut to pay for the bureaucracy), then where does the money for the tax cut come from?

No wonder he’s left the implementation of this to his successor.

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