The Tories’ and Labour’s collective tax omnishambles

by Stephen Tall on April 18, 2012

Labour is against reducing the 50p top-rate tax to 45p for those earning more than £150,000. What could be clearer? As it happens, quite a lot could be clearer.

First, the omnishambles…

Given how widely predicted George Osborne’s decision to reduce the top-rate was you would have thought Labour would have anticipated it and worked out their line. They failed to — as Mark Pack noted here, Labour’s Shadow Business Secretary Chuka Umunna contradicted himself within 24 hours, while Shadow Chancellor Ed Balls declined to declare his hand.

When Labour did eventually work out its official position — they are opposed to the reduction in the top-rate — the party then had the perfect opportunity to vote against the measure. Except they failed to, instead abstaining by mistake after a “screw-up”, according to a leaked internal Labour email.

And so to today, when Labour moves its own amendment to the Budget. Surely by now Labour would have got its ducks in a row? Not so much. As my LibDemVoice colleague Caron Lindsay has pointed out here, after a procedural muddle, Labour managed to table an amendment which would have abolished the 45p top tax-rate… meaning that, if it had passed, the highest rate of tax would revert to the 40p rate that applied during 12 years and 11 months out of Labour’s 13 years in power.

That’s right, Labour wanted to go further than the Tories in cutting taxes for the highest-earners. But only by mistake. Which makes it better, apparently. I can’t help feeling that somehow this tax omnishambles exhibits Labour’s revealed preferences.

And now the serious point…

The Lib Dem line ahead of the Coalition budget was to continue to back the 50p rate. Personally, I’m not theological on this issue. As I wrote after the budget, the most important question as the country cuts the deficit is a practical one: ‘How much money is it raising?’ The Treasury argued, albeit without much robust evidence, that reducing the top-rate would have little impact on revenue-raising. However, as George Osborne is discovering, that’s a tougher argument to make if you’re simultaneously levying additional taxes on grannies, pasties and charities. My conclusion last month still stands, I think:

For the Lib Dems, of course, the 50p rate is largely a side-show. It is very clearly the main Tory measure in the Budget: it wouldn’t have been a Lib Dem priority, but in Coalition you compromise, and there are many Lib Dem wins which outweigh it.

And it was the biggest of those wins that Nick Clegg rightly sought to re-focus attention on in his BBC Radio 4 Today Programme interview this morning:

I attach a great deal of significance to the fact that the centrepiece change in the budget — and I acknowledge it has been perhaps somewhat lost by recent coverage about the budget since it was announced — but the centrepiece remains the huge change in the personal income tax system which will benefit over 20 million basic rate taxpayers to the tune of several hundred pounds. It will take by next April over two million people on low pay out of paying income tax altogether, mainly from the lifting of the income tax allowance and, you know, I think you have small changes in budgets which can be controversial or not and then you have big changes in budgets which in my view can be judged whether they are significant on whether we believe that future governments are going to change them or not. My feeling is that what we’re doing on the allowance is one of the biggest, boldest and most radical changes in the personal tax system in a very long time.

Taking two million of the lowest-paid out of tax altogether, cutting the taxes of 20 million basic-rate taxpayers — rewarding work, not taxing it. Tax-cuts for the millions not the millionaires as the party has pointed out. We know it’s not a Tory priority: they prioritise the wealthy. We know it’s not a Labour priority: let’s not forget Gordon Brown’s 10p tax debacle. It is a Lib Dem priority — and it’s happening only because the Lib Dems are in government.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, and also writes at his own site, The Collected Stephen Tall.