Sarah Teather isn’t the only MP attacking George Osborne today. Ed Miliband’s policy chief Jon Cruddas has strong words for the Chancellor in the Sunday People, accusing him of “cruelty” and of “giving a tax cut to millionaires” by dropping the top-rate of tax from 50% to 45% for those earning more than £150,000.
So what, you might ask, was Jon Cruddas arguing for when Labour was in power? A top-rate tax level of 45% levied on those earning more than £175,000, as it happens:
He’s welcome to change his mind, of course. But he should probably at least acknowledge that the Coalition’s taxing the highest earners more than he urged.
And that is thanks to the Lib Dems, of course, who blocked George Osborne’s aim of reducing top-rate tax to 40%. Those many Tories — including Tim Montgomerie, Ian Birrell and Rob Halfon — who regret the Tories’ decision to cut the top-rate at all might show a little more gratitude to the Lib Dems for curbing their own worst, natural excesses 🙂
* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.
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30 Comments
I think it was a couple of years earlier when the Liberal Democrats decided to change their policy and reduce the upper rate of taxation to 40%.
I cant help thinking that as for the reduction of 50% to 45%, the Lib Dems could have dug their heels in a lot more over this given that public opinion was on their side. If the higher rate had not been reduced, the money raised could have prevented some of the worst benefit cuts; http://www.newstatesman.com/politics/2013/04/welfare-cuts-50p-tax-rate-could-have-prevented
“If the higher rate had not been reduced, the money raised could have prevented some of the worst benefit cuts;”
That is, if you believe it actually raised a significant amount of money anyway. Treasury figures say it did not, but it is all highly conjectural. What is not conjectural is that not limiting benefits would have cost us money. So the trade off is not necessarily there.
The fact is that under the Coalition, the top rate of tax will be higher than it was for 99.4% of the time under Labour and overall, the rich are paying more tax than they used to. I think we should be pointing this out more.
After all, if the 50p rate was such a good idea, why did Labour wait until one month before they left office to introduce it rather than doing it earlier?
I dont think cutting benefits will save money. Greater poverty will increase crime and bad health, both of which cost money for the police and NHS. It means taking money out of local economies which will depress growth. Then there is the cost of the riots that are more likely to happen.
Anyway it seems odd to me that we are criticising Labour for wanting to cut the upper income tax rate at the same time we wanted to cut it even more.
@RC:
“The fact is that under the Coalition, the top rate of tax will be higher than it was for 99.4% of the time under Labour ”
I do wish we had available to us good, sound independent figures to show that the rich actually do pay more tax now than they did on the last day of the last Labour government.
“After all, if the 50p rate was such a good idea, why did Labour wait until one month before they left office to introduce it rather than doing it earlier?”
Both of your comments here (and this article) are rather reminiscent of the sort of ’empty political cleverness’ which we expect from the Labour Party. In 2008, most people believed that the British Economy was ‘sound’ so what Cruddas or anyone else was suggesting as a ‘top line’ for Income Tax then is pretty irrelevant to the present picture.
What serious figures are there to suggest that the 5p difference in top line tax would actually cost us collectively rather than benefit us? Or is it just Daily Mail/Telegraph rhetoric?
Sorry Stephen I usually like your posts but this is really pointless. Do you want to look at what the Lib Dems used to be for before they were against it, higher tuition fees took about 5 minutes to change as a policy not the five years your piece here shows Cruddas taking.
Policies, and statements on them, should be viewed in the context of the times. Do Lib Dem still propose an extra penny on the basic rate of income tax for education? There are loads of appropriate things to knock Labour for, but changing policies after a massive election defeat and 5 years into a huge economic crisis is not one of them.
@ Tony – from another purveyor of empty political cleverness:
http://www.hmrc.gov.uk/budget2012/excheq-income-tax-2042.pdf
you welcome.
What this highlights is the annoying hypocritical, moralistic tone of so many Labour people when what the Coalition is doing is often just a variation of what Labour did. Labour, after all, introduced tuition fees and then tripled them, after ruling out both. When the Coalition upped tuition fees it was evil. Labour brought private providers into the NHS, but when the Coalition did the same it was cruel and evil and destroying the NHS. Well done Stephen for pinning the hypocrisy so explicitly on one of them.
4x more money was taken from the wealthy via other methods in the budget that cut the rate from 50p to 45p than was given back to them by that cut.
For once I agree with Tony Dawson. It’s ridiculous to tie Cruddas to an opinion he held in 2008, when the deficit was a fraction of what it would become by 2010.
“Jon Cruddas: in favour of a 45% top-rate of tax before he was against it”
In the same way the Lib Dems were in favour of a 50% top-rate before they were against it?
@RC “That is, if you believe it actually raised a significant amount of money anyway. Treasury figures say it did not, but it is all highly conjectural.”
Treasury figures say “we don’t know”, and given how quickly the rate was cancelled after introduction, we’ll never know. If it had been in place for 5 to 10 years we’d have been able to get a good idea. I think Labour (or a Labour-LD coalition) will probably reintroduce it in 2015, so we might get a good picture in 2020.
@Stuart Mitchell – You seem to suggest that when Cruddas suggested the 45% rate we were still living through the balmy days of the economic boom. Not so, illustrated by the fact that Alistair Darling, as Chancellor, introduced the 45% rate in his pre-Budget report shortly afterwards. If you don’t remember that then you can watch this footage (http://t.co/3L1MSzhSdy) from YouTube as he announces a 45p top rate of tax (and you can hear Labour MPs cheer too!).
Stuart: “You seem to suggest that when Cruddas suggested the 45% rate we were still living through the balmy days of the economic boom.”
No, I’m suggesting that the deficit was far smaller in 2008 than it became in 2009 and 2010. Which it was.
@ GS – the report actually says:
“The modelling suggests the underlying behavioural response was greater than estimated previously in Budget 2009 and inMarchBudget 2010, decreasing the pre-behavioural yield by at least 83 per cent. This result is also consistent with that contained in the Mirrlees review, and suggests the additional rate is a highly distortionary form of taxation.”
@Geoffrey Payne
“the Lib Dems could have dug their heels in a lot more over this given that public opinion was on their side.”
Given that circa 400,000 people are in the 50% tax bracket, out of circa 30m tax payers, it is safe to say that the majority and hence ‘public opinion’ is not a safe basis on which to make policy, particularly as the welfare state depends upon the willing participation of this minority…
@Stuart Mitchell – The deficit was £97.5bn in 2008/09, when he suggested a 45p rate. That was getting on for a trebling of the deficit on the previous year and by far the biggest single-year deficit at that point since at least the War. I am not sure therefore that I buy your analysis that the fiscal position then was very different from now.
In fact, the projected deficit for the current financial year (2013/14) is £99bn, which is essentially the same as when he spoke those words, so, really, the deficit picture was the pretty much the same in the two time periods in which he made these utterly conflicting statements.
Stuart: “The deficit was £97.5bn in 2008/09, when he suggested a 45p rate.”
If you scroll up you’ll see that Cruddas was talking in September 2008 – long before the 2008/09 period was even over, so I’m not quite sure how you expect him to have known then what the 2008/09 deficit was going to be! In fact, two months after Cruddas’ speech – in November 2008 – Alistair Darling was still predicting a deficit of only £78bn for 2008/09. So you are simply wrong to suggest that the situation in September 2008 was “essentially the same” as it is now.
BRING BACK MARGARET THATCHER’S TOP TAX RATE !
(60%)
WHY?
@ Stuart Mitchell – so a top rate of 45% is OK when there’s a deficit of ‘only’ £78bn but wrong when there’s a deficit of £99bn?
@Liberal Neil
Whether I think 45% is the right top tax rate is irrelevant. The point is that there is clearly a whopping difference between a £78bn deficit and a £99bn deficit (not to mention the much larger deficits we had in the interim). That’s £21bn in extra deficit which somehow has to be made up (assuming we take as a given that deficits are bad). In those circumstances, it is clearly nonsensical to mock Cruddas for not holding exactly the same view now as he did in September 2008.
I note wryly that when Clegg and Cable recently changed their opinion on the best way to get growth going, we were expected to give them credit for having changed their view.
I fail to see why Cruddas opposing a reduction to 45% from 50% is considered such a radical u-turn after wanting to see an increase in the top rate of tax from 40% to 45% a few years before. As far as I can tell, it is only some Lib Dems that think 45% is a magic number in its own right. Labour would like to tax the highest earners more with a 50% tax band and the conservatives would like to tax the highest earners less with no additional bands above 40%.
I don’t really understand the Lib Dem position here: we crow that we are maintaining a higher tax rate than Labour for much of its time in government while simultaneously claiming that it does not raise much/any additional revenue. At least the tory and labour positions have some sort of consistency while we just look confused. Perhaps our MPs are convinced that they have found the sweet spot on the Laffer curve, but I suspect that it they are simply trying to make political expediency look like economic principle.
The news story above is dated 2oth September 2008. That is 5 days after Lehman collapsed. I think that this was a febrile period and that many things were said in haste. Further, I don’t understand the intention of Stephen Tall’s article : are we meant to understand that high marginal rates of taxation on high earners is in and of itself a good and desirable thing?
@ peter – “Perhaps our MPs are convinced that they have found the sweet spot on the Laffer curve, but I suspect that it they are simply trying to make political expediency look like economic principle.”
lol, hard to disagree.
@jedibeeftrix
“from another purveyor of empty political cleverness”
That HMRC report does really read like a first year degree project. The word ‘uncertainty’ appears on about every other page, especially in the ‘conclusions’. It might as well conclude:
“Believe what you want to believe”.
…which is most people’s attitude to almost anything said these days by HMRC….The Treasury…the DWP….the NHS…… UKBa……(contd p94)
Very disingenuous. He was arguing for a tax increase forthe highest paid to fund cuts on lower and middle incomes. He’s now arguing that income tax shouldn’t be cut for the highest paid. Two positions that are entirely consistent. You’re clutching at straws to suggest this is a uturn. The issue is over the 45% rate – which would have been an increase then but a decrease now. The playing field may have changed but the essence of his position hasn’t.
Wasn’t it revealed recently that Alistair Darling’s original proposal was for a 45% top rate?
It wasn’t ‘revealed recently’; Darling announced the policy in the Pre-Budget Report in November 2008. It was meant to be a token of future austerity to offset the fiscal stimulus package of VAT cut and spending increases.
Interestingly, Vince Cable’s judgement at the time was that raising the top rate to 45p would raise ‘negligible’ revenue.
Due to the frequent changes in the announced policy over the past few years (from 40p to 45p to 50p and then back down to 45p again) it is difficult to say which rate maximised revenue, even if you looked at income tax receipts in isolation (which you probably shouldn’t) and even if you discount the impact of changes in the growth of nominal wages and incomes as a result of macroeconomic changes unrelated to tax policy (which, again, you shouldn’t).
What HMRC did find – and the OBR, IFS and others noted – was that there were really significant ‘behavioural effects’ associated with changes in the rate, some of which represented forestalling (shifting income into a different tax year) but some of which was attributable to other forms of distortionary income shifting and/or reduced labour supply.
At the very least it means you have to be very cautious about assuming any significant net revenue yield from top income tax rates above 40p. (Remember the true marginal tax rate on labour income above £150k is currently 53% factoring in employee and employer NI. If, like the IFS, you think VAT should be included too then clearly the effective rate is higher still, but I don’t tend to include this as VAT isn’t a tax specifically on workers or income earners, though of course it is largely borne by them.)
As the IFS have repeatedly pointed out, even if a higher top rate produced marginally more revenue (a proposition which is itself open to question), it does not follow that this is the best way to raise money from the well-off, or that the gains are worth the wider economic downsides. It might well be better to close loopholes and strip away reliefs alongside a lower marginal rate.
And CP, Thatcher’s top rate was indeed 60p for most of the 1980s, which was roughly in line with European and international norms at the time. But most countries reduced their top rates in the subsequent decade or so and in 1988 the Thatcher government stole a march on this process by cutting the top rate to 40p. (The US had cut their top federal rate to 28p in the bipartisan 1986 Tax Reform Act, although it later crept up a bit.)
It seems that Thatcher herself was more cautious about cutting the top rate all the way to 40p in 1988, initially preferring 50p as a staging-post before Lawson persuaded her that they had to be bold. But her hesitation was largely for (valid) macro reasons – the booming economy and buoyant demand – not because she thought 50p was the ideal rate.
“@ GS – the report actually says:
“The modelling suggests the underlying behavioural response was greater than estimated previously in Budget 2009 and inMarchBudget 2010, decreasing the pre-behavioural yield by at least 83 per cent. This result is also consistent with that contained in the Mirrlees review, and suggests the additional rate is a highly distortionary form of taxation.””
Yes. You do realise that the “behavioural response” the report is talking about, is shifting taxable income into the 2009-10 financial year to avoid the tax, which the report cites as making it impossible to figure out whether the tax will raise more or less revenue, don’t you?
@GS “shifting taxable income into the 2009-10”
Will we see billions of taxable income shifted from 2012/2013 to 2013/14, creating the illusion of a big recvovery in the run up to the 2015 election with the subsequent drop back to normal levels then appearing to be due to the failings of the incoming government?
@Peter Watson “creating the illusion of a big recvovery in the run up to the 2015 election”
I would tend to agree that there will be an increase in tax revenues in time to be taken into account for the 2015 budget, if not then we’ll know that many have already changed their financial arrangements to mitigate their tax bills…
The two options I can see are: firstly the revenues are spent as bribe/reward, the second would be to use the revenues to reduce debt/borrowings. For consistency with the message that has been given out to-date, I would expect the latter to be the preferred option, however as we are dealing with politicians I suspect they will go with the first option…