Sunday, November 23, 2008

Tax Rise Marks the Death of New Labour

If it is true, as the BBC is reporting, that the Government intends to introduce a new top rate of income tax, it marks the death knell for New Labour. No doubt someone out there can work out the extra tax a 45p rate would raise from those earning above £150,000, but it is surely a fairly paltry amount, which would be more than counterbalanced by the economic disincentive inherent in it. The age of aspiration is drawing to a close.

Tony Blair must be spinning in his political grave.

Gordon Brown is heading for his.


Mike Hobday said...

The extra tax on someone earning £150,000 would be nil. It's a marginal rate on income above £150,000.

Man in a Shed said...

I thought once they started implementing clause 4 was New Labour's death.

But hey ho, as long as they get buried who cares ?

Iain Dale said...

Mike, very clever. I shall insert the word 'above'.

Old BE said...

More populism! It won't raise much but it will look "progressive". What happened to the end of spin?

Doug said...

Surely this could drive tax receipts down. The top 1% or even the top 5% of earners who pay a huge proportion of total collected income tax will be busily planning their move abroad before the next election. Whatever the economic circumstance they always have high mobility and the low tax states and principalities will be jockeying for new residents. The current trickle of businesses we have moving away from Britain may well turn into a torrent. Brown is going to destroy us.

Newmania said...

Glad to see you immediately spotted what I did Iain. Its a ruse so Labour can pretend that no-one will be paying and yet say they are being "up front". Actually as we all know you will get nothing rom that we are already at the top of the curve at that level.

Oh no ,after the election he will stealth tax Mr. and Mrs normal. There is no option and there never has been

Its a lie and a preparation for more lies .We can expect to enter a morla zone typically inhabited by trapped rats . For ten years the mirage has been that you could have it all . An economy that works , high taxes well funded services and yet a bit more in your pocket.

At a deep insinctive level people see what they always suspected. It was all an illusion

Anonymous said...

It is utterly pointless, might raise around 2-3 billion extra, which lets face it, is a drop in the proverbial ocean of debt that Gordon will have racked up by then.
Raising VAT from the temporary 15% to say 20% or 22.5% would have the same or greater effect.

Sunder Katwala said...

I am certain that a clear majority of Tory voters will back this.

For example, 55% of Tory voters supported a 50% rate over 100k in a YouGov Fabian poll (with 67% support among the public generally). That proposal has had clear majority support on a cross-income, cross-class, cross-party basis, even if that is largely ignored in media/political discussion. (That specific poll was Autumn 2007, but I fully expect this more modest proposal will be more popular)

So are you sure you know which way your leadership will jump on this?

More poll details here

Iain Dale said...

Sunder, yes I am sure. And you sound as if you would have liked the figure to have been 55P ... or perhaps higher?! :)

Doug said...

Is there an actual link to the polls raw data because the result greatly depends on the question? I can't find one. The press release I read from the Fabians at the time reported questions very much in the mould of "Do you like Xmas?" or "Would you rather be dead or alive?" And don't be surprised if you get an answers over 90% in the positive.

TB for TB's sake said...

Is this the same new labour that introduced windfall taxes, the minimum wage and increased national insurance to pay for the NHS?

Come on Iain, this is pure new labour - 45% isnt going to be damaging - and its all about sharing the pain.

The painful thing for you guys is Im pretty sure Cameron will sign up to this. He is in dire need of a reaffirmation of his progressive credentials and this could well be it. Plus with taxes needing to rise across the board, it wouldnt be very cameroon to penalise lower earners only.

So how about it - a small wager Cameron ends up accepting this in the manifesto?

John Pickworth said...

The rise would indeed raise around 2 or 3 billion a year. Peanuts perhaps but a sum (and a few more like it) that will be needed soon to make the huge interest payments on Gordon's debt.

Of course, repaying the much larger principle sum will fall to those millions of us earning substantially less than £150k.

Another one of Gordon's Shell Games... keep your eye on the cups ladies and gents.

kenny murphy said...

This will prove to be popular with the electorate. The rich have got very much richer under a Labour government these past eleven and a half years.

It's right that they should be asked to pay more. 45% isn't high enough.

I'd have liked to see 50% over 100K.

MattyT said...

The NHS has been paid for since its inception out of the general tax/NI pot. Increasing NI to "invest" more in the NHS has merely resulted in better paid GPs and more managers. Believe me - I speak from bitter personal experience and if NuLab had really made substantive improvements to the NHS I would be the first to applaud. The reality is a word that our kind host will not allow.

Anonymous said...

Doesn't matter who is being taxed in the end, this is still a tax rise to cover Gordon's dangerous borrowing glut, and to attempt to cover up his 10 years of mistakes and waste. Moreover, the amount is so small it's just a sign of things to come for everyone else.

Sunder Katwala said...

- I would support 50% above £250k certainly (or perhaps 49% given the 1% NI above the ceiling), but I don't think there should be a higher marginal rate than 50% anywhere in the income scale. My top priority would be to reduce high marginal rates at the bottom of the income scale, and that is what the Fabian Society has proposed could be done.
- Yr original post seems to suggest this will have a net loss to revenues. Unlikely.

Question about our poll:

YouGov did the polling. It is consistent with a lot of polling over a long period (the British Social Attitudes survey usually shows strong public support for reducing inequality, more public spending). There is strong support for income tax increases for high earners, and opposition to increases lower down the income scale

I don't think anything in this result depends on questioning, as no doubt we will see when the new measure is polled in the days ahead.

The poll asked ...

Would you support/oppose...

Increase the taxes that big companies pay on their profits
Support 79 Oppose 14

Increase income tax from 40% to 50% for people earning more than £100,000 a year
Support 67 Oppose 25

Increase income tax more generally
Support 24 Oppose 68

Increase the rate of inheritance tax
Support 22 Oppose 68

Charles Verrall said...

I don't think this will be much of a votecatcher, whatever the Conservative response: people are more concerned about their own taxes than other people's.

But I did just think of how Brown/Darling could apply an immediate fiscal stimulus, help the poor and grab the headlines. Why not put in an income tax band with a rate of 10%? Clever, eh? Can't imagine why no-one has thought of it before ...

Wrinkled Weasel said...

Newmania said:

"after the election he will stealth tax Mr. and Mrs normal"

You wont have to wait that long. Meanwhile....

Up and down the country, Mr and Mrs Normal are nervous. Some have lost jobs and can no longer put off the inevitable with a piece of plastic.
Mrs Normal is perpetually on edge, Mr Normal is living a life of quiet desperation. His heart sinks when the mail is delivered because he is not sure if he can cope with another demand for payment. They are arguing. The kids have picked it up. There is nowhere left to run. He comes home early from work but he's not going back, and nobody wants to employ a 51 year-old Travel Agency manager.

What's not on his mind is a cut in the rate of VAT, and the prospect of tax rises for those earning over £150,000 can barely raise an ironic smile. His life has imploded. It's never going to be the same.

Come the election, he votes Labour. He has always voted Labour. His dad voted Labour. He cannot bring himself to change. Not now.

Over on the estate live Mr and Miss Scumbag. They are on all the benefits and they have a good social worker who plays the system for them. They'll vote Labour because the other lot will cut their benefits.

Across from them lives Mr Veggie and his partner Mr Vegan. They recycle everything, including all the conversations about how the Tories are really the BNP lite and homophobic fox murderers. They'll be voting Labour because they spend more money on community initiatives.

It's a lot easier for Muhammad and his family of course. A nice local councillor collects his postal vote to save him from having to visit the polling booth.

And the rest? The rest will believe what they are told (change is a bit of a risk in the current economical climate) and give Labour one more chance.

Why not? What have you got to lose?

Mark Thompson said...

Iain. If the Tories squeal loudly about this (assuming it is true) then it will cause them problems.

It will be very easy for Labour to paint them as only trying to look after the rich. After all the money the mega rich have made in the last 15 years, to complain about a small increase in the top rate of tax for the very wealthy (and £150K + per year is unimaginable for most) will look extremely churlish.

Your economic arguments may be correct (although I seem to recall a lot of people claiming they would leave the country if Labour got in and not many actually doing it) but the politics of this is all important and the opposition have to be very careful here.

Everybody is suffering at the moment and the very rich will need to be seen to be doing their bit if yet more resentment at them is not to be fostered.

Kevin James French Music said...

Im a Blairite, horrified but am I yesterday's man?

MattyT said...

The Gen Sec of the Fabian Society said:
"The poll asked ...
Would you support/oppose...

Increase the taxes that big companies pay on their profits
Support 79 Oppose 14"

Was anybody asked for the definition of a big company?

Was anybody asked if they supported the rise in unemployment that would accompany an increase in business taxes?

Was anybody asked anything other than a spurious leading question?

Alex said...

It will be interesting to see how Brown does this. It is easy to reduce a tax at the time of the PBR, but not so easy to increase taxes without a Finance Bill - rember the mess Brown got into the last time he put up fuel duty and air passenger duty in the PBR.

As far as I can remember, the rate of income tax can only be changed either through the full Finance Bill process. Since a change of tax rate for the current year would imply effectively retrospective taxation (not permissible under the ECHR), Brown has a bit of a problem if he wants to increase the rate in FY 2008/9.

John Pickworth said...

Sunder Katwala said...

Re: Polling...
Increase income tax from 40% to 50% for people earning more than £100,000 a year:

Support 67 Oppose 25

This is just opinion polling though, hardly sound economic reasoning.

Also, given that possibly very very few people polled were £100k a year earners; isn't it remarkable that a quarter didn't think it such a good idea?

I'm sorry but if Gordon Brown wants to take more taxes from the rich he should take out his own wallet. He recently levied punitive taxes on those fortunate to build pension pots worth more than £1.5 million but exempted his own £4 million nest egg.

George said...

What goes around comes around. It was only a matter of time before Brown would give in to the extreme far-left elements -- all remnants and fossils of Old Labour.

I doubt, however, that this will save Labour. Labour was only viable in its incarnation of New Labour (i.e., Tony Blair); before that, it had become totally unelectable.

Unknown said...

As a Labour supporter I must admit that I felt the same thing when I read the story in the Grauniad today. Daft move.

JuliaM said...

"..a sum (and a few more like it) that will be needed soon to make the huge interest payments on Gordon's debt..."

So much for 'prudence'...

Old BE said...

It is interesting that despite Labour's protests, the BBC is reporting that today's Budget will be "tax cuts now, tax rises later". Isn't that what Cameron has been warning? Of course once again the thrifty will be paying for the irresponsibility of others but we are used to that in New Britain.

Newmania said...

Those Poll results are unsurprising , there has never been much opposition to taxing at ultra high levels . The reason it has not been done is that it raises no revenue and reduces the wealth of the country.
Given that we all know this is not to do with tax revenue we might be asking what exactly the point of this is. Firstly to present an illusory means of paying back borrowing but there is a more important reasons
Once Brown has established a progressive foothold he will be able to move it down into areas where there is money to be had. He wants to split the tax payers into smaller groups to be picked off one by one

By the way lets not forget that the vast majority of the cash to be paid back has nothing to do with a fiscal push its the inevitable result of a down turn and a ten year Brown spending spree . He will blame all that on “Extraordinary times” as well . They are no more extraordinary than the ‘times’ he told us he was responsible from which lead to them.

not an economist said...

This increase in marginal rates for the rich is a way of saying to the mass of the electorate that yes the borrowing splurge will have to be repaid and that it will subsequently mean that taxes have to be increased, BUT the rich will pay for it. Not Mr and MRs Average Joe but the rich.

I appreciate that the amt that will be raised will be relatively small and ultimately Mr and Mrs Avaerage will ending up footing the bill, but by headlining this increase for higher earners the Labour Party will be able to spin it otherwise. For this reason I dont actually think this is that much of a mistake as others here have suggested. Econimically yes but politcally its a shrewd move in my view.

Keith Joseph used to bang on about how higher marginal tax rates raised little in revenue and that the costs of big govt and redistribution policies always ended up being paid by the middle and working classes. To my mind Cameron and Osborne need to be making exactly the same point in response to this move by Brown. Indeed they dont even have to oppose the principal as that would allow Labour to claim that the Tories are looking out for their rich friends. They just need to emphasise that its largely irrelevant to the nation's current problems as it will raise so little.

Mulligan said...

How incredible that so many among us don't understand the way the tax system works. let me spell it out slowly;


T'was ever thus, years ago they all moved abroad, now they shelter it through any number of completely tax sheltering schemes. Anyone who thinks taxing the rich higher will increase the tax take really should stay in cloud cuckoo land.

Paul Linford said...

Tax Rise Marks the Death of New Labour.

New Labour died in about 2003 when, post-Iraq, post-Kelly, the public realised what a lying toad they had for a Prime Minister. The only reason he was reelected in 2005 was because even that was a preferable alternative to Count Dracula. The time for this tax increase on higher earners is way, way overdue. New Labour's time has been and gone, it's time for Real Labour.

Hacked Off said...

Blatantly copied From another Blog

"Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Because you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33% savings).

The seventh now pay $5 instead of $7 (28% savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. "I only got one dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!" "That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

The numbers are for France, but the point remains the same."

H/T Dominic J

The Penguin

Anonymous said...

As I was leaving for work this morning I heard mention that it equals about 2% of the population and about £1.2bn or £2.1bn in revenue. I can't recall which way around those figures were, but either way I remember thinking that's it's nowhere near the some £12bn borrowed to pay for tax giveaways.

New Labour sums don't add up.

Anonymous said...

I have read elsewhere - in The Spectator blog - that in 2006 the treasury said that a 45% rate would bring in £1.2 billion. In 1997 this would be a significant sum but after 12 years on new labour its peanuts and will be avoided.
It will not even bring that in. The Conservatives can ignore it and pick up on the other massive tax increases we will all have to pay.

This year the deficit is likely to be £100 billion, next year £120+ billion. The year after that? All this must be added up. Just how can the money be repaid, how can the deficit be brought down? Via Growth?

Growth with an economy burdened by govt spending with the banks following sensible not insane lending policies, with no equity to be taken out of homes? Growth with VAT put up to 22.5%.

An infant class could work these sums out.

Matthew Cain said...

Matthew Taylor thinks that voters may even applaud the tax increases:

Weygand said...

This is a gimmick, a smokescreen and a trap.

A gimmick as it will do little to solve the problem.

A smokescreen as it directs focus away from the real issue - how will the public debt be repaid?

A trap, because Gordon wants the Tories on the wrong side of an 'ordinary people v fat cats' argument.

Dave should not make any fuss about the 45p and concentrate on the central point; everybody is going to feel the pain one way or another.

John Pickworth said...

The Penguin said...

"Blatantly copied From another Blog"

And a most excellent copy it twas too.

Personally, I've always kinda liked Sam Seaborn's take on taxing the rich; as delivered on The West Wing (with minor edits for clarity):

... every time your boss got on the stump and said, "It's time for the rich to pay their fair share", I hid under a couch and changed my name. I left my last job making $400,000 a year, which means I paid twenty-seven times the national average in income tax. I paid my fair share, and the fair share of twenty-six other people.

And I'm happy to because that's the only way it's gonna work, and it's in my best interest that everybody be able to go to schools and drive on roads, but I don't get twenty-seven votes on Election Day. The fire department doesn't come to my house twenty-seven times faster and the water doesn't come out of my taps twenty-seven times hotter. The top one percent of wage earners pay for twenty-two percent of this country...

Let's not call them names while they're doing it, is all I'm saying.


Tom said...

Your age of aspiration ended with sub-prime, and the political conditions that made it both a requirement and a vulnerability.