Sunday, 29 August 2010

Tax myths in an imaginary centre-ground

The Spectator's Peter Hoskin doesn't like the idea of extending the 50p top rate of tax to earnings over £100,000 (rather than £150,000) though he rather jumps the gun in suggesting that "it’s fairly probable that this will be official Labour policy in the not-too-distant".

Hoskin suggests that Ed Miliband has joined Ed Balls and Diane Abbott in advocating this policy. In fact, he hasn't, despite that claim erroneously appearing in one New Statesman editorial which the Coffee House blog links. What Ed Miliband has said is that he would make the 50p rate at £150,000 "permanent", rather than temporary, but has yet to go further than that.

But lets imagine Labour did make this part of its deficit reduction plan.

Hoskins' substantive argument continues the tradition of right-of-centre media commentators warning centre-left parties not to desert the centre-ground on higher taxes at the top, when they would do so with only the company of a substantial majority of the voters as consolation.

He writes:

If so, the impetus behind the tax hike will be more presentational than anything else: Labour will sell it as both a way to reduce the deficit and as a "progressive" dividing line with the coalition. But it’s unlikely to work as smoothly as that. For starters, it could rekindle the same internal struggle that we saw when Alistair Darling was drafting his last Budget. And that's before we get onto what it would mean for Labour's appeal among the aspirational middle classes. David Miliband's "broad coalition" this is not.

Of course, every right-of-centre commentator believes this (and David Miliband might well agree with Hoskin about the politics). But would it be impertinent to ask for some evidence? Hoskin is sure that the proposal would send aspirational voters running for the hills, so he must expect to find that it sharply divides opinion across classes, regions, parties and between lower and higher earners?

Which it doesn't.

If a proposal can get 60% support among ABC1 voters, with 21% against, and 63% among C2DE voters, with 13% against, couldn't you more plausibly argue that it has "broad coalition (centre-right commentators excepted)" written all over it.

Indeed, when a 50p tax rate on earnings of £100k+ can generate 57-27% support among Tory voters and 69-13% backing from LibDems, along with 68-11 support among Labour voters, it begins to look like the very model of a modern coalitionist centrism. Support does fall very slightly in London and the South: in both regions, 58% are in favour (with 19-20% against), compared to 62-66% support across the midlands, Scotland and the north. Still, I seem to recall that 58% came out as a much "broader" section of southern opinion than 20% last time I did the maths on that.

Some will believe, like Hoskin, there are important economic, policy or ideological reasons to oppose such a policy - but they should realise that do not have "broad coalition" on their side of the argument.

The 50p on £100k question has not been polled very often: there has been no post-election polling on the question. I am aware of only two YouGov polls, both for the pressure group Compass. An April 2009 poll found 61% supported and 18% disagreed with the statement that "the government should break its 2005 manifesto commitment not to increase any rates of income tax and immediately introduce a new top rate of income tax for those earning above £100,000 a year". (The break figures above come from this poll). The question - with the manifesto pledge mentioned - would be more likely to reduce than increase support.

A November 2009 poll found very similar support (62% against 25% opposition) to a 4-point package including a 50p rate at £100k, higher NI on the top 10% and capital gains, in order to bring back the 10p rate.

My strong hunch is that those 2009 polling numbers probably somewhat understate support for the policy now. At that point, there were important pressures on the public finances - but nothing like the same awareness of the scale of cuts to public services which will be proposed this Autumn. (After all, David Cameron went right through an election campaign in which he said the deficit was the major issue promising that he would cut only "waste" and pretending that he planned to reject any ministerial plan which affected frontline services. Everybody now knows - and the government admits - that this was nonsense).

Public advocacy of the case for 50p on over £100k could also have an impact. For one thing this "we're all in it together" Coalition would not relish a public fight with Labour about tax at the top, with the Conservatives having ducked out of arguments over increases to 45p and then 50p on earnings of £150,000 in opposition. (50p on £100k was LibDem policy for a long-time until dropped by Ming Campbell after the 2005 election).

A cross-class and cross-party pattern of support for higher taxes at the very top is a consistent feature of poll findings on the subject. YouGov polling for the Fabian Society in December 2008 found that the 45% rate on earnings over £150,000 (which the government had proposed) was backed by 76% (45% supporting it strongly). At that time, polling the idea of a 50% rate on earnings over £150,000 was backed by 52% to 28%, with strong support at 29% and strong opposition at 9%. The class and party breaks can be found in this earlier post.

However, when Alastair Darling announced the government's new policy of a 50p rate over £150,000, there was a sharp rise in support for the 50p rate on earnings over £150,000, with 68% support in YouGov's post-budget poll in the Telegraph. (This despite the furious reaction of Tory blogs, arguing that the Tories had to be staunch in opposition this time).


One can exaggerate how far 50p on £100k really ditches so much of the New Labour script. There was considerable internal debate about this policy after 1994 - with Balls advocating it in internal debates in different circumstances back then. (It would hardly have cost Labour the election, any more than Tory and CBI warnings about the minimum wage or windfall tax did), Both Blair and Brown were very keen to close ['down discussion of this issue after 1997, when the Fabian Society, Peter Hain, the Liberal Democrats and others kept it on the agenda.

Today, both Eds Balls and Miliband remain cautious about punitive taxation on those on middle and high incomes - meaning those short of six figures, including if applied to those earning more than 95-97% of us.

All five Labour leadership contenders reject the claim that the party must lose its appeal to aspiration if it was ever to moderately increase any taxes on the top 1-2%. Instead, all now think that must be part of a broad "fairness" approach to deficit reduction. It is a matter as much of the "we're all in this together" symbolism as making the revenues add up.

The leadership policy difference are, substantively, about whether slightly higher taxes on a "fairness and aspiration" ticket best applies to earnings above £100k or £150k, or to assets of £1 million or £2 million. (That is where David Miliband pitches his mansion tax - again challenged by the Standard in similar terms, for a policy which would affect 34,000 Londoners out of 8 million.

A parallel presentational debate is, given that Labour will have some such policies for "tax fairness" in its economic plan, whether these should be pitched as a heartfelt commitment to social justice, or a somewhat reluctant response to tight fiscal circumstances, which would be reversed as resources allow. Since nobody - including the Coalition - is going to be reversing the 50p rate on £150k any time soon, this seems more about mood music and rhetoric than policy decisions.


Ed Miliband made the striking point in his Fabian essay that 50% of voters in Reading West earn £21,000 or less.

The source for this was the fascinating data-sets produced by HMRC - see table 3.15 on this link - on mean and median income and tax by Parliamentary constituency.

Even where average incomes are a good deal higher, the differences between mean and median incomes show how this is driven by the highest salaries at the top. So the mean income in London is £37,400 and the median £21,800; in the south-east outside London, the mean income is £30,900. Even in the City of London and Westminster - where the mean income is right up at £96,100, the median income is £33,800.


It is sometimes claimed that to suggest higher taxes could be compatible with an appeal to aspiration is to unlearn the lessons of New Labour. Certainly, this seemed to be strongly believed by New Labour at the time, and by politicians and commentators since. But the story is more complex if we ask what the public themselves thought at the time.

New Labour attributed its electoral success to its tax pledges, but the public themselves did not. Striking if counter-intuitive evidence was set out by Mark Gill of the pollster MORI, writing for Fabian Review back in 2005, where he set out what the voters thought about New Labour and tax in 1997 and 2001:

As Gill wrote:

The flaw in this argument is that although Tony Blair pledged not to increase income tax rates in 1997, the key voters didn’t believe him anyway: in MORI’s 1997 final pre-election poll for The Times, 63 per cent said they expected that a Labour Government, if elected, would increase income tax, only 3 per cent lower than the 66 per cent who expected a Kinnock Government to do so in 1992.

This point was reinforced at the 2001 election. As early as December 1999, the public was convinced that taxes had risen under Labour: 28 per cent thought that the Government had kept taxes down since it had been elected, while 57 per cent thought it had not. By January 2001, when asked for their ‘thinking about all forms of taxes’, 48 per cent thought taxes had gone up since 1997 ‘for most people’ and 41 per cent that their own personal taxes had risen. Furthermore, few expected a re-elected Labour Government to have a better record of keeping its tax promises: at the end of May, 74 per cent thought that Labour would increase taxes if re-elected, and only 16 per cent thought it would not.

All told, the voters elected Tony Blair with a landslide in 1997, expecting him to increase taxes, and re-elected him in 2001 believing that his Government had done so, and would do so again.

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