Friday 28 January 2011

Should Boris get a £2000 a month tax cut?

The Daily Telegraph secured an interview in Davos with the newspaper's own columnist Boris Johnson, who also works as the Mayor of London.

Johnson (reasonably) defends Chancellor George Osborne's Klosters skiing holiday at Christmas, but perhaps more pointlessly attacks his fellow Bullingon Club alumnus as a wimp for wearing a crash helmet on the slopes.

His political prescriptions are often rather vague. He wants the government to show a bit of Thatcher and Tebbit - taking on the unions - but rather more Heseltine too, in having a proper plan for growth.

But the headline is that Boris is again calling on George Osborne to set out a plan to cut taxes, in which he seems to be mainly thinking about the 50p rate on earnings over £150,000 for the top 1% of earners.

I understand about 50p tax politically but there has got to be a sense of where we are going and where we want to be as a country.”


At least Johnson tacitly acknowledges that the 50p tax rate is widely seen as fair, especially at a time of fiscal pressures. This point is often missed by commentators whose idea of the "centre-ground" somehow can't accomodate a policy which has strong majoriy support across every party, class and region in the country.

However, those who want to defend the principle of a higher rate at the very top should think harder about how to make the case against what is certain to be a sustained campaign to drop it.

Rather more could be done to make the popular fairness case for the policy in terms which most people intuitively understand.

For example, discussion of the "50p rate" seems to leave some people under the misconception that the highest earners are having half of their income taxed. Rather, more public emphasis should be placed on nobody paying the top rate on the first £12,500 that they earn each month. Citing this monthly figure is probably more effective in capturing how far up the income scale this is, since numbers above 150,000 often just turn into telephone numbers for many people.

There is also a very good opportunity for defenders of a higher top rate to take the Boris Johnson challenge head on.

After all, ditching the 50p rate entails defending the idea that a government which says it can't afford to keep its promise to keep child benefit universal, removing it from households where anybody earns not much over £40,000, should prioritise a £2000 a month tax cut for Boris Johnson.

Johnson is on £140,000 as Mayor of London, and another £250,000 ("chicken feed", he says) for the column, so cutting the 50p rate to 40p would be worth about £24,000 on those two jobs alone. (It would be more if the Mayor's further sources of income such as book reviews, TV appearances and so on were calculated too).

I think it is extremely plausible that Boris would be just as keen on changing the policy for political reasons, even if he did not stand to benefit personally from it. But he is still a fairly typical beneficiary for the purposes of illuminating the public argument about whether or not this tax change should be a priority for government, given the current public finances.

Another point which is not often noticed is how unevenly the gains of the tax cut fall even among the top 1% of earners who would benefit.

Boris is among the 50,000 people in the top 0.1% of earners who earn over £350,000. Average earnings in this group are £750,000 so those in this slice of top earners who are paying income tax might benefit by up to £60,000 each on average. Those who just squeeze into the top 1% over £150,000 would benefit much less from the change. As it would be worth 10p in the pound over the threshold, somebody on just £175,000 would gain just over £200 a month, while Boris would get almost ten times as much benefit from the tax change he advocates.

Despite the popularity of a higher top rate at the very top, the politics are going to be closely contested. Though the idea of ditching the 50p rate has only fairly narrow, minority support around the country, it is very salient for and would be wildly popular with the editors and propreitors of national newspapers, who (despite some current troubles) do retain a certain influence over all of our major parties.

So I suspect George Osborne is working out what size of pre-election war-chest he has to amass from deeper and earlier spending cuts if he is going to be able to hide the £600 million cost of a tax cut for Boris and other top-earners in a broader pre-election giveaway. (Nick Clegg seems pretty confident that he will get to keep what he now calls his "central pledge", an unfunded £11.5 billion a year in further income tax cuts, for example).

So, chin up Boris. Help may be on the way.


Robert said...

Look I sit here thinking back to New labour, who was it that went skiing on the day our troops went to war and said it's my holiday, he refused to come back even when or first soldiers died, after all he deserves a holiday.

I'm sorry this silly nit picking about the Tories does not really work because labour did it themselves.

News From Nowhere said...

No wonder Boris defends Osborne’s holiday. He was boasting about his own “hot tub and luxury” break recently

I’m sure he isn’t campaigning for a tax cut for himself merely for the direct personal financial benefit.

It’s worse that. He is campaigning to ensure that luxury Indian holidays and ski breaks, power, wealth and opportunity are only available to him, his off-spring and the families of the 1% who earn £150k plus.

Robert said...

Well is that not what new labour did, or are you saying Blair made his millions off the sweat of his brow for god sake, of course the right will attack the poor before attacking them selves, we expected labour to be different, sadly it was not.

For god sake do not tell me about the min wage.

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