Conservative Diary

« The Mail remains lukewarm in its support of the Conservatives but The Times appears ready to endorse Cameron | Main | The black hole in the Liberal Democrats' manifesto »

The Tory manifesto, the 50p tax rate and the simplification of the tax system

Some people say that George Osborne is useless on the 50p tax rate.  They say: why won't he give a clear commitment to scrap it - and in his first budget, too?

If they read the manifesto, they might be pleasantly surprised.  (I've been steadily poring through since yesterday: you can never be sure what you'll find in the detail - and won't find, in one or two cases.)

Certainly, the 50p rate won't go in the first budget:

"We will not abolish it for the rich while at the same time asking many of our public sector workers to accept a pay freeze", the manifesto says.

But it also contains the golden words:

"We do not regard the 50p tax rate as a permanent feature of the tax system."

It's of course possible that a Conservative Government will be elected with a clear majority, govern for four years, leave the 50p rate in place, and say in 2014: "Well, we've always made it clear that we don't regard the 50p tax rate as a permanent feature of the system.  And that's our view going forward into a second term."

But I doubt it.  It's telling that the 50p rate is mentioned at all - the manifesto could have ducked the issue, just - and significant that it's referred to in the same section as prospective tax cuts: the raising of the inheritance tax threshold to £1 million, the raising of the stamp duty threshold to £250,000, the partially transferable personal allowance for married couples and civic partners, and so on.

A fair assessment would be that Osborne is paving the way to scrap the 50p rate during the middle-to-late years of a first Conservative term - when a pay freeze is no longer in place, and at roughly the same time as those other tax pledges are honoured.

This is just as well, because the tax system mustn't be permanently burdened by new disincentives to earn, make money and accumulate wealth.

Thatcher and Lawson were committed simplifiers of the system.  Simplification is also Osborne's ambition - which is why one of his first moves as Shadow Chancellor was to set up a commission under Michael Forsyth to look into "simpler, fairer and flatter taxes".  Those words aren't in the manifesto: they've been driven out by the post-crash focus on deficit reduction.

Indeed, a few proposals will actually make the system more complex.  Take the transferable allowance, for example.  It will be limited to basic rate taxpayers.  Or the NIC cut: it won't apply to those earning £35,000 or more.  The public sector pay freeze will exclude the million lowest paid workers.  (David Cameron chose the Guardian last week to announce that no public sector should earn more than 20 times more than the lowest paid person in the same organisation.)

I understand the politics.  Labour are on their knees praying for Osborne to "hand out wads of cash to his rich friends" (as Balls & Co would doubtless put out).  The Shadow Chancellor is determined to ensure that they stay there.

This is why the manifesto announces - on the transferable allowance, for example: "This is a progressive tax measure, with two thirds of the benefits going to families in the lower half of the income distribution.  The biggest gains as a percentage of income go to households in the third decile of the income distribution."  Osborne is closing off Balls' line of attack.

But in government, once the deficit is under control and tax cuts on the menu, the Treasury must get back to simpler, fairer, flatter taxes.  As it will surely do in the case of the 50p rate.

Paul Goodman


You must be logged in using Intense Debate, Wordpress, Twitter or Facebook to comment.