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Robert Halfon MP to Andrew Lilico: We need tax cuts for the many, not the few

Halfon in CommonsRobert Halfon is the Member of Parliament for Harlow. Follow Robert on Twitter.

Dear Andrew, 

I read your latest article in the Telegraph with interest. We agree on many things. For example, that a new homes tax would be misguided. You are right to highlight the danger of taxing property, not merely because of the cost of revaluing Council Tax bands, but also because of the precedent that it sets. First they come for homes worth more than £2 million. Then £1 million. Then £500,000 ... ?

However, we disagree about restoring the 10p rate of tax. Like many on the Centre-Right, I believe that the creation of new progressive bands of income tax would be a noble goal for Conservatives. For example, a 10p band introduced above the current personal allowance (say between £9,440 and £12,000) would hand back more than £250 a year to a worker on minimum wage, and would help them to earn much closer to a Living Wage in cash-terms. Conservatives could also look to widen out a 10p band over time. This could help more middle earners as well.

You take a different view. In the Telegraph, your preference is for tax cuts to be focused on raising the personal allowance even higher than £10,000 to “take more people out of tax altogether”. This is where we part company. I believe that having raised the personal tax-free allowance to £10,000, Conservatives should argue in a restoration of the 10p rate instead.

There are some important differences here, and they are worth exploring.

First, your language of your Telegraph article is deliberately misleading. You state that the goal of the campaign is to “raise taxes on the poor”. This is simply wrong, and has led people to an inaccurate conclusion.

As you know, it would be much truer to say, 

“A worker on £10,500 a year would pay a 0p marginal rate IF the personal allowance was raised to £11,000; or they would pay a 10p marginal rate on the last few hundred pounds of their income IF the 10p band was restored between £10,000 and £12,500” 

Fair enough. But, the blindingly obvious point is that in both scenarios a worker would pay less tax than currently. That, surely, should be the headline.

Today, a worker on the minimum wage is paying a marginal rate of 20p in the pound. So, a 10p rate would be a big improvement for them, compared with the status quo. Neither of us are campaigning for higher taxes on the low-paid. This is something that you seem loath to admit. 

Second, your argument is economically purist, but the politics are questionable. Let me turn this question on its head. Is there a level above which the personal allowance should not rise, in your view? Or, are all rises always good? How many workers do you believe should pay income tax? Everyone? Or, is it only those on middle incomes and above? For example, would you prefer to see HMRC raise much more of its revenue from consumption taxes, like fuel duty, which can be deeply regressive? Or, should the income tax base remain broader, so that everyone can feel the weight and burden of a big State? My skepticism about your logic is that - if carried to its conclusion - it would leave us with a larger and larger constituency of people who will not care if income tax is increased, because they do not pay it. This is not some imaginary future problem. It is the actual character, right now, of the public debate raging about “mansion taxes” and “wealth taxes” and the top 50p rate of income tax. Most families do not pay such taxes, and expect never to pay them. Hence, they have little reason to oppose them, whatever the economic evidence is. By advocating a system where we take more and more people out of income tax, you risk accelerating this trend.

Consider Council Tax as an analogy. In your view, is it better if everyone pays something, however little, or should Council Tax be paid only by families who happen to live in medium-sized and large houses? Your logic says the latter. But how might voters behave, if they weren't paying their stamp? You seem intensely relaxed about the political consequences of this question. Nigel Lawson wasn’t relaxed about it, and he can hardly be considered a Socialist. He started off as a Chancellor prioritising tax allowances. But, he changed course. He later said: “I wished to create a large constituency in favour of income-tax reductions. The last thing I wanted to do was to reduce the size of that constituency by taking people out of tax altogether.”

Consider a second analogy. Suppose that you and your friends have have gone out to an expensive restaurant for a large meal, and finally it comes to splitting the bill. Under my proposals, most people would still contribute something, albeit the poorest would pay the least as a share of their income. But your logic dictates that more and more of the table should have a totally free ride, on the grounds that this “avoids complexity”. As a Conservative, this makes me uneasy. What lavish choices will your friends order next time, if they know that Mr Andrew Lilico will be paying the cheque? 

I agree with you entirely that National Insurance contributions remain a drag on low wages. Hopefully, NICs will be reformed as soon as is practicable, since in reality all the money ends up in the same Treasury pot. As you know, I am strongly in favour of raising the personal allowance to £10,000 and welcome what George Osborne has done so far to help with the cost of living, whether this is reducing fuel duty, or freezing Council Tax. But I remain unconvinced by your article, because it sought first to uncharitably discredit the campaign, with a linguistic sleight of hand, and then somewhat ducked the central point of this debate, which Nigel Lawson understood in the 1980s. Namely, that you must bring people with you on the politics, as much as get the economics right.

Tax-cutting is intensely political. It shapes not just our economic behaviour but our voting intention as well. For Conservatives, our political opponents have sought relentlessly in Parliament and the media to imply that the Coalition's tax cuts favour millionaires, even when this has been proved empirically to be false. That is why Conservatives must go the extra mile, to demonstrate why tax-cutting is a moral mission, without removing entirely the incentive to vote for lower taxes overall. As Tony Blair might have said, we need tax cuts for the many, not the few.

Looking forward to your early reply. 

Yours sincerely, 
Robert Halfon MP


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