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Coffee House

How the Conservatives should respond to Ed Balls’ 50p tax pledge

27 January 2014

9:00 AM

27 January 2014

9:00 AM

This weekend Ed Balls made it clear he wants to tax Britain more.It won’t stop at 50%, and it wont be confined to the highest earners over 150,000. In that sense low tax Comservatives have much to thank Ed Balls for as he really has set out clear blue water between Labour and the Conservatives for the next election.

Nevertheless, let’s not celebrate too quickly. Labour will know, and as Ed Balls all but acknowledged on the Marr show this weekend, that this tax commitment is little to do with economic policy and more to do with their own electoral strategy. A 50% top rate of income tax will raise little extra money if any at all. The HMRC calculates that at best 100 million, at worse it produced a negative effect on tax receipts. So why do it?

Simple.

Labour only need 35% share of the popular vote to win a majority, and appealing to a left wing sense of perverse morality by fleecing the high earners is a pretty good way to shore that vote up. Throw in some ‘posh boy’ narrative and a promise to be ‘fair’ should neatly seal the deal.

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The two Eds have lost the argument on the economy as they relied on their own forecasts of ever increasing unemployment and zero growth to catapult them back into Downing Street, and it now looks credible that economic growth may will translate into a  positive noticeable impact on households thereby undermining Labour’s  more recent cost of living campaigns.

But dealing with the politics of envy that underlines the 50% tax rate promise may prove a difficult challenge for the Conservatives to deal with. In fact I believe many people will ultimately reject Labour’s approach, yet the danger remains because only a small proportion of the public, 6% of them to be precise, need to agree with it, in order for Labour to increase their share of the vote from 2010’s 29% to a majority winning 35%

The Conservatives counter attack should however be to appeal to the mainstream aspirational voter and not fret too much about the politics advocated by Balls and Milliband. Since in reality much of the remainder of this parliament will be focussing on setting out policies for a new Conservative government surely it’s time to make both the moral and the economic case for lower taxation.

And where better to start than with the middle income earners who are instinctively striving to improve their lot and yet bearing a considerable price for the failed debt ridden policies of the last Labour government. What better means to do that than to make it clear we want to increase the threshold where employees pay 40% tax. Let’s face it: paying 40 pence to the government of every pound earned over the present threshold £41,450 is at best demoralising at worst de-motivating and kills ambition and aspiration.

This tax rate when conceived was for the relatively well off. Yet my constituents who do earn that sum of £41,450 are far from ‘well off’. Mortgage or rent, season ticket, council tax, household bills, car, insurance leave little for luxuries one would normally have associated with the well off. Indeed the net income after tax and National Insurance is £30,000: just £4,000 above the household welfare cap of £26,000 a year.

There will be those that believe it is fairer to take more of out tax altogether as we have done by increasing the threshold before paying tax to £10,000 a year. I agree this was a welcome sound move. Yet little political benefit has subsequently materialised and it says little about aspiration and reward for those that want to get on. It’s time to shape that argument about how Conservatives will do just that.

Let’s leave envy to Labour’s message and keep aspiration coming from the Conservatives.

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