Coffee House

Labour’s Valentine’s policy gimmick

14 February 2013

At long last, Ed Miliband delivered us a Valentine’s Day present that everyone in the political world has been waiting for: a new policy! And a tax policy at that!

Not just content with maintaining support for a temporary VAT cut, reversing the Coalition’s tax credit restraint and reversing the 50p tax rate cut (all of which would worsen the deficit), the Labour leader has nailed his colours to a new mast. He wants to bring back the 10p rate of income tax, which his former boss Gordon Brown abolished, paid for by a mansion tax on homes worth £2 million.

Now, there are many observations which can made about this.

First, this is a huge u-turn for Miliband personally. Back in 2008, after the budget where the 10p rate was abolished, he said:

‘When you make a big set of changes in the tax system, some people do lose out. That is a matter of regret. Of course it is. But overall these changes make the tax system fairer.’

Claim your gift

So it seems he has been put under pressure to adopt this policy by the effective campaigning of Tory MP Robert Halfon, who recently organised a Westminster Hall debate on this very issue and has pushed the introduction of the 10p rate on these pages.

Second, either Labour’s numbers don’t add up, or this would lead to an incredibly large mansion tax or an incredibly small 10p tax range. Our research into the Lib Dem mansion tax concept suggested it would raise £1 billion.  Yet we know the reintroduction of the 10p tax rate between £9,440 and £12,500 has been outlined by the Treasury to cost £7 billion in lost revenues. Therefore, calculations suggest either Labour’s policy would lead to a very very small 10p tax rate band, making it little more than a gimmick, or that their mansion tax is going to be very punitive.

Of course, there’s another possibility. Ed Balls’ article in tonight’s Evening Standard says that reintroducing the 10p band would benefit ‘basic rate taxpayers’. But of course, every income taxpayer earning over the personal allowance would benefit from the 10p introduction. Is the hidden detail here that this policy would be paid for in part by dragging even more people into the 40p band?

Third, this 10p policy is driven by the politics more than the economics. As I’ve argued on the CPS blog, the aim of cutting tax for the low paid and improving work incentives at very low incomes can be better achieved by continuing to raise the personal allowance by the same cost. Both Miliband and Halfon want this introduced for political reasons – Ed to give him a policy distinct from the Coalition and Rob to give the Conservatives a tax policy distinct from the Lib Dems. But in economic terms it’s David Laws who is right. Raising the personal allowance is better targeted. Just after the 10p rate was abolished, Robert Chote (of the Office for Budget Responsibility), in his previous role at the Institute for Fiscal Studies said:

‘The 10p band should never have been introduced in the first place. It complicated the income tax system and was poorly targeted on those it was claimed to help.’

Fourth, given the above, I have further concerns over reintroducing the 10p rate rather than raising the personal allowance. Don’t get me wrong, I want lower taxes. But this will make the tax system more complicated unnecessarily and will make it more difficult to achieve consensus for broad based tax cuts or merging income tax or National Insurance. The argument that keeping people contributing something has been lost – we have a personal allowance, and to my mind it is immoral that people earning the minimum wage or less pay any tax in the first place.

Finally, the mansion tax is still a bad idea. It would require revaluing properties, would hit the income poor, equity rich, and the UK already has the highest property tax take of any OECD countries. Oh, and wouldn’t it directly contradict the principle that the Coalition have just introduced through their Dilnot reforms?

All in all, it’s difficult not to conclude that this is a gimmick policy dreamt up on the back of a fag packet.

Ryan Bourne is Head of Economic Research at the Centre for Policy Studies.

Give the perfect gift this Christmas. Buy a subscription for a friend for just £75 and you’ll receive a free gift too. Buy now.

Show comments
  • davebush999

    So the spokesman for IDS’s Centre for Policy Studies doesn’t like this. Excellent reasson to think it is a good idea.

    Does the New Statesman ever have independent commentators?

    • Ryan Bourne

      Erm..CPS isn’t IDS’s think-tank? That’s CSJ.

  • Bob Dixon

    Still making the same mistakes.
    Taxes are claimed by the Government to help pay for government spending. Why not reduce government spending to cover the reduced tax take?

    • Grrr8

      Possibly because the vast majority of the British public don’t seem to want to sign up to a massive reduction in the state? You know that pesky thing called democracy ….

  • Derek

    This is brilliant. Given the troubles we face, clearly the place to start is ending the scandal of the 10% band by extending the current 10% band on savings income to earned income. Although the personal allowance was extended to compensate the losers under the 10 percent farrago now is the time to raise this again. We need more bands to reduce the current complexity of tax system. Then it will be possible to generate untold billions from houses. Finally we might follow the guidance of such luminaries as Bill Nighy and levy a small charge on every financial transaction to allow us to fund free everything for everyone without anyone paying a thing. That would really send the message that the two Eds have grasped the gravity of the current situation.

  • andagain

    Finally, the mansion tax is still a bad idea

    The report that link leads to says no such thing. It states that a mansion tax is a less good idea than it appears to be at first glance, which is not at all the same thing as a bad idea.

    • Tim Reed

      Unless, if at first glance, it appears to be a bad idea.

  • Grrr8

    The notion that the asset rich and income poor need to be protected (vs. the income rich and asset poor) may make sense when assets were created out of savings from earned income or entrepreneurial risk taking. But a rather large chunk of the asset rich income poor’s wealth in this country has come from lucky property speculation. Buying a house is not building a business. These people need to be taxed and should sell or borrow against their houses to pay the tax.

    • HooksLaw

      The word is lucky – its not been deliberate if anything it was engineered by the last labour govt. And who is to say property prices will stay and even if they move then the property they move to will have risen in price in the same proportion.
      Your notion holds no water.

      • Grrr8

        You may want to note the contradiction in your post.

    • Tim Reed

      So – people’s assets should be taxed based on whether or not you approve of the method in which they were accrued?

      Like it or not, property speculation IS a form of entrepreneurial risk.

      • Grrr8

        There is no cap gains tax on primary property as there is for “other risky ventures.” This could be changed (though there are very good reasons not to). Then there would be no need for a mansions tax.
        Sent from my iPad

  • Radford_NG

    Set tax threshold at minimum wage per hour times 40 hours per week times 52 weeks +x% and cut tax credit.The money in the pay packet will go straight-back into the economy supporting jobs and engendering all-kinds of taxes along the way.

  • Tony Quintus

    Funny isn’t it, the Eds try to counter Cameron’s PMQs jibe about their being no economic policy announcements in the speech by including a few “borrowed” ones, don’t do their maths and look even more economically inept when the policies are torn apart on TV.
    One would almost think they were doing it on purpose.

  • Hexhamgeezer

    The Eds’ Rose is red
    With economics’ old hat
    They want tax n’ spend
    ‘Cos it was so successful last time

    • Russell


      The Ed’s Rose is red
      Tax and spend days aren’t dead
      We will promise you plenty
      But leave coffers empty

  • Russell

    Balls has admitted Milibands plans regarding the re-introduction of the 10 pence tax rate would benefit the lowest paid by £2 per week!
    The changes tp the personal tax allowance which come into effect in April will benefit the lowest paid by £11.53 per week.
    It seems maths is not a very strong point with either Balls or Miliband which hopefully the voters in Eastleigh and the electorate as a whole will see through for what it is, the usual labour spinning and hypocrisy as Balls and Miliband were both Browns advisers.

  • Mark Myword

    Balls has already spent the Mansion tax – last March (prior to the budget) he spent it on maintaining tax credits.

    • HooksLaw

      Well done for keeping reminding us.

  • Treasury Whistleblower

    Increasing employee National Insurance Contributions threshold arguably more efficient than either personal allowance increase or 10p rate if aim is cutting tax for the low paid and improving work incentives at very low incomes.

    • Russell

      Getting the personal allowance up to £15,000 per year is a target I think the government should be aiming for, rather than the extra 2.5% from NIC threshold increase.
      It would make sense for people to pay no tax by working for the minimum wage rather than sit on a benefits lifestyle.

      • Colonel Mustard

        Yes, it is the working poor in this country that get the worst deal.

      • HooksLaw

        Agreed – but its being paid for back fiscal drag on the higher paid. Whilst this might make sense in economic difficult times it is a bad idea long term. And I agree with Col. Mustard as well!

  • lee taylor

    It’s a con because millions would see a increase in council tax as a result of revaluation.

    • HooksLaw

      And the 10p band is fundamentally a bad idea.
      If we are to have 3 bands of taxation it only makes sense if it takes a lot of people out of the 40p rate. ie have bands at 15p 25p and 35p.
      This realistically and deliberately means a distinct lowering of the amount notionally raised in income tax and only has meaning if the bands themselves have meaning.

Can't find your Web ID? Click here