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politicalbetting.com » Blog Archive » Ed Balls makes the 50 percent tax-rate the GE2015 dividing line
The big announcement in this morning speech from Ed Balls was that a Labour government would reintroduce the 50% tax rate which was reduced to 45% in George Osborne’s March 2012 budget.
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Edit: And yes, voters will probably fall for it. Most people are greedy and stupid.
I think George will be quite happy with that
They would be better off leaving the 45% alone and introducing a 90% rate for anyone earning more than £500,000 per year, effectively introducing a maximum wage.
Better still would be a land value tax to replace council tax, levied on all forms of land at a rate of 1% of the value of the land per year.
Maybe some people dislike 'tax and spend Labour', but I reckon more people dislike the rich these days. Especially amongst the left anger against 'banksters' and so on is still a good source of support.
The problem with the argument is that there isn't really any credible analysis that suggests the Laffer curve peaks at below 50%. David Cameron is smart enough to know this, which is why when interviewed about it he says he thinks the case should be made on a philosophical basis rather than a revenue-maximising one.
"rcs1000 said:
While my views on open borders are well known, I think it's worth taking two minutes to peruse this piece: http://britishinfluence.org/13-reasons-taking-daily-mail-press-complaints-commission/"
Robert I would be very careful about posting lines from the fanatically pro-Eu British Influence.
As I pointed out the other day they are not above stating outright lies on their website to suport their warped view of the world.
In their 'myth-busting' posting a few days ago that TSE linked to they claimed that although we have a balance of trade deficit in goods with the EU, if you include services then we have a balance of trade surplus.
This is an outright lie. Including both goods and services our balance of trade deficit for 2012 (the last year we have Pink Book figures for) stands at £90 billion.
British Influence had already comprehensively lost the argument on trade with the EU before they were even formed which is why they have to resort to lies in the hope no one will actually check their figures.
Much as I think the mail is a rag, British Influence are no better when it comes to the truth.
Not the brightest idea in the world.
This line will go down well, generally, but it's not zero risk.
Labour saying they want to balance the books and run a surplus. Whilst an eyebrow-raising volte-face, they've so far committed to opposing almost every single cut the Coalition has made, and made a tax hike the centrepiece of their newly discovered sense of fiscal responsibility.
In short, they've opposed cuts and proposed tax hikes. You can't vote against a £26,000 cap on benefits, and then turn around and state you're in favour of balancing the books. Will Labour keep cuts A, B and C? What will they reverse?
As for me previously supporting the lib dems, I don't recall doing so, although of the two halves of this coalition the libdems often seem to be the sanest, for example in blocking the no fault dismissal proposals in Beecroft.
As for erecting trade barriers with every country on earth based on their wage rates. I think I said that tariffs **not barriers** should be erected with countries that have median wage rates less than 80% of the UK, and those tariffs should be proporitional to the difference between said countries wage rate and UKs wage rate, which prevents countries undercutting ours by allowing dickensian wages and conditions for their workers, while allowing some flexibility in wages. (hence below 80% not below 100%)
Of course we currently have no sovereignty in this regard as the EU sets tariffs for us. If we left the EU our government would be free to trade on the terms they wish with who they wish. This will no doubt cause wailing and gnashing of teeth among empire loyalists (EU being the empire in question) but once you allow for a fact that a huge proportion of UK trade with the EU is trade with Ireland which we have separate trading agreements with anyway and trade with the rest of the world that leaves via places like Rotterdam so counts as EU trade because it goes via the EU, the picture changes somewhat.
Ah yes, Osbrowne's omnishambles. It rings a bell. Biggest drop in tory polling this parliament.
Luckily most of the PB tories spotted the danger long before Cammie and Osbrowne were made a laughing stock. Only joking! Of course they didn't. They cheered on the omnishambles as Osbrowne's incompetence boosted labour and really kickstarted the kippers rise away from 5%. With soft tory voters self-evidently quite happy to start jumping ship over to Farage.
So that turned out well and had no lasting consequences.
http://upload.wikimedia.org/wikipedia/en/9/96/UK_opinion_polling_2010-2015.png
I wonder if the PB tories will have learned their lesson by now?
LOL
As Paul_mid_Beds says the more radical step would have been to go for the mansion / land value tax, instead of just reversing back to the status quo on an issue it's known the parties disagree on.
Electorates judge economic competence and performance on the overall picture not individual details.
If the economy is growing faster than the UK's competitors; employment is at all time record levels; unemployment falling like a drunken teen after a Friday night of binge drinking; the deficit evaporating; inflation at an optimal level; house prices rising without creating a credit boom; factories in our major industries expanding and exporting; and, above all, real disposable incomes increasing as the recovery matures ...
.. then who will question decisions on tax rate banding?
Especially when official figures demonstrate both that the yield from a lower top rate is higher and that the proportion of overall tax paid by top rate payers has increased rather than decreased under this government.
Balls's top rate announcement is no more a credible economic policy than Miliband's energy price freeze was a credible industrial policy.
Populist empty headed posturing that takes its core electorate for fools.
http://www.bbc.co.uk/news/world-europe-25895263#"
Labour set a giant elephant trap just before they left office, with a sign saying 'Danger, reducing this tax rate will cost you votes." Yet the Tories still went skipping into it. Now politicians may be self-serving hypocrites, but I assumed they were savvy about politics.
If politicians can't do politics, what use are they?
But a land tax on ones home would force people to sell their properties at a knock down price if they find they can no longer afford to pay the tax (for example if they lose their jobs or become ill)
The Treasury interim report on the cost/benefit of a lower rate is positive. At present it is the most reliable analysis available. Chote's concerns relate more to the shifting of taxable income from 2012/13 to 2013/14 to take advantage of the new lower rate and the distortions this imposes on current analysis.
But my post is not about hard figures. It is about soft advantages.
There is definitely indirect evidence of low corporate and personal taxes attracting business to the UK. The most recent example to catch my eye was the decision by Chrysler and Fiat to locate the new headquarters of their merged company in the UK. The new companies shares will be traded on the NYSE and manufacturing will continue to be principally located in the US and Italy but the executives and head office will be here.
And it isn't the weather that caused this global conglomerate to come to our shores! Nor is it historical association with the UK of either party to the merger. It is applicable tax.
Sometimes I really wish the whole of our political class would just drop dead.
Frankly I see it as far more unfair, not to mention bad for labour mobility, to charge people who are moving about more than those staying in one place, when they have the same amount of wealth and are using the same resources. It would also be far more progressive than the current system, as you can see by the graph on page 6 here: http://www.andywightman.com/docs/LVT_england_final.pdf . The change would also encourage people to reallocate our highly limited housing stock to the most efficient uses.
"Soft advantages" ?
If there was a good case for reducing a tax rate for the rich, it needed to be explained better. Start a discussion on the negative implications, get case histories where investment has been stopped because of it, explain that the tax take would be higher and give examples of other countries.
To just do it, and then fumble round for excuses to explain it ... Soft advantages! well, I'm with Mandy Rice Davies on this one.
The Exchequer effect of the 50 per cent additional rate of income tax;
and its core conclusion:
The 50 per cent additional rate of income tax was introduced on 6 April 2010. It was the first increase in the highest rate of tax in the UK for over 30 years, and was expected to yield around £2.5 billion.
..
The conclusion that can be drawn from the Self Assessment data is therefore that the underlying yield from the additional rate is much lower than originally forecast (yielding around £1 billion or less), and that it is quite possible that it could be negative.
...
The report also describes how the impact of introducing the additional rate may extend well beyond the direct Exchequer impacts. In particular, other things equal, high tax rates in the UK make its tax system less competitive and make it a less attractive place to start, finance and grow a business. The longer the additional rate remains in place the more people are likely to consider it a permanent feature of the UK tax system and the more damaging it would be for competitiveness. This suggests the negative impact on GDP may increase over time, and therefore the direct yield (and revenues from other tax bases) might fall over time toward or beyond zero.
The 2012 eport was based on a single year of data and it was accepted that the behavioural impact of taxpayers shifting taxable income to avoid the higher rates distorted the source figures, but it is as good as we've got on the experience to date.
Er no. Free trade, free movement of labour and freedom to live in either country for each others citizens were included in the treaties which set up the Free State. That is why you can live and work in Ireland (and vice versa) including the right to vote in each others general elections if you live there (which EU citizens cannot do). To all intents and purpose UK and RoI citizens have honorary citizenship of each others countries. This was done quite deliberately in 1922 as neither side wanted the equivalent of the Inner German Border.
Any trade barriers between RoI and the UK would bankrupt RoI overnight, considerably damage the NI economy and probably reignite the "troubles".
How should the Conservatives respond? By pouring scorn on the viability of Labour's plans. Airy commitments to run a surplus in an undefined timescale (after having berated the current Government for having gone "too far, too fast") will not seem credible. This pledge will be popular but won't be seen by many as the solution to the country's deficit. The public will like the pledge, but doubt its substance. The Conservatives should proceed accordingly.
The interesting question is how the Lib Dems should respond.
"Because they genuinely believed it was the right thing to do?"
That's the last thing anyway would accuse a politician of doing.
The next election is class war. Where some of you make the mistake is that you think along old class lines in terms of middle class vs working class. No, the battle is along even older class lines - the bourgeoisie vs the proles, the 99% vs the 1%, the 85 vs half the world. That the 30 year free market (by which we do of course mean rigged market) experiment has been rumbled as the mass wealth transfer upwards is exactly the point.
Party funding is fair game apparently, judging from Cameron's McClusky tourettes problem. Labour funding from teachers and nurses and factory workers vs Tories funding from off shore hedge fund asset strippers - is that really the debate the Tories want to have with people generally hacked off at their lot?
I may be being unfair on politicians; there are the odd one or two who may have the country at heart, but Osborne wouldn't top anyone's list.
There was a trade war between Ireland and the UK after independence. It's not really practical to have free trade with part of a free trade zone, is it? Think about it.
On 50p, OBR signed off HMRC report showing wouldn't raise much. Lab implicitly rejecting this - yet want same OBR to audit policy costs!
The bull from our political parties makes me sick.
The next election will be simple:
Success vs. Failure
Delivery vs. Promise
Workers vs. Shirkers
Tax cuts vs. Benefits
We do need a follow up study from the Treasury based on more than one year of experience.
Until then the interim report's conclusions will have to stand.
Talk of equity is ludicrous as it does not help you pay a tax unless you are forced to move to find the money. Remortgaging would also have large costs associated.
A tax set at a level that was affordable for someone living in London (average house price just over £500,000) would not raise enough money nationally to compensate for the replacement of council tax.
And why should someone in London or the South East pay 2, 3 or 5 times more for their local services than someone getting the same level of services in Nottingham or Doncaster?
Perhaps you include a mechanism whereby the rate it only reset when there is a substantial improvement to the property and/or it is sold, thereby addressing the 'widows' problem. Provided that the funds raised are used to reduce more damaging taxes - I would eliminate stamp duty/council tax to avoid double taxation*, then focus on employer NICs and some off fuel duty (perhaps something on personal allowance as well). [Based on Savills estimate from February 2013 that the total housing stock is £5trn we are talking about £50bn p.a.]
Assuming the average residential property is around £165,000 (Nov 13, Land Registry) then the average owner will pay £1,650. Wikipedia says the average council tax is £1,200 so it should be possible to afford an increase to the personal allowance to offset this additional expense.
* In practice I would just eliminate the cost-loading of nationally mandated programmes on the council tax. Consequently, anything that councils want to spend over and above what they have to do they should raise locally.
There are plenty of us who don't believe in Socialism (ie an all powerful state telling us how we run our lives). But that dosen't mean we approve the state to be captured by a self serving parasitical managerial and rentier class who exploit the rest of us by rigging the system so that they get paid six and seven figure sums while most people struggle to heat their homes and said rentiers monopolise most of the land, so that the rest of us have to pay them large sums in rent for the privilege of living.
The latest wheeze being to make just about any sort of work that pays much more than the minimum wage require a degree, in many cases wholly unneccesarily (eg. in the case of things like Nursing) and then introduce £9k a year tuition fees; ensuring that people either subsist for their whole lives hand to mouth on a minimum wage or start their career with a £50k debt, except of course the offspring of said managerial/rentier class who can pay said fees for their offspring and ensure their offsping upon graduation get the best jobs by funding unpaid internships which anyone else cannot afford because they need money to eat and have a roof over their head.
Not content with financially lording it over us, this managerial and rentier class is also now trying to impose their moral and social values on the rest of us. To quote CD13 "All three main parties have embraced what seems to be the modern ethos - the green agenda, unlimited immigration, adapt or die, everyone has rights but no one has responsibility for their actions. Anyone who differs is to be insulted." - to which I would add, especially Christians.
THAT is why UKIP are doing so well. And to those who hold their hands up in horror at the prospect, I would say better UKIP than Maximilien François Marie Isidore de Robespierre or Vladimir Ilyich Ulyanov.
1. Osborne didn't understand the political cost
2. He understood the political cost but did it anyway because:
(a) he is a sleeper Labour agent
(b) he did it solely to benefit his friends in hedge funds/the City
(c) he did it because he genuinely believed it was the best thing for the country
Ignoring 1 and 2(a),I think 2(c) is the most likely reason. Feel free to suggest another.
Big Bucks, your move. Mind you will she go for the world or the champion ?
Success vs failure. People working hard to see their standard of living slide backwards, whilst the banks get billion pound bonus pots from taxpayers money to reward their own failure.
Delivery vs promise. A promise that we're all in this together. A promise to cut the national debt through austerity. And the delivery on those.
Workers vs shirkers. The basic reality that most benefits are paid to people in work to subsidise low wages that haven't kept up with real inflation, that most housing benefit goes to people with jobs who can't afford the rent, these things will come out as truth always does. Vs the non Dom tax avoiding highnprofit but no contribution to society mob funding/owning the Tories.
Cuts vs benefits. Or for most people both. Cuts of benefits, the explosion in food bank use and kids going to school hungry. The collapse of civic society where councils cannot longer afford the basic functions that make us a society. All to fund an explosion in national debt for the benefit of the very very few.
I know that in Tory world we are all better off and everything is fine because Oik is a genius. But in the real world people are scared and angry. UK get this and have managed to tap anger from across the political spectrum. Labour are broadening their engagement across the so-called middle class by pointing out that they are no better off in substance than anyone below them.
As I said, I think people might like to separate themselves off as superior to those they see as beneath them, but threaten their standard of living and they don't like it. If we really were all in this together - if big business and big capital were also suffering then just maybe they might have bought the Tory message. But as they aren't its clear that "all" = "you lot". We are all in this together. And if the Tories have managed to get on the 1% side of the fence then no wonder Farage terrifies them.
I'm not talking about replacing council taxes. Local authorities can decide what to do with their own rates. I'm talking about a national tax instead of stamp duty.
Your second paragraph also counteracts itself. You say equity only matters if you sell, but then mention the possibility of remortgaging. It would have some costs associated with remortgaging (allthough they're not that high). And again, it really wouldn't be needed except for in a small minority of cases. Frankly, if you can't afford a few hundred quid (the cost for someone in a £500k home), then nine times out of ten you've recklessly overleveraged. I suppose you can come up with some sort of extreme set of circumstances - owner-occupiers in SE England, have recently bought so do not have the equity to remortgage, have just lost their jobs and have no savings whatsoever, are unable to rent out their property and rent somewhere smaller, and can't recover in an 18-month period - where you might need to sell, but national policy can't be set on a dozen cases when there are millions that would be helped. I certainly haven't known you oppose restrictive benefit changes in the past based on such a thing.
As a note, the average house price in London maybe £500k, but that's certainly not the price for the average household. Half of the capital does not own property at all, due to the concentration of property of a few, and most of the rest lives in places a fair bit less than £500k - the average is dragged up by the very wealthy.
As for why someone in London should pay more, it's not because it's marked for local services - as mentioned, it would be a national tax. It's because us London property-owners are a lot wealthier on the whole than people in Nottingham and Doncaster and are benefitting from appreciation on very valuable but scarce assets..
For the record, the 75% doesn't apply to individuals I believe, although I'm not entirely clued in on how they sorted it in the end.
In the latest EFO he had to concede:
The largest source of labour income is wages and salaries, which are determined by employment and earnings. Total wages and salaries are expected to be around £13 billion higher in 2013-14 than we forecast in March, mainly reflecting data revisions and the scale of income shifted between years to benefit from the reduction in the additional rate of income tax to 45p.
His final conclusion is almost written in Irish English:
As a result, the upward revision to wages and salaries falls to around £8 billion by 2017-18.
The real deal I think.
The economy is a complex system, and modelling even small changes becomes difficult when human nature gets involved. For instance: an imagined increase to 60% might bring in more income if sold as "look, we're in a really difficult hole, and we need to sort the mess out temporarily" than if sold as "we hate the rich and we'll squeeze you until the pips squeak." The latter would frighten people, and force them into more creative ways of avoiding tax.
Because no-one can give a definitive answer, political instinct kicks in.
So predictable.
Personally I think of myself as a democratic socialist but I also have a career where I try and maximise profits for my employer who happen to pay thew workforce well, invest heavily and expands our exports. I am not any profit or anti-capitalism, but recognise that the model used over the last three decades has broken utterly.
In business either you pay your workers enough to pay for the products you sell or you go out of business - a basic premise of capitalism. That working people can't afford to feed themselves or rent a house and heat it and get to work without vast state subsidy proves a broken system, but the solution is not cut benefits and pay people even less - presumably filling the hole with more credit. We need to pay more and the money can only come from the very top because that's where its all gone.
To my free market friends - if you cut benefits hard and keep wages down and allow rents and bills to soar, who will have the money to buy things off you and thus enrich you? Remember that the nation's credit card has been cut up, and although Oik said in his 2010 budget that personal debt would explode to pay for it, the banks are still broke so we couldn't borrow the cash if we wanted to.
A simple question - if people don't have the money to pay for it and you can't lend them the money any more and you won't cut prices or increase wages, how do you propose the system works?
So far as Balls is concerned presumably the 50p tax rate is going to replace the banker's bonus tax as the way of funding every promise that Labour makes. On that basis your debate with Neil is considerably more than academic. It would be very helpful if Andrew Neill or some other numerate interviewer (there must be another one somewhere) was asking Balls what hospitals he was going to close to fund his spite tax.
So Labour would have four tax bands? 10%, 20%, 40% and 50%. Is that right?
(EDIT: Well, income tax. NI messes the system up, giving people in the middle a much higher marginal rate.)
How welcome is it for them?
My point to Neil was that Chote was predicting a fall in tax yields from wages and salaries after an initial spurt of additional tax was raised in April-May 2013 from bonuses and income deferred from 2012/13 to take advantage of the new 45% rate.
This prediction did stand for the first six months of this fiscal year but tax yields from income have since grown, requiring Chote to revise his year end forecast substantially. Chote is still clinging to his view that the change in rates will depress Self Assessment receipts due in January 2014, so we will have to wait until next month's PSF bulletin to see whether he is right.
The figures are not conclusive proof that the lower rate has resulted in an increased yield as they do not separate receipts into the income tax bands. But unless the top band's overall contribution to tax has fallen dramatically in percentage terms, it is safe to assume that the yield from top rate tax payers will be higher under a 45% rate than it was under 50%.
Some of this will of course just be due to the economy and, employment in particular, recovering at a faster rate than predicted in Spring 2013, but wasn't that part of the point of lowering the tax rate in the first place?
Until further reliable evidence is submitted to the contrary, a higher overall yield from 45% than from 50% is proof, even from the OBR, in favour in lowering the rate.
Even more impressive: I was chatting to a friend of mine a couple of weeks ago. He got a letter at the end of November from the French government (he lives in Paris).
Essentially said:
- You have been assessed as 1 of 3,000 people in France who being asked to make a voluntary contribution to the Treasury
- You will be informed about the level of this contribution within the next 10 days.
- If you do not make this contribution within 10 days following this letter, it will be deemed to be a criminal action on your part
That might work. I'm sure that promising to put the tax rate back up to 50% will be popular (raising other peoples' taxes is always popular).
But left-wing populism runs the risk of reinforcing the negative perception of Labour, that it's a party for immigrants and benefit claimants. Which is as damaging for Labour as the Conservatives' association with rich people is for the Conservatives.
The question is whether that's sufficient for the Conservatives to win the next election, or whether the voters will just say "Thank you and goodbye."
In fact we don't. We have a small number of higher earners who received a significant amount of deferred bonuses (as shown in your Chote quote) and the majority whose earnings were growing much more slowly than the overall average. It amazes me that Labour do not seem to have been numerate enough to point this out. It does not bode well for the likely next government.
That's a pretty whopping increase and will make their cost of living crisis very very much worse.
He's deemed to be a criminal if he fails to make a "voluntary" contribution.
I am beginning to suspect that they are not new stats but more a recent analysis of old stats: particularly the RHDI stats released by the ONS in their annual economic reviews.
There will have been a distortion in disposable income between the first and second quarter of the 2013 calendar year caused by deferral of bonuses and income into the new fiscal year, but this distortion would be averaged out by looking at trends across a couple of years.
Do you have a source for the 'Treasury Analysis' from which the press states the Tory claims are derived?
Just because it was a bad policy to increase the rate in the first place, it doesn't then mean it would be a good one to then reverse it.
Say the number of victims of the grooming gangs during Lab's time in office was around 6000 or so that would be 6000 families - mostly broken ones as well - so not many people in total.
However how many people who live or once lived in those areas saw the media and political class covering it up?
Lots.
It's a useful dividing line - I don't think anyone would claim it solves the revenue issue all by itself. We're now leaving the mid-term period and entering the pre-election phase, which will probably last till the party conferences. Pre-elections are marked by eye-catching things that aren't especially central to the argument - Osborne saying he wouldn't object to a higher minimum wage was another one. Therre will be more to come from both sides.