The tax changes - and some new proposals
 

Hi all –

In the first point this week, I wanted to discuss the recent tax
changes (the 2p standard rate cut, the abolition of the 10p rate, and
other things) and some changes that I'm proposing. As usual I'll
explain the case for what the Government is doing, explain what I
disagree with, and invite comment. Health warning: in the second
point, I've got some partisan notes (including a rebuttal of an
entertaining claim in a current Conservative leaflet).

Before I start, a quick update on the "Does British science have a
future – and should you recommend a science career to your children?"
eat'n'debate event is at the Cottage Balti, 116 Chilwell Road,
Beeston NG9 1ES (near the Hop Pole) 12:30 to 2:30 Sunday 20 April.
Professor Poliakoff will be introducing the discussion and I'll be
there too. £20 gets you all the food you can eat and all the debate
you could want (£10 if you're not currently earning). Places are
going fast for this one – please let me know if you would like to
come.

1. The tax changes and what I'm arguing for

Several of you have recently criticised the abolition of the 10p tax
rate, and there's a lot in what you say - it's an issue that I've
been pursuing for over a year since it was first announced. I raised
it with Alastair Darling before the Budget to argue for compensation -
at that stage I was I think almost the only MP who did, though there
are lots of people raising it now.

It was, of course, a Labour innovation in the first place (even
though it had few friends when introduced – it was said to be
insignificant and adding complexity to the system), so I'm
particularly sad to lose it. Most people affected are being
compensated - everyone over 65 had their personal allowances lifted,
parents had substantial rises in child benefit and tax credits. There
is only a specific range of people who are affected: those who (a)
earn enough to pay tax (b) don't earn enough to gain from the
standard rate reduction and (c) are neither over 65 nor parents. But
this includes two important groups who are in no way well off: single
people on lowish wages, and early retirees. The only honest answer I
can give is that overall people in the 10K-20K range have done well
under Labour (mainly because of working tax credit, and from the 10p
rate while it lasted), and I'm just sorry that we took a step
backwards for them this time.

I would add, though, that I think it was reasonable to try to help
people in the low to middle-income range through the 2p tax cut in
standard rate (a further change to the NI threshold has meant that
high-income people didn't benefit, but if you're on high income and
vote Labour, it won't be in order to get tax cuts for yourself). A
fairly standard accusation against the government has been that we've
been helpful to people on low salaries but haven't done much for
people who are not rich but not really poor either. The reduction
also counters the widespread perception that it doesn't pay to get
promoted or to save, because you just lose benefits and pay more in
tax. Relatively few people are on low pay forever, and it's a
dispiriting experience if you find that your promotion hasn't
actually done you much good. And a change that hasn't been widely
remarked is that the very large rise in personal allowances over 65
is going to make most people who have saved up for a second pension
significantly better off.

What I'd have liked to see would have been a 1p cut in basic rate and
no abolition of the 10p rate - that would have helped a wide spectrum
without hurting anyone. The problem in 'fixing' it in the latest
Budget was that the 2p cut had already been announced, and simply
reversing the 10p abolition would cost £7 billion and isn't really
affordable in the current economic climate. I don't think the egg can
sensibly be unscrambled with last-minute changes in the current
budget process but I'm continuing to press for help for this group
(now with many more allies!) and I hope to see progress in the
November pre-Budget Report - it clearly has belatedly been accepted
as a major problem. My personal preference would be for a higher
personal allowance with a higher upper threshold for NI payments
(benefiting everyone up to middle income but making the wealthy pay
their share of NI).

One point that several people have raised is why we keep focusing on
child poverty – doesn't it encourage people to have kids before they
should, and aren't other kinds of poverty just as important? The
answer to the first point is that it's seriously bonkers to have all
the upheaval and cost of having children just to get the relatively
limited benefits that are available (it used to be true that you
could get a council house that way, but it's far from true now). The
answer to the second is that child poverty seems to have a major
impact both on health and behaviour later on, so if we are able to
eliminate it we will be really reducing problems 10-15 years from
now. But I think there's a case for making some of the benefits in
voucher form (for food, clothing, toys, etc.) to ensure they're
actually spent for the kids.

As always, your feedback is welcome. If you'd like to explore the
broader impact of all this in detail, there a good paper that focuses
on poverty here, even though it's a couple of years old:

http://www.hm- treasury. gov.uk./media/ 3/3/bud05_ taxcredits_ 500.pdf

- see in particular chart 3.1 on page 21, which shows how taxes
and benefits affect you as you move up in income.

2. Partisan notes

For new readers: while I try to keep my newsletters generally free of
party political argument, I sometimes need to respond to criticism
from Conservatives. I corral that into this separate `partisan notes'
section, so those who aren't bothered can skip it.

As most of you know, we are a Tory target seat, so Lord Ashcroft and
others have financed a campaign in Broxtowe that will cost in excess
of £125,000 – over six times the legal spending limit in an election.
Since that would be illegal in the campaign itself, you'll be getting
lots of full-colour Tory leaflets over the next year, and one went
out this weekend. I can't remotely compete with that, and the
professionals on both sides are looking with interest at Broxtowe and
similar seats to see whether money can buy political success.

The current one contains several factual errors. In particular, it
bizarrely claims I've "refused to meet Government Ministers"
who "plan to build" on Green Belt land. I'm not convinced that even
Tories have a vision of me being pestered by Ministers to discuss
housing projects and telling them "just go away!", but for the
record:

(1) I've discussed the projection of housing need both with
Ministers and their advisers, and the figures are simply demographic
extrapolations of current social trends (living longer, nearer
cities, in more divided family units, adding up to the need for more,
smaller, suburban homes). It no more makes sense to demand that
Ministers come up with nicer figures than to demand that they order
the Met Office to produce better weather forecasts.

(2) Whatever the total number needed – and not even the
Conservatives deny that there is a shortage – the key question is
exactly *where* they're built. That is not a matter of Government
planning (with the partial exception of the possible Rushcliffe eco-
town) but of decision-making for each individual site. My main
criticism of the Conservatives is that even where they have
councillors they were slow to inform people on the issue and they
continue to treat it as a party political football – they've shown no
interest whatever in talking to the local body that is actually about
to make recommendations on the issue.

I'd also make a similar general comment on the leaflet. Virtually
*every* section except the candidate's "celebrity breast" painting
comes down to "why your Labour MP and the LibDem-led council are
rubbish". I have to say that in most constituencies people would
recognise this as business as usual – where party A holds the seat,
party B's leaflets are all about slagging them off, while the
incumbents hit back by saying it was much worse under the previous
lot.

It's not something I've ever done much of, and nor did my Tory
predecessor, Jim Lester. Our approach has been that if we try to
explain the national issues in a balanced way and do our best for the
constituency, it'll do more good and encourage people to vote for us
more than if we rant incessantly about rival parties: it lasted Jim
for 23 years and I've done it for 11 so far. Ms Soubry would clearly
do it differently, and it'll be one of the choices you have when the
election comes round.

Best wishes

Nick