The Tories have taken a political risk – but they may be forgiven

21st March, 2012 2:48 pm

Nobody really knows what the real impact of the 50p tax rate is. It has behaviour impacts – some tax avoidance, some shifting of working behaviour, some reluctance to move to the UK perhaps. These impacts are almost impossible to measure. Many on the right see cutting it as a pro-growth measure. There’s little evidence for this. Pick your argument and run with it – no-one’s going to provide any killer evidence to refute what you say either way.

We do know that despite £16 billion of earnings being shifted into the previous year for tax avoidance reasons (the rate was 40p in that year and the increase was pre-announced), it raised £1billion in the last tax year. Not to be sniffed at when the deficit is running at almost £130billion.

Nonetheless, with so many uncertainties surrounding the tax, the decision on whether to keep it or not is largely a matter of signaling.

George Osborne wants to send a signal to the wealthy and some leading business leaders. Labour sees its abolition as sending out a message that we’re not all in this together: a 5% tax cut for the wealthy as reward for their use of accounting tricks to avoid tax.

We know what the Tories are about. Ed Miliband exposed their thinking brutally and hilariously in his Budget response. The British public know what the Tories are about. But they’ve sort of made a deal. Let the Tories be the Tories – within limits – as long as they sort out the economy and public finances. This tax cut for the rich may be beyond that tolerance level.

The key line in Miliband’s response came in his Downton Abbey gag at Osborne and Cameron’s expense:

“They think they are born to rule but it turns out that they are not very good at it.”

Ultimately, what will determine whether Osborne gets away with favouring the rich – whatever the arguments for or against – is the last bit of that line. Are the Tories seen to be ‘good at it’ or not? They’ve taken a political risk but they may be forgiven. That is, unless they don’t get on top of the deficit and deliver jobs and growth.

We’re into the battle of the political frames and the outcome is very uncertain.

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