Thursday, 15 May 2008

An expensive gimmick

One of Gordon Brown’s earliest acts as Chancellor was the introduction of the 10p tax rate. I thought that it was a bit of a gimmick at the time, but it wasn’t one that was easy to disagree with, since it unquestionably benefited the lowest earners. His supporters, of course, thought that it was a master stroke, and I can see why.

I’m sure that I remember talk of eventually widening the band over time so that it would benefit more people, although my memory may be failing me on that score. The one thing that I’m certain was not said is that it was intended to be only a temporary measure.

And that is part of the problem inherent in New Labour, it seems to me. The target group to which they want to appeal changes over time, so their policies have to change with it. In some aspects of policy, that may be inevitable, but is it really a good idea to be playing with the tax system on such a political basis?

They introduced the 10p band because they wanted to appeal to the lower paid and demonstrate their commitment to fairness; they abolished it in order to be able to appeal to a different group by re-jigging the tax system to give more assistance to the ‘people in the middle’. Re-focussing the appeal is one thing; the real problem was that the change was to be paid for by taking money away from the previous target group. Yesterday’s beneficiary - today’s loser; a neat summary of the results of government by focus group.

The outcry which resulted was surprising only in that it took so long for people to realise the impact of the decision; a climb down of some sort was then inevitable. The problem was in deciding what to do next. Simply taking the cash away from the new beneficiaries to give it back to the old ones would only create more problems for them politically, so they've come up with a very costly fudge.

What is now proposed returns some of the money to some of the losers – and in the process gives even more to most of those who were winners anyway. It looks like a panic measure – and it will cost about four times as much as simply directly compensating the real losers. It leaves a £2.7 billion hole in the budget and the government’s reputation for financial management in tatters. And whilst it may have quietened the revolt on Labour’s back benchers, there’s no real sign that it has undone the wider negative political impact.

Politically, it gave the Tories an open goal, which they cynically (and completely dishonestly, given their refusal to commit to re-introducing the 10p rate) exploited for all it was worth by presenting themselves – incredibly, given their history – as the party of the low paid! How on earth can what the Labour party used to be have got itself into a situation where they make the Tories look like the champions of the poor?

All in all, the 10p tax rate looks like one of the most expensive political gimmicks in history – and the political cost could turn out to be even higher than the financial cost.

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